Do you remember all the blog posts about how companies needed so much less money? All the articles about how capital efficient businesses were — a result of AWS, better software development tools, easier starting points, better scaling technologies, and lots of other things?
This was all just five years ago. Oh how things change.
I’m going to assert, based on the successful, capital efficient companies in our portfolio, that it’s a parallel universe of happiness. We’ve learned that it is a lot easier to make a 10x return on capital on a company that has only raised $10m then it is to make a 10x return on capital when a company has raised $100m.
When a company can become cash flow positive on a small amount of capital (say $5m – $10m) and grow over 100% year-over-year without raising another nickel of equity, well that’s a silent killer.
(1) Capital efficiency gives you time, which is critical for businesses that scale steadily but without viral growth, such as SaaS and subscription businesses.
(2) Cf. Ben Horowitz’s Profitability = control of your own destiny and this quote from Warren Buffett.