I was talking to a friend of mine who had recently sold his company for $300M. He said to me, “Brett, I’ve never been involved in a company that made a profit.”
And I would bet over 95% of all startups, including the ones that have gone public, are never profitable. Just look at this data on IPOs from 2012–2015:
Year % Of IPOs That Were Profitable At IPO.(1)
A very small percentage of startups IPO. The majority (over 90%) fail. So the 95% number is probably right.
But just think about only one in four companies are profitable at IPO. One in four.
And therein lies the problem:
You don’t have to be profitable to make money!
The importance of being profitable will not change until the public’s appetite for non-profitable public companies wanes.
Sadly, the public truly pays the price because there’s a huge difference in the return for a profitable versus unprofitable IPO. Companies that were cash-flow negative had a 24% median decrease in value after three years versus a 111% median increase in value after three years.(1)
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1. Data from