Saw this and thought it was interesting in how much a landscape can change in roughly 1 year. Again when you think about how much of the world can change and adapt in the course of 1 year things don't seem so drastic. This was a great excerpt that is helpful for viewing valuations, growth, and business models in the tech space in 2022 and beyond.
"Investors are moving away from "growth at any cost" towards "growth at a reasonable cost"... Of course, it also depends what stage you're at.
Bootstrapping a company until you get closer to the $20 million a year in recurring revenue and then look to take on private equity partners or outside funding. If you can target a goal where you end the year with zero profit and maximize growth to that point. If you can show 5% cash EBIDTA and roughly 30% year over year growth.
The big question to ask while on the journey is how much quicker can you grow with additional capital and leverage? If the answer is not astronomical it may be better especially with depressed valuations at the moment to grow smart and not raise outside funding. Of course this all reflects on the total addressable market size for your enterprise.
VC's at the end of the day though prize growth and that is valued much more than profitability with the caveat that you can turn the switch (think Amazon's ability to grow and switch to profitability when they want) and there needs to be "levers in place where you can relatively easily slow growth and increase profitability .
For example, a company which is growing at 40% with zero profit whose Customer Acquisition Cost to Average Sales Price ratio is off the charts (high) would likely not be seen nearly as favorably as one whose metrics are more reasonable... after all, if you were to spend $100k to acquire a new client who pays $20k per year... even with high retention.
If your growth has slowed down and your company is flat but you've maximized your profitability and you've managed to achieve 40% ebitda, then it's still a great company but the buyers' would likely be different (strategic or financial vs. growth equity buyer). In this scenario, both a strategic and growth equity values might be comparable but the financial buyer might be much less."
