Growth

A company that has proven its model but needs money to scale is a different problem from an early-stage or a mature business. It has shown that customers want what it sells, and now the question is whether it can keep growing without breaking.

Growth comes in two kinds. Some businesses grow because they are riding a trend that will fade. Others grow because something underneath them has changed, in technology, in how people consume, in how industry works or in the wider economy. Our research is aimed at the second kind.

The question we keep coming back to is whether the growth is creating value or only making the business bigger. The two can look identical for a long time, and telling them apart early is most of the work.

Even then, growth on its own tells you little. A company can double its revenue and be worth less at the end of it. So we look at the quality of the growth: how revenue has developed, what the margins are, how much capital it takes to keep expanding, what protects the business from competitors, how big the market really is, and whether the economics still work as the company gets larger. We have built a framework for judging this, and for deciding what is reasonable to pay for it.

The question we keep coming back to is whether the growth is creating value or only making the business bigger. The two can look identical for a long time, and telling them apart early is most of the work.