Makes me wonder why they needed the money.
> "This new round will allow Chef to extend its leadership in the DevOps market by expanding Chef’s operations globally and accelerating product development amidst surging customer demand"
Maybe I'm just cynical, but doesn't really tell me too much.
They ostensibly don't need the money, but they've built a machine that takes a nickel and spits out a dime, and so the more nickels they can get their hands on, the more money they'll make.
Seriously though, it does seem to be possible to buy revenue, buying profit is another matter. I suspect these companies are all hemorrhaging cash--while they can show strong revenue growth (btw is that growth linear or better with the amount of money invested? i doubt it), they still need the money to stay in business and support all the contracts they're closing.
Also, interesting relationship between money and terms. The more money you get, the worse the terms. The argument of "raise money while it's cheap" (IE, because you get better terms) works for what facebook in '07 when they got $240M for 1.6% from MSFT. For most of these big fundraising rounds though, that money is not cheap.
Similarly, if I'm doing mass-market promotion limited by budget and have a cost of customer acquisition that's far lower than my customer LTV, I can slowly accumulate enough proceeds from my business to gradually increase my marketing spend, or I can take $5MM to go nuts with it. Again: so long as the metrics stay steady, I am "buying profits".
It's not a mystery. There's no law that says that straightforward things you do with VC money can't generate profits. In fact, the premise is the opposite.
First I was suggesting that the money printing machine you allude to will sooner or later get too big to support its weight, at which point you'll be left with a bunch of dimes (or rather, companies that need to raise more to live but can't).
I also suggested that the popular narrative of "raise a huge round because money is cheap" is misleading and founders in these large rounds are actually giving up large amounts of control. That's more a general, purely anecdotal observation.
My point re: buying revenue but not profits... I think I'm more saying "More money will not make your business more profitable. But it can help book sales." If your metrics all work and you really are a profitable business already, that may be be made more scalable by more money. But if you're unprofitable, even accounting for "growth mode", more money isn't going to improve that by itself. My personal opinion is that many companies are showing impressive revenue growth but glossing over core profitability, and these companies will have a tough time fixing that.
When the money is cheap it means they aren't giving up control relative to when money is expensive. There is a phenomenon in tech VC right now, which is the money is beholden to the tech talent and not the other way around. That's not usually the case, historically speaking. Not to mention, some of these rounds are liquidity events for founders who are looking to cash out personally (i.e. look at Groupon's $800m IPO raise and follow the money).
> My personal opinion is that many companies are showing impressive revenue growth but glossing over core profitability, and these companies will have a tough time fixing that.
I see what you're saying, but don't think it's necessarily true. Branding and network effects are real things. That's why finance is loving tech right now...if you can buy your land grab and then created a castle with a moat over a 5-10 year time period, there are some serious rewards of establishing a new brand with longevity at relatively low risk.
There's going to be a time (soon) where profitability does matter, it's just not now.
To me this looks like a ramp up before an IPO: beef up the books and cash out.
- they want to hire more senior managers
- they want to open offices outside the US (and maybe sales ppl)
- they want to hire more engineers to work on the product
I don't specifically know why they raised, but often it's because, although revenue is growing, so is spending. So if you make (say) $30M per year, that's great, but you're probably spending $30-35M per year. So money in the bank (from all previous rounds) is usually less than a year's worth of revenue/spending. That's not so safe, come an economic downturn (or your growth flatlines), you're caught with your pants down. (Note that this actually assumes a fairly successful startup with revenue in the same ballpark as spending.) So companies raise more money for protection. It makes sense for them if they're growing, because they can get it for "cheap". Cheap means they can sell the VCs on future growth (high valuation), so they have to give up a relatively low % of the company in return for the safety net of having money in the bank.
Assuming a company continues to grow quickly and looks like it has a good shot of IPOing in the forseeable future, there is no sum imaginable of money which cannot be found for it. (That is a risk factor for every startup on the IPO path, because nobody grows forever and each additional financing round dilutes you more, but $100 million is not, in the grand scheme of things, an impossibly huge amount of money to use to build a software business.)