Now is a great time to be a startup. No, really. Hear me out.
In recent years investors have been focused mainly on growth. If you weren’t growing at 20 or 30%+ month over month (MoM), then you’d likely face a hard time converting investors to your round. With so much money sloshing around, the theory was that the companies that can grow the fastest and gain market share will suffocate the competition and consolidate the market.
In 2021, startup valuations reached eye-watering valuation multiples to revenue, especially in the US. This was likely a follow-on effect of the COVID stimulus program that has resulted in the highest inflation in the US in 40 years. Both public and private market valuations were driven up and over time, this trickled into earlier and earlier stage deals. We saw some truly ridiculous business models like ever shorter eCommerce delivery companies getting massive amounts of funding. These dumpster fires are now burning through their remaining runway.
Luckily, in the markets and very early stages in which Accelerating Asia operates we experienced less of this. As a result, we’ve also experienced less effect on our portfolio with regards to valuation appreciation at follow on rounds. Things have stayed pretty good, so far…. But!
But! We ARE hearing from potential follow on investors that they are focusing more on unit economics and retention rather than mainly on growth. And this is great!
If:
If the above are true, then it is a great time to be running a startup, because…
Because you can run a “real” business. What do I mean by “real”? In my humble opinion a real business creates enough value for customers that it can become cash flow positive fairly early on, especially in B2B/B2B2C. How does it do this?
A real business focuses less on growth and more on product/market fit, understanding the specific persona groups that have the largest pain point for the solution the startup is providing to the market. The startup then maintains close relationships with these very specifically defined customer groups to ensure great customer service which also helps them understand how best to iterate their product to attract more of these customers and then to understand which ancillary persona groups could be a good fit also.
Guess what the side effects of this are?
The formula has been backwards in recent years, focusing on growth first and trying to clean up retention later. Now’s a great time to flip that around and scale a real business. Some great side effects are that it’s much easier to run a business like this. Less stress, happier customers, lower risk, more sustainable, etc.
So, take a deep breath and appreciate this moment. You now have cover to slow down growth at all costs and build a real business :)
Accelerating Asia invests in startups with scalable technology solutions and revenue generating business models that combine purpose with profit.
In making an investment decision, investors must rely on their own examination of startups and the terms of the investment including the merits and risks involved. Prospective investors should not construe this content as legal, tax, investment, financial or accounting advice.
