Like many founders over the last two years, Philip Cutler, who leads EdTech startup Paper, had to pivot his business strategy.
After raising $343 million CAD of Series D financing in February 2022, Cutler said the market shifted and companies needed to âfocus more on the fundamentalsâ to get profits in the green. âWe started making that push over a year ago, really, towards being a more profitable business, burning less cash, and ultimately being more sustainable long-term [to] not rely on venture capital,â he said in a Thursday interview at Collision. Like many founders over the last two years, Philip Cutler, who leads EdTech startup Paper, had to pivot his business strategy.
Rather than focus exclusively on growth through strategies like customer and company acquisitions, Cutler had to cut redundancies in Paperâs workforce, reduce costs, and focus investments on key areas of the business.
âThe push to profitability is important, but thatâs not enough.â
Eva Wong
The Bank of Canada launched a historic hiking cycle in March 2022, bringing an end to a zero-interest-rate-policy (ZIRP) environment. The venture capital (VC) market, in turn, pulled away from lofty valuations. Gone were the high-flying days when investors would ink term sheets with startups in a matter of hours.
Speaking on a panel at the tech conference on Tuesday, Inovia partner Magaly Charbonneau said never before has the VC market been so focused on startups creating âoptionality.â
âLook, you have to build options,â Charbonneau said. âYou have to make sure you’re right-sizing your team and that you have strong unit economics and you have a path to profitability, because you may not be able to raise another round.â
Cutler said heâs not yet profitable, but the company is working âas fast as possibleâ to get there without compromising the businessâs long-term sustainability.
Since the central bank initiated rate cuts this month, VCs and founders at Collision said theyâre beginning to see a return to normal in deal activity and investor appetite. Still, âInvestors are telling companies âbe thoughtful about every dollar you spend,ââ Spencer McLeod, partner at Chicago-based G Squared, said on the same panel.
One exception to the rule, though, is artificial intelligence (AI), McLeod said. Jason Smith, founder of software-as-a-service (SaaS) startup Klue, spoke to McLeodâs point, saying AIâs potential to be a disruptor in business means higher returns.
To take advantage of those returns, the Klue CEO âpivoted the entire companyâ by leveraging generative AI on his SaaS platform to provide clients smarter, efficiently produced insights on their competitors.
When most companies are focusing on a path to profitability, Klue is focused on growth and capturing market share, Smith said. Buoyed by raising a $79-million CAD Series B in 2021âwhich he said was a stroke of luck and good timingâthe funding gave the startup five years of runway.
âMy bet is that all the investment I’m making will make me a category leader for something that 100 million companies will wantâto understand their competitors and their buyers in a deep way so they win the deals,â Smith said in an interview at the tech conference, adding that by choice heâs not pursuing profitability.
On the flip side, Borrowell co-founder and chief operating officer Eva Wong said her company has reached profitability through maintaining strong unit economics during the ZIRP era. Founded in 2016, Borrowell raised $25 million CAD during its 2021 Series C financing to bring total funding to $97 million, including debt.
The FinTech founder said companies donât want to burn through their runway in a higher interest rate environment only to be forced to raise when financing conditions and terms arenât ideal.
âThe push to profitability is important, but thatâs not enough,â Wong said in an interview during Collision. âYou have to take that profit and then invest it into growth.
Leaning into growth is where ApplyBoard CEO Meti Basiri is focused. Since raising $600 million CAD at a $4-billion CAD valuation, the company that helps international students apply to post-secondary programs has reduced its workforce and invested in research and development.
âFor the next few years, [the] majority of our focus [will] be on growing, being at the break-even [point], so we can be in the right positionâŠ, but we’re going to continue increasing our market share,â Basiri said in an interview at Collision.
Feature image courtesy Philip Cutler via LinkedIn.