Leaders from Paper, Klue, Borrowell, and ApplyBoard share strategies for navigating the post-ZIRP era.
Like many founders over the past two years, Philip Cutler, head of edtech startup Paper, has been forced to pivot his business strategy.
Cutler said the market has changed and companies need to “focus more on the fundamentals” to be profitable after the company raised C$343 million in Series D funding in February 2022. “We began that journey over a year ago with a goal of becoming a more profitable business, a lower cash burner and ultimately a more sustainable business for the long term. [to] “We’re not going to take venture capital,” he said in an interview with Collision on Thursday.Like many founders over the past two years, Philip Cutler, head of edtech startup Paper, has been forced to pivot his business strategy.
Instead of focusing solely on growth through strategies such as acquiring customers and companies, Cutler had to reduce Paper’s workforce, cut costs and focus investments on key areas of the business.
“Increasing profitability is important, but it is not enough.”
Eva Wong
The Bank of Canada began a historic interest rate hike cycle in March 2022, bringing an end to the zero interest rate policy (ZIRP) environment. The venture capital (VC) market has correspondingly retreated from lofty valuations. Gone are the heady days when investors were signing deals with startups within hours.
Speaking on a panel at the tech conference on Tuesday, Innovia partner Magaly Charbonneau said the venture capital market has never been so focused on startups that create “options.”
“You need to build options,” Charbonneau said, “you need to right-size your team, make sure you have strong unit economics, make sure you have a path to profitability because you might not be able to raise another round of funding.”
Cutler said the company is not yet profitable, but is working to get there “as quickly as possible” without compromising the long-term sustainability of the business.
Since central banks began cutting interest rates this month, Collision VCs and founders said deal activity and investor appetite have started to return to normal.Still, “investors are telling companies, ‘be careful with every dollar you spend,’” Spencer McLeod, a partner at Chicago-based G-Squared, said on the same panel.
But the exception to this rule is artificial intelligence (AI), MacLeod said. Jason Smith, founder of software-as-a-service startup Klue, agreed, saying AI’s potential to disrupt business means higher profits.
To make the most of these benefits, Klue’s CEO “pivoted the entire company” by leveraging generative AI in its SaaS platform to provide customers with smarter, more efficiently generated insights about their competitors.
Smith said Crew is focused on growth and gaining market share while most companies are focused on their path to profitability. It was fueled by a CA$79 million Series B in 2021, which he called good fortune and good timing, as the funding gave the startup a five-year runway.
“I believe all the investments I’m making will position me to be a leader in the space that gives 100 million businesses what they want – to deeply understand their competitors and their buyers to win deals,” Smith said in an interview at a technology conference, adding that he isn’t chasing profitability by choice.
Meanwhile, Eva Wong, co-founder and chief operating officer of Borrowell, said the company achieved profitability by maintaining strong unit economics during the zero interest rate policy era. Founded in 2016, Borrowell raised C$25 million in Series C funding in 2021, bringing its total funding, including debt, to C$97 million.
Fintech founders said companies don’t want to burn through capital in a high-interest rate environment and then be forced to raise more capital when financing terms and conditions are no longer ideal.
“Increasing profitability is important, but it’s not enough,” Wong told Collision magazine in an interview. “You need to take profits and invest them in growth.”
ApplyBoard CEO Meti Basili is focused on growth: The company, which helps international students apply to higher education programs, has been cutting staff and investing in research and development since raising C$600 million at a C$4 billion valuation.
“Over the next few years, [the] Most of our focus is [will] Growing and breaking even [point]”We are working hard to make sure we are in the right position and we will continue to grow our market share,” Basili said in an interview with Collision magazine.
Feature image courtesy of Philip Cutler via LinkedIn.
