The startup growth paradox

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Friends! Welcome to the weekend. I hope you are resting and recharging. Our work today is pretty relaxed, so pour another coffee and let's get into it.

The startup growth paradox

This week, The Exchange spent a good amount of time highlighting changes in the startup market. To summarize, the value of tech companies is being re-drafted by investors, and it appears that some of the speculative enthusiasm that drove startup results in 2020 and 2021 has disappeared.

For many companies, near-term market changes aren't a big deal. Some startups have enough cash to power through and will solve falling revenue multiples with sustained growth. Call it the Databricks strategy.

But for a good number of startups, the situation looks different. Here's where some startups find themselves today:

• They raised a historically outsized round in 2020/2021 at a high price thanks to the market being flush with speculative capital.

• They spent heavily on hiring and growth goals, leading to stiff burn rates through the end of 2021.

This isn't that bad of a situation, provided that the startups we're talking about have enough cash to get through 2022. By then perhaps valuations for tech companies may have recovered somewhat. But with companies raising faster than ever before last year -- sometimes three times in a single year!-- some startups lashed themselves to growth targets that were inherently cash-consumptive. This means that many 2020 and 2021 raises won't get companies through this full year.

That means they have to raise again, timing be damned.

So, some upstart tech companies now find themselves looking at the following two options: grow more slowly, saving cash, or keep the pedal to the floor at the expense of cash. What's tricky is that neither option may work out for them. How so?