Profitability is everything

For founders desiring capital through a private round or an IPO, it all boils down to one thing: prove that the business is sustainable. The post-money brief is the same.

Tech investors, incoming and existing, have been pushing their portfolio startups across stages to accept this new normal. And slowly, the latter are getting with the programme.

Quick-commerce player Zepto has reined in the monthly cash burn and turned many of its dark stores profitable. This change, as acknowledged by CEO Aadit Palicha, spurred investors to pledge fresh funds.

Founded just two years ago, Zepto is India’s first new unicorn of 2023. It operates in a highly competitive space, where major contenders are backed by deep-pocketed strategics.

“Earlier, startups were expected to deliver on the profitability count much later in their life cycle. Now, it’s sooner. There is no deal in the market for a startup that shows weak unit economics and high growth,” said an investor who evaluates growth-stage companies.

This trend is evident across segments. In ecommerce, for example, Meesho has consistently lowered its burn over the past few quarters, achieving its first profit in July. Though the details of the business performance are unclear, it is significant that a consumer-internet player has offered glimpses of a sustainable model within five years.

The FY23 results of Urban Company also show a distinct emphasis on cost reduction and revenue growth. A stock listing may be on the horizon for the home services provider. Another unicorn, Mamaearth, received the Sebi’s blessing last month to go public. The consumer brand is operationally profitable.

“Naturally, public markets want profitable businesses,” the investor said.

Aditi Shrivastava

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Co-founder, two partners to quit VC firm Lightbox

Arc Notes

• Partners Siddharth Talwar (also a co-founder), Prashant Mehta and Jeremy Wenokur are leaving Mumbai-based Lightbox Ventures, according to three people familiar with the situation.??
• Sandeep Murthy , the other co-founder, will be the only remaining partner at Lightbox, which has assets under management of nearly $400 million across 16 companies. Talwar, Mehta and Wenokur are expected to start their own fund. They are whittling down the names of Lightbox-backed companies they will continue working with under the separation contract with Murthy.?

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