By Ian Roncoroni | CEO, NextCaller
Measured growth is greater than growth for growth’s sake
One of the most persistent debates for founders today revolves around growth vs profitability. More specifically, which metric is more important to attract funding. Truthfully, it’s a complex question dependent on multiple variables, including how the economy is performing, how liquid the fundraising climate is, how big the market opportunity is, what your competitors are doing, and so on.
In Twilio’s case, there’s no doubt that VCs, who have valued the company at around $1 billion, pegged their belief (and their checks) on the startup’s growth. Despite not posting a profit since its inception, Twilio’s revenue (up 78% YTD) and customer base -- which boasts the likes of Uber, Facebook and WhatsApp -- continues to grow at a steady clip.
While different investors will weigh different factors when deciding whether to invest in your company, if you’re able to show that you can capture your market through steady growth, they’ll certainly take notice.
A Bird in the Hand
In general, most startup founders want to stay private longer, simply because of the red tape and scrutiny that comes with going public, not to mention the risk of having your stock prices moored down when going public because of a perceived inflated valuation -- hello Square. I once heard the CEO of a privately held unicorn respond to the question of whether or not he’d ever go public by saying, “Go public? Why would I go public? I already have a pocket square.”
Because of this, some have speculated that Twilio might not have received the valuation they wanted from private investors, and were prompted to go public sooner than they would have liked instead of seeking additional private funding.
While this is purely speculation, there is a lesson here for founders. During times where capital is harder to come by, it’s better to make a reasonable compromise on valuation than risk running dry altogether, or making a deal that almost certainly sets you up for failure down the road, especially if you aren’t turning a profit that can help you sustain dryer times.
Friends in High Places
As a Twilio partner, their IPO filing is very exciting for us; it gives us quick exposure and legitimacy, much like going through a top-notch accelerator like YC. For any startup, integrating with such a high growth platform and brand is a way to reach more customers than you might have been able to do with an early stage sales force.
Twilio is no stranger to this philosophy themselves. The company’s rocketship growth has in part been driven by integrations with some of Silicon Valley’s most prized unicorns. Uber’s mobile app uses Twilio to update riders with mobile messages, while WhatsApp uses the service to verify the 1 billion+ users on their platform in a deal that drives more than $28M a year in sales for Twilio.
One of a startup's biggest challenges lies in crossing the chasm between early adopters and the mainstream market. Companies like Twilio are great vehicles for startups looking to make this leap because they understand that small companies can (and often) do things larger companies can’t, and therefore are more apt to seek partnerships with other young startups. At the same time, these companies are big enough to be respected and even feared by some of the biggest companies in the world.
A Rising Tide Lifts All Boats
While an IPO by a company like Twilio is a positive signal for telecom startups that enterprises continue to adopt cloud-based technology, I believe there could be bigger picture implications here.
Many have been lamenting the cool IPO climate thus far in 2016 and pointing to it as further proof that we are entering dark times. Others say we just need a rock star IPO to open the window and rally companies to go public again.
Whether or not Twilio will be that rockstar to reenergize the IPO market for 2016 remains to be seen, but there’s no shortage of folks who are betting that their stellar business model, consistent performance, and strong leadership will get the waters churning and create a spillover of funding for startups throughout the rest of 2016.