The Exchange
Shares of Amplitude, Airbnb and Twilio are down sharply this morning, a trend that is being mirrored across the broader tech industry. As we’ve written about extensively in recent weeks, growth at public tech companies has been slowing, and it’s clear now that startups will not be immune to these headwinds.
The Growth Slowdown
To put this into perspective, let’s take a look at the Bessemer Cloud Index, which tracks the growth rates of public cloud companies. The median growth rate for these companies is currently at an all-time low since the inception of the index.
Data and chart from Bessemer’s public website.
This trend is not unique to cloud companies either. When we’ve looked at a number of other public tech companies this quarter, we’ve seen similar slowdowns in growth.
The Lesson for Startups
So what does this mean for startups? The lesson here is simple: expect it to be harder to grow this year. And, startups should not expect things to get better anytime soon, even if Twilio did make some positive noises about reaccelerating parts of its overall growth portrait this year.
Startups tend to have higher burn rates as a percentage of both revenue and cash balance, and because they’re still private, they can’t easily self-fund if needed. It’s harder to fundraise without a liquid stock, after all.
The Impact on Startups
This slowdown in growth at public tech companies is likely being mirrored at startups as well, but they don’t have the same flexibility to endure a period of slow growth. Talk about being stuck between a rock and a hard place.
Amplitude can weather a tough year’s growth and power through to the other side because it has a quarter of a billion dollars of cash and marketable securities and a quarterly free cash flow burn rate in the single-digit millions. That’s an ocean of time, and since it’s already public, it can almost afford to muddle through a tough year so long as its view of where its market is going winds up correct.
Startups don’t have that luxury. They tend to have higher burn rates as a percentage of both revenue and cash balance, and because they’re still private, they can’t easily self-fund if needed. It’s harder to fundraise without a liquid stock, after all.
The Bessemer Cloud Index
The blue line is the median figure for companies in the index, and it’s at an all-time low since the inception of the index.
If you haven’t: The chart above shows historical growth rates at public cloud companies. See if you can spot the trend:
Data and chart from Bessemer’s public website.
The Impact on Fundraising
Startups will likely face even greater challenges when it comes to fundraising this year. With growth slowing and customer spending tepid, investors will be even more cautious in their investments.
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Conclusion
The growth slowdown at public tech companies is a trend that will not be limited to just these companies. Startups will face similar challenges in the coming year, and it’s essential for them to plan accordingly.
Expect it to be harder to grow this year, and don’t expect things to get better anytime soon. It’s time for startups to adjust their expectations and plan for a period of slow growth.
Topics
Airbnb, amplitude, EC Cloud and Enterprise Infrastructure, EC Enterprise Applications, EC Market Analysis, EC News Analysis, EC Newsletter, Enterprise, Startups, The Exchange, Twilio
Author
Alex Wilhelm
Senior Reporter
Alex Wilhelm was a senior reporter for TechCrunch covering the markets, venture capital and startups. He was also the founding host of TechCrunch’s Webby Award-winning podcast Equity.
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