> A 9% growth rate the business turns profitable after 6 months and on the 13th month is net profitable. Any rational investor would be frothing to get involved in that sort of business - it becomes a money-printing machine in short order.
That's not 100% true.
1) Growth rates like this are not sustainable long-term, and a 9% growth rate doesn't look great when lots of other companies are at 15-25% monthly growth with similar revenues.
2) The revenues multiples for Series A startup are very high. Would I invest in a $600k revenue/year startup growing 9% monthly at a $4m valuation? Sure, that sounds good. But a Series A would be more like investing $5m at a $25m valuation, which is way higher than the startup is worth based on pure fundamentals. The reason to invest at a $25m valuation is because you think there's a 10% shot the startup will be worth $500m, not because you think it's a 100% shot at $25m. High growth rates are one of the best indicators that a startup has a shot at $500m.
Sorry, bad choice of words on my part -- I shouldn't have said "any rational investor". What I meant is "any profit-focused, long-term investor" (as opposed to a moonshot-focused VC investor). I don't mean any of those things as negatives, just descriptives.
Your first point is right (and I addressed 1 later in my comment) -- if 9% isn't sustainable long-term, then the whole picture is quite different and a different metric should be used. And your second point, put differently, is "asking prices are too high", which is a fair point.
So I'd recast the original problem in a different light: "Company X is growing at 9% now, expectations are that it's unsustainable and won't be profitable for a while, and at the same time, they're asking a very high price relative to that growth & profitability rate", which explains why they're having trouble a bit more clearly.
My fundamental point is that the meme "anything less than 5% growth per week is bad" in a vacuum feels crazy by itself. With more context, it makes more sense.
I fully agree with that (and didn't read it negatively at all). The 5% meme/week is definitely surreal -- that's >10x/year growth! I'm always really impressed when I see companies with that kind of growth, especially after they've reached non-trivial revenues (e.g. $50k-$100k/mo)
My latest startup's user engagement is growing at >8x YoY, and while the revenue history is not deep enough for a good YoY, it's... let's say, within your scope of interest. Want to talk?
That's not 100% true.
1) Growth rates like this are not sustainable long-term, and a 9% growth rate doesn't look great when lots of other companies are at 15-25% monthly growth with similar revenues.
2) The revenues multiples for Series A startup are very high. Would I invest in a $600k revenue/year startup growing 9% monthly at a $4m valuation? Sure, that sounds good. But a Series A would be more like investing $5m at a $25m valuation, which is way higher than the startup is worth based on pure fundamentals. The reason to invest at a $25m valuation is because you think there's a 10% shot the startup will be worth $500m, not because you think it's a 100% shot at $25m. High growth rates are one of the best indicators that a startup has a shot at $500m.
(My fund does seed/Series A investments.)