Investors have proven to be enamored with New York City’s tech startups, having poured $21 billion into them in the past four quarters and setting the stage for a wave of IPOs. Despite this, some of these startups have yet to be profitable.
For example, WeWork revealed that it gained $1.8 billion in revenue last year, but had a $1.9 billion loss. Similarly, Uber showed a $3 billion loss.
While this could seem worrisome, many tech entrepreneurs and backers see losses as a good sign because loyal investors will be there while the company works to disrupt its respected industry. In such cases, profits are not a main priority.
Investors are also bearing great losses due to tech companies generating a large amount of consumer data, which is valuable to them and adds a new dimension to its revenue.
“Insurance companies want to buy data; so do credit-card companies and banks,” said Gustavo Dolfino, founder of MyKlovr.
The reason WeWork has been successful in raising money is due to investors concentrating on mature companies. While the payoff may not be as big, it is still less risky than betting on a younger startup which may have trouble weathering an economic downturn.