How Important is Profitability to an Investment Decision?

As an investment firm that works with a lot of rapidly scaling businesses in the tech industries, there are a few questions we see over and over again when we talk to founders and CEOs. One of those questions is: How important is profitability to an investment decision?

In the video above, Ryan Hinkle, a Managing Partner at Insight, provides an answer. In simplest terms, the situation is straightforward: Profitability matters. Yet, it isn't the only thing investors look at and may not end up being the deciding factor in a decision. Instead, what most investors are focused on is the potential to scale the business in a way that delivers value at the time of a liquidation event.

With that in mind, we recommend executives think about their path forward by incorporating the idea of profitability alongside their scaling strategies and long-term goals in terms of the eventual liquidation of the business. This is all a balancing act, in which you'll need to consider your profitability on one hand and value on the other, ensuring your business is positioned to be as valuable as possible. Profitability contributes to value, but it isn't the only major contributor. The key is to get an investor on board with the idea that your business is valuable even if it isn't profitable at the moment.

Ryan details more of his thoughts in our video, "How Important is Profitability to an Investment Decision?" Check it out for an insider's point of view on how profitability is accounted for in investment decisions.
 

Ryan Hinkle Managing Director More By The Author