Private equity and venture capital (VC) have long been known for their focus on vision rather than just numbers. But why? How did this approach start, and why is it so vital in today’s ever-changing economy?
It all began with the recognition that traditional financial metrics often fail to capture the true potential of innovative businesses. While numbers can tell us about a company’s current performance, they don’t always predict its future success. Private equity and VC investors understand that to thrive in today’s market, a compelling vision and problem-solving ability are paramount.
Consider the giants of today’s economy—companies like Facebook (now Meta), SpaceX, Tesla, Flipkart, and OpenAI. Many of them started as loss-making ventures, yet they captivated investors with their bold visions. Facebook focused on connecting people globally, SpaceX aimed to make space travel affordable, Tesla tackled emissions with electric cars, and Flipkart revolutionized online shopping. OpenAI continues to reshape the landscape of artificial intelligence, despite uncertainties about its revenue model.
These companies prove that profitability metrics at present don’t define future success. Kodak, once a photography powerhouse, failed to adapt to changing customer preferences and failed miserably. Conversely, Facebook’s early focus on solving connectivity issues paved the way for its dominance in social media.
In today’s economy, the value lies in the problem a company solves and the story it tells. Money becomes a byproduct of addressing significant challenges or resonating with customers through compelling narratives. While validating current numbers is necessary, profitability at the moment isn’t always a prerequisite for future success.
Valuing disruptive businesses defies traditional methods like discounted cash flow (DCF) analysis. Instead, investors must understand the business’s potential and have faith in its founder. Take Daraz, Pathao, and Foodmandu in Nepal, for example. Their revenue streams may not mature for years due to ongoing innovations, but their stories and potential to solve problems drive their valuations.
It took Bhatbhateni over 40+ years to become as successful as it is today. But in just a few years, Daraz could serve even more customers than Bhatbhateni does now. Pathao might have more cars and bikes available than a traditional taxi company with 1,000 vehicles. And Foodmandu is delivering food from over 100 restaurants to thousands of customers all at once. Looking at these businesses the same way as traditional ones doesn’t make sense because they’re doing things differently.
Certainly, investing in such ventures carries risks. However, it’s these risks that private equity takes which can nurture and elevate Nepalese businesses. By supporting visionary founders, we empower the next generation to dream big and create stories that resonate globally.