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They're based on constant growth. I guess over a long enough time frame, constant growth is exponential, but not in the windows that an investor expects to be p
by selectodude 3y ago
They're based on constant growth. I guess over a long enough time frame, constant growth is exponential, but not in the windows that an investor expects to be paid back.
Exponential growth is only expected in software because the development costs are so high and the marginal costs are so low. There's zero cost to growth, which makes it a winner-take-all market.
- seizethecheese 3y agoBoth of these points are wrong. A business that’s shrinking but throwing off cash is with a lot still. Only the valuation multiple is based on growth. Exponential growth is expected in startups of all industries, software only makes the margins and distribution easier.
- bsenftner 3y agoExponential growth is also expected within new businesses within an established corporation. Similar to software's margins and distribution advantage, an existing corporation can often pursue new businesses with an existing infrastructure that approaches minimal additional expense beyond human salaries. The reference to "hurdle rate" is an often used term by corporate MBAs evaluating the worth of a new line of business.