As high-growth companies shift their narrative toward profitability, investors need to decide if they believe the new story. Also, SoftBank minces words around growth vs. profitability, Kalanick’s Cloud Kitchens receives a massive valuation, and we discuss using capital as a weapon and adding software to low-margin businesses.
Top 3 Takeaways:
* Profitability is now front and center for late-stage and growth investors. Unprofitable companies like Uber and Lyft are now changing the narrative to fast-tracking profitability, but investors may not believe it.
* Raising at a high valuation early is viewed as a success, but may create an issue for attracting investors later.
* Many inherently low-margin businesses are innovating by adding software (see Amazon, Uber, WeWork, etc.) which causes confusion among investors about the true long-term margin profile of a business.
* [0:28] SoftBank’s conflicting message around profitability and long-term growth.
* [2:58] Did the size of the Vision Fund leave SoftBank outside of their core competency?
* [4:30] Valuing free cash flow for venture investments and why WeWork’s peak valuation was too high.
* [8:00] Now that profitability is a priority for investors, every high growth company has a plan to fast track profitability, but will investors believe the narrative?
* [14:50] Travis Kalanick’s Cloud Kitchens raises $400M at a $5B valuation.
* [17:19] What type of businesses can use capital as a weapon and when is raising too much money a negative?
* [20:00] Building a software layer on an inherently low-margin business does not create software-like margins.
The Loup Ventures Liquidity podcast explores all things liquidity in the venture market, particularly late-stage financings, secondaries, exits, and IPOs. As early-stage venture capitalists and former public stock analysts, our experiences meet in the middle, and we share those insights on the Liquidity podcast through discussions between Loup partners and industry guests.