Are investors really paying more for profits than growth today?

You can either grow quickly or make lots of money.

In startup terms, it's both. Because of the tension between growth and profitability, most startup lean more on the growth side of the equation.

It is easy to comprehend why. Venture investors provide capital that often greatly exceeds a startup's revenue base, allowing the company to hire and market aggressively, in hopes of far- larger future scale at the cost of near-term profitability

Growth and profitability are tradeoffs that are detailed in the Rule of 40. The rubric that combines a growth metric (measured in year-over-year terms) and a profitability result (measured in percent-of-revenue terms) in hopes of the sum meeting or exceeding 40 has created derivatives for companies of a particular age or segment.

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The Rule of 40 doesn't apply to pre-revenue startups trying to raise a pre-seed round. No one cares if you can meet the Rule of 40 while tripling your revenue from $1 to $3 per year, but if you are increasing your revenue from $1 million to $3 million.

There is a push for startups to trade growth for smaller deficits now that the venture markets are in retreat. Some people refer to it as a flight to quality.

We would call it a rebalancing away from rapid growth and huge losses.

There are some fascinating data in the State of the Open Cloud 2022. As both venture investors and their public-market counterparts have changed their valuation models, we have touched on it a number of times here at TechCrunch.