Earlier today, The It has been drilled into changing investor sentiment regarding growth and profitability. A new report on cloud and software companies from Battery Ventures does the math on how investors can reward fast growth from unprofitable companies. Profitable Companies? — The data suggests that, at least for the time being, growth is not enough to drive up enterprise value.
For startups busy lining up new revenue with minimal burn-in, the situation is good news. For companies that raised money cheaply — and sat on huge valuations at yesterday’s valuations — the news that profitability is back in fashion is welcome. Many unicorns may now be caught between investor preferences and the shrinking value of software companies in general.
why? Because many unicorns have been invented in the 2020-2021 period on the back of rapid revenue growth more than anything else. And, while revenue multiples have skyrocketed during that time, an increasing number of startups have reached $1 billion valuations — or multiples — on the back of a small, if rapidly expanding, top line.
If earnings multiples decline, that’s bad news for unicorns. If revenue multiples decrease And Growth is losing its luster relative to profits, the high-burning unicorns that once valued something more. other They are doubly bound by changing market conditions.
Worse, Battery points to a few hard facts about how many unicorns may become public in the coming years. There is a layer of good news for real startups in the data. But there are more clouds than storms on the horizon for Bogg’s regular unicorn.
Why is math bad?
In the past 10 years, Battery counts 200 software companies that have gone public. In contrast, the venture firm counts more than 1,000 new unicorns minted at the same time. That’s a 5-1 ratio of IPOs to new billion-dollar companies.
