Focusing On Growth

One of the biggest challenges for entrepreneurs right now is valuation. Simply put, multiple compression in the public markets combined with frantic missives from investors has translated into vastly reduced valuations in the private markets.

Some companies are raising up rounds. Typically they are in “must have” large markets that are relatively unaffected or even rewarded in this environment. Security and cost-savings are two such examples. Often, they have out-executed since their last round, were already incredibly cash efficient, and have revenues that are doubling or tripling year over year. Or they are a combination of some of the above and hugely strategic. That is, if they win in their market the bet is that they will be incredibly valuable.

But the challenge faced by many CEO’s is growing into their last round valuation. While next year is likely to be better in terms of the willingness of private market investors to invest, valuations are not likely to move much until those investors see liquidity opportunities. And by all accounts, that is going to be a long while in coming.

As one CEO aptly put it in a board meeting this week, investors should not have to tell their management teams to initiate discussions around expenses. Savvy entrepreneurs and CEO’s took the initiative to do this themselves. Productive board discussions followed and that is just good business.

The real challenge and opportunity in this climate is for companies to find innovative ways to grow. That is where investors can be most helpful to their CEO’s and entrepreneurs. Because if cost-cutting is a company’s only accomplishment in the next 12 months, the likelihood of getting funded at an up round — or even getting funded at all — is incredibly low. For those companies with products that are selling, re-deploying some spending in their organization, from product to sales, for example, can be a whole lot more valuable than absolute dollar savings.

As Alan Patricof eloquently stated earlier this month, “Find a way to use this moment to gain your greater share of the market by providing a solution that is needed by others to improve their prospects in the difficult environment ahead.”

Growth is always attractive to investors. In a market filled with fear, uncertainty, and doubt, it’s more important than ever to stay focused on that goal.