Is profitable scaling the new frontier?
Startups are re-discovering the value of profitable scaling as a more sustainable path to success.
🔥 Ignition
The philosophy of "growth at all costs" isn’t new. During the dot-com boom, many experts claimed the “new economy” would defy traditional financial principles, believing massive upfront spending would lead to lasting success. While this approach worked for some, like Amazon, it left a trail of failed dot-com ventures in its wake.
Fast-forward, history is repeating itself — especially in fintech. A recent report by SVB on the “Future of Fintech” paints a sobering picture of today’s market. The once-straight path across funding stages now requires resilience and discipline. For Fintechs aiming to move from seed rounds to Series A, the graduation rate has dropped from ~15% in 2019-2021 to ~ 5% in 2022-2023. It’s a reality check, especially for companies heavily reliant on high user volume and take-rate models. They are vulnerable to rising capital costs, increased delinquencies, and lower-than-expected customer lifetime value (LTV).
🚀 Ascent
Fintechs are facing more than high interest rates—their rising CAC are putting added pressure on margins. Many are adapting their offerings and operations by refocusing on B2B, partnering with established brands, obtaining bank charters, and diversifying revenue streams to reduce their dependence on a single product. Robinhood’s or Coinbase’s evolution from trading platforms to multi-product ecosystems shows how diversifying revenue can better insulate against market pressures. But these strategies are only effective if companies have two essential assets: a scalable platform that can support multiple offerings and sufficient runway to sustain growth through turbulent times.
🪐 Velocity
Success depends on mastering efficiency. According to SVB, 80% of US fintechs reported improving EBITDA margins YoY —a significant improvement from their low point in Q2 2022. Burn rates, an indicator of efficient growth, are also moving in the right direction, but remain elevated: the median burn rate stands at 3.7x for the top quartile. In the lower tiers, many are still consuming capital at unsustainable rates. For them, efficiency is an urgent imperative: improve unit economics and secure enough cash runway to support profitable scaling. As ~30% of US fintechs now have only 6-12 months of runway left (up from 20% last year), time is of the essence.
In short: for startup founders and executives, the challenge is to recalibrate their business models for profitability and partner with investors who bring not just capital but operational acumen. A clear path to profitability is the best way to stay in orbit, or at a minimum ensure a soft landing.