004 – Profitability in Focus
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.