Cash-Flow vs Growth: the Current VC Dilemma
Lately there has been a lot of chatter and suggestion that venture-backed companies start tightening their belts, optimize for profitability, focus on unit economics, and save growth for a later date:
"I do believe that founders should always have mapped a path to [cash flow break-even] on the current cash reserves of the business." - Tom Tunguz (Redpoint)
"Founders are realizing the need to rethink prior assumptions about prioritizing growth above all else, and are increasingly focusing on burn rate, profitability and the path toward self-sufficiency." - Josh Kopelman (First Round)
Don't get me wrong: a cash-flow generating business should be the goal of all businesses. You can't lose money forever.
But I'm a little concerned. I feel that VCs can add the most value when they are helping portfolio companies grow, not operate profitably (that should come later). That involves a different skill-set (middle market private equity investors, or experienced cash-flow business operators). So if the advice is to optimize for lower burn, higher unit economics and nearer-term profitability, shouldn't Series A/B/C companies be seeking non-VC capital partners?
As the New York Times article reminds us, hyper-growth is a cornerstone of the venture capital investment strategy. Pressure from (impatient) public market investors for cash-flow generation should be acknowledged, of course, but VCs need to keep themselves from style-drift
when advising current (and future) portfolio companies.
Phil Haslett | Founder + Head of Investments | EquityZen
There has been much discussion around the currently unfavorable venture market conditions. Both public and private tech markets have been going through a tough time in recent months. The silver lining here, pardon the pun, may lie in the cloud.
Intel Corp., one of the world’s largest makers of computer components, is planning to sell part of its venture capital unit, assets that could be worth as much as $1 billion, said people familiar with the matter.
For the last few years, the spotlight in start-up investing has largely shone on those who poured money into a company when it was already well along on a growth path. It turns out that spotlight may have been misdirected.