For tech start-ups trying to secure funding and go public, being in the black is the new black.
At the Web Summit tech conference in Lisbon, Portugal this week, more than 2,000 start-ups vied for the attention, and pocketbooks, of venture capitalists, big tech companies and investment firms. Potential investors responded with a common message: show us how you’re going to make money…
Investors have shifted their attention toward profits following a string of high-profile IPOs from loss-making companies like Uber, Lyft and Peloton. WeWork was forced to scrap its IPO as investors soured on the company’s massive losses, while Uber shares tumbled this week after the company reported a $1.1 billion net loss in its third-quarter earnings report this week.
“A red flag is when your losses are growing quicker than your top line,” said Tim Levene, partner and CEO of U.K. publicly-listed fintech venture capital firm Augmentum.
Entrepreneurs and fund managers at the conference in Lisbon told CNBC the debate between growth and profits has escalated in recent months as the financials of tech companies that soared to sky-high valuations in private markets were more closely scrutinized by public investors.
“The industry…it’s reached another crescendo in terms of valuation,” Blackstone CEO Stephen Schwarzman told CNBC’s Karen Tso in an interview at Web Summit earlier this week, pointing to “artificial profit” that was built up as tech companies stayed private for longer than in the past.
Vision Fund blame game
Some investors blame SoftBank’s $100 billion Vision Fund for distorting valuations in private markets by injecting unprecedented amounts of capital into unprofitable tech start-ups. SoftBank reported its first quarterly loss in 14 years this week because of writedowns from investments into companies like WeWork and Uber.
“My investment judgment was poor in many ways and I am reflecting deeply on that,” SoftBank CEO Masayoshi Son said in a news conference Wednesday.
Despite these recent examples, entrepreneurs and investors at Web Summit argued…
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