Zaobao | As Financing Environment Tightens, Startups Striving for High Growth Should Focus on Profitability

Puiyan LEUNG | 22 Aug 2023

This story was originally published in Chinese on Zaobao (Chinese Singapore newspaper) titled 融资环境紧缩 起步公司拼高增长更须重视盈利. The content shared here is an excerpt translated into English.

Since last year, global central banks have been actively raising interest rates in response to inflation, leading to an increasingly tight financing environment. As a result, more tech start-ups and investors are shifting their focus towards profitability. How will this shift redefine the future of start-up strategies?

Our Partner, Puiyan Leung, believes that start-ups should prioritize sustainable growth strategies, irrespective of the economic landscape. Due to recent uncertainties in the macro environment, it's vital for start-ups to prolong their financial runway and deem profitability essential. Historically, companies have always pursued aggressive growth strategies, often prioritizing user acquisition and market dominance over profitability. This approach is especially common in the tech and e-commerce sectors because, in these fields, securing a significant market share and establishing a user base are vital for long-term success.

Adrien Jorge, CEO of the technology-driven real estate brokerage Propseller in our portfolio, revealed that the company has cut monthly losses by 35% in the past six months and expects profitability by year's end. With consumer demand and financing slowing, Propseller adjusted its strategy. Adrien stated,  "Now we no longer focus on the business with the highest revenue, but consider whether the business contributes to earnings before interest, taxes, depreciation and amortization (EBITDA). We will only carry out initiatives that contribute to both revenue and EBITDA."

In the short term, these choices may result in slower growth, but the company is strengthening its fundamentals and creating value for the long term, Adrien said, anticipating high growth going forward.

Read the full story here

The exerpt in Chinese:

Vertex Ventures Southeast Asia & India合伙人梁沛茵认为, 无论经济和融资环境如何, 起步公司都应制定可持续发展战略。 由于近来宏观环境不确定, 起步公司尽可能延长跑道 (runway, 资金用完前的时期) 并认为寻求盈利途径更重要。因此, 起步公司在管理利润和资源分配方面须更谨慎。公司一直奉行激进的增长战略, 通常将获取用户和市场主导地位置于创造利润之上。 这种做法在科技和电子商务等领域尤为普遍,因为在这些领域, 占据重要的市场份额和建立用户基础对于长期成功至关重要。

创办人兼总裁豪尔赫 (Adrien Jorge) 说, 消费者需求和融资环境放缓, 公司须相应调整策略。"我们不再关注营收最高的业务, 而是考虑业务是否对息税折摊前盈利有贡献。 只有对收入和息税折摊前盈利都有 贡献的项目 才会进行。 " 公司也评估开支, 每月削减3万5000元非薪金本。

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