News that Databricks crossing the $800 million annual recurring revenue (ARR) threshold last year was impressive, but most notable was its growth rate of over 80% over the same period. It’s a breakneck pace of expansion for a company the size of Databricks, and it supported its CEO’s general mood that his team could withstand any change in market conditions regarding the value of software startups, at provided it maintains growth.
This is like saying you don’t need more than one dart at the bar because you intend to hit the bullseye on your first shot. Most people won’t make it.
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So what about companies whose growth is slowing in the startup market, especially those now facing a changing market that is turning what were once headwinds into headwinds at full force? Well, the public markets detail an increasingly clear and perhaps bleak picture for companies valued on growth more than profitability – that is, all startups and a good chunk of recently public unicorns. .
grow or die
Last summer, The Exchange jokingly said that cloud companies — software companies that deliver their products over the internet — were in a do-or-die situation, comparing the tough results of Dropbox and Box with a few startups. high growth. From where we are today, June 2021 might as well be ten years ago in terms of market conditions, but I recall to emphasize that growth has always mattered; we are not treading new waters here.
What has changed, it seems, is that the bar for what is considered good earnings performance rests almost entirely on future growth. That is, good tracking results are expected as a matter of course, and the stock price – the value of the company – is based on future results. That is to say the orientation.
For startups, the lesson here is that no matter how you perform in 2021, investor sentiment seems more tied to what you’re projecting for this year than anything else.