I help entrepreneurs raise capital from investors. One of the main questions I get from entrepreneurs is “Does my business need to be profitable before I can raise money?”
Then one day I talked to an entrepreneur who told me that she went to talk to a professional investor (venture capitalist) and he seemed to be concerned when he learned that her business is in fact profitable.
How strange! Wouldn’t you think an investor would be more interested in investing in a profitable business than one that is losing money?
Then I read in the Wall Street Journal yesterday that only 17% of the tech companies that went public this year made a profit in the previous 12 months – the lowest percentage since 2000. As the article puts it, “Unconventional financial metrics woo investors, spark worry.”
Yes, I understand that profits can come at the expense of growth, but it seems like venture-backed companies are playing by different rules – ones that are exposing our economy to a huge amount of risk.
That may be part of the reason why the average VC fund fails to return investor capital after fees.
So, if your company is profitable, be proud! There are investors out there who will appreciate it. And if it’s not yet profitable, keep in mind that most companies that have raised large amounts of capital aren’t either.
Here is a link to the WSJ article: http://www.wsj.com/articles/how-tech-startups-play-the-numbers-game-1433903883
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