Over 2,000 start-ups attended the Web Summit tech conference in Lisbon, Portugal Nov. 2-5, looking to attract the attention of venture capitalists. Potential investors wanted to know how those companies plan to turn a profit.
“The narrative on the distance to profitability and the path to profitability becomes a bigger part of the story versus growth at all costs, and you’re seeing that return,” said Ravi Viswanathan, founder and managing partner of venture capital firm NewView Capital, in a panel titled “Is Silicon Valley Pivoting to Profits?”
Investors are eyeing profits after headline-grabbing IPOs from money-losing companies like Uber, Lyft and Peloton. WeWork abandoned its IPO plans after massive losses turned off investors. Uber shares tanked earlier this week following its third-quarter earnings report showing a $1.1 billion net loss.
“A red flag is when your losses are growing quicker than your top line,” said Tim Levene, partner and chief executive officer (CEO) of FinTech venture capital firm Augmentum, which is publicly listed in the U.K.
Entrepreneurs and fund managers at the conference told CNBC that “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 at the conference.
Some investors pointed to SoftBank’s $100 billion Vision Fund for “distorting valuations in private markets” by over-funding unprofitable startups. SoftBank reported its first quarterly loss in 14 years this week.
“My investment judgment was poor in many ways and I am reflecting deeply on that,” SoftBank CEO Masayoshi Son said in a news conference on Wednesday (Nov. 6).
Japan’s SoftBank reported a net loss of ¥704.4 billion yen ($6.5 billion), its first quarterly drop-off in 14 years and far larger than analysts’ estimates.