Evaluating New Age Startups: Profitability Vs Growth

Evaluating New Age Startups: Profitability Vs Growth

@amitranjan
@amitranjan
37 Followers
3 months ago 351

The presentation explores the dichotomy between growth v/s profitability for early stage startups. Should startups chase growth at all costs (postponing profits to a future date), or focus on achieving immediate breakeven while striving for growing their business topline. This equation is examined from various standpoints - risk vs rewards, startup valuations, venture capital powerlaw, stage of startup evolution etc.

Evaluating New Age Startups: Profitability Vs Growth

@amitranjan3 months ago

Evaluating New Age Startups:

Profitability Vs Growth

                    Startups = Growth

                    'A startup is a company designed to grow fast'

                    Paul Graham - YCombinator

                                      Startups are Risky: Most Die, Few Change the World

                                      • · Traditional finance (debt) ruled out
                                      • · Enter Venture capital

                                                        Venture Capital Model -Power Law

                                                        Returns don't follow Normal Distribution, Skewed towards Outliers

                                                                          Large Outcomes (100X) Imply

                                                                          • · Large TAM
                                                                          • · Rapidly shifting user behavior -new habits, repeat usage
                                                                          • · Fast growth / distribution
                                                                          • · Command pricing power

                                                                                            Growth v/s Profits is a Constant Balancing Act

                                                                                            Depends also on business types -Ecommerce v/s Marketplaces v/s Social Networks v/s SAAS v/s CoreTech

                                                                                                              The Startup Glide Path Framework

                                                                                                                                Early Stage

                                                                                                                                (Seed -Series A)

                                                                                                                                • · Focus on PMF
                                                                                                                                • · Cash Burn funds Growth
                                                                                                                                • · Early Monetization Experiments
                                                                                                                                • · Growth over Profits!

                                                                                                                                Mid Stage

                                                                                                                                (Series B -Series D)

                                                                                                                                • · Achieve Networks Effects
                                                                                                                                • · Revenue Lines Emerge
                                                                                                                                • · LTV > CAC
                                                                                                                                • · +ve Unit Economics
                                                                                                                                • · EBITDA +ve

                                                                                                                                Late Stage

                                                                                                                                (Series E -IPO)

                                                                                                                                • · Stable Product
                                                                                                                                • · Established Revenue Lines
                                                                                                                                • · Profitable, Generating Cash
                                                                                                                                • · Financial Budgets & Forecasting

                                                                                                                                                  Indian Tech Startup IPOs Q1'22 Crash??

                                                                                                                                                                    Startups Business Models -Diff Types

                                                                                                                                                                    Experiential / Platforms

                                                                                                                                                                  • · Defensible competitive advantage
                                                                                                                                                                  • · Less competitive, no offline equivalent
                                                                                                                                                                  • · High Gross Margin
                                                                                                                                                                  • · SAAS, Social Networks, CoreTech

                                                                                                                                                                  Transactional

                                                                                                                                                                  • · Digital equivalent of offline process
                                                                                                                                                                  • · Competes with offline, omnichannel
                                                                                                                                                                  • · Low competitive advantage
                                                                                                                                                                  • · Low Gross Margin, No/low pricing power
                                                                                                                                                                  • · Ecommerce, Marketplaces, Payments

                                                                                                                                                                                    Problem is Valuation, Not Growth vs Profits

                                                                                                                                                                                    • · Post 2008 QE, Easy liquidity -> Hot Money into Assets
                                                                                                                                                                                    • · Mismatch b/w Public vs Private Market Valuations
                                                                                                                                                                                    • · Few IPOs look premature, ahead of time
                                                                                                                                                                                    • · Markets will resolve this eventually, correction is due

                                                                                                                                                                                                      Credits

                                                                                                                                                                                                      • · http://www.paulgraham.com/growth.html
                                                                                                                                                                                                      • · https://www.nfx.com/post/new-rules-growth-profitability/
                                                                                                                                                                                                      • · https://fabricegrinda.com/playing-with-unicorns-episode-3-how-vcs-evaluate-startups/
                                                                                                                                                                                                      • · https://tradebrains.in/upcoming-ipos-indian-startups-2021/
                                                                                                                                                                                                      • · https://www.youtube.com/watch?v=cvaDvnp2USA
                                                                                                                                                                                                      • · https://timesofindia.indiatimes.com/business/india-business/ipo-listings-see-rs-2-lakh-crore-erosion-techstartups-account-for-half/articleshow/89103838.cms

                                                                                                                                                                                                                        https://twitter.com/amitranjan

                                                                                                                                                                                                                        https://webyantra.com

                                                                                                                                                                                                                        Thank You...

                                                                                                                                                                                                                        https://twitter.com/amitranjan

                                                                                                                                                                                                                        https://webyantra.com

Evaluating New Age Startups: 
Profitability Vs Growth
1/13
Startups = Growth 
“A startup is a company designed to grow fast”
Paul Graham - YCombinator
2/13
Startups are Risky: Most Die, Few 
Change the World
• Traditional finance (debt) ruled out 
• En…
3/13
Venture Capital Model – Power Law
Fund Life ~ 7 yrs | 1/10 Success Probability | Large Outcomes (1…
4/13
Large Outcomes (100X) Imply
• Large TAM 
• Rapidly shifting user behavior – new habits, repeat us…
5/13
Growth v/s Profits is a Constant Balancing Act
Depends also on business types – Ecommerce v/s Mark…
6/13
The Startup Glide Path Framework
7/13
Early Stage 
 (Seed – Series A)
• Focus on PMF
• Cash Burn funds Growth
• Early Monetization 
…
8/13
Indian Tech Startup IPOs Q1’22 Crash??
Is the Growth v/s Profitability equation to blame?
9/13
Experiential / Platforms 
 
• Defensible competitive advantage
• Less competitive, no offline eq…
10/13
Problem is Valuation, Not Growth vs Profits
• Post 2008 QE, Easy liquidity -> Hot Money into Asset…
11/13
Credits
• http://www.paulgraham.com/growth.html
• https://www.nfx.com/post/new-rules-growth-profi…
12/13
https://twitter.com/amitranjan
https://twitter.com/amitranjan
Thank You...
https://webyantra.com…
13/13


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