Preliminary Note

It is very important to understand the distinction between principal and agent. It helps to understand how much skin one has in the game when it comes to consistently providing value to customers through their products and services. 

The concept of Principal vs Agent is also seen from the lens of accounting. From such lens, one can report the full amount of revenue (as Principal) flowing through books as compared to reporting net commission amount as revenue (as Agent). In our opinion, this is misused or rather abused by a lot of internet based new age companies to be able to show large revenue base. This so happens because in the early stages of a venture the valuations are sometimes determined as "multiples of revenues". 

In the world where there is a relatively greater emphasis on chasing valuations, the propensity to report revenues as principal is more than as compared to a world where net positive value for end users of products and services is created. 

We find it problematic that a lot of internet aggregator ventures are allowed to report their revenues as Principal just for the purpose of Valuations. It is important to understand for an entrepreneur, net positive value (long term bottomline) should matter more than mere valuations. Why does this race of valuations come into picture? We will discuss it the section where we elaborate on unit of value. 

Let us discuss some cases where the role of Principal vs agent becomes important.