Venture investors prioritise revenue growth when considering investment in private tech companies. The thinking goes that if you’re not growing at 100% yoy or more then it’s not really a venture investment.

And it makes sense. If a company is ‘only’ growing at 20% or 30% a year, then as an investor you risk getting the worst of private markets (pre-scale, lack of liquidity, lack of governance and often unclear product market fit) without the benefits (rocketship-like growth).

Without extraordinary growth, we might as well go buy Microsoft right? Except…

Sometimes chasing high growth can mess with what would otherwise be a strongly performing company.

Large amounts of capital is typically needed to sustain unnaturally high growth rates. Deployed incorrectly, it can distort company behaviour, focus and key metrics. It can result in overselling to the wrong customers, leading to high customer churn.

Sometimes a company should grow according to the pace dictated by the market it operates in, or the internal characteristic of the company. And sometimes not forcing growth is the best path to deliver an outsized return.

I think here about Wisetech, which my co-founders of Shearwater Capital invested in over 16 years ago. It’s now a $30b+ market cap juggernaut and is set to add over $220m new revenue this year alone.

It’s a truly generation SaaS company. So it must have had rocket ship growth leading into the 2016 IPO?

No.

From 2013 to 2015, pro-forma revenue had a compounded annual growth rate of just 24%.

And yet, if you had invested $30k in that IPO, it’d now be worth ~$1m just 8 years on.

So why is the company so valuable when its growth hasn’t historically been ‘rocketship-like’?

Because the fundamentals of Wisetech are, and have always been, bulletproof. At the time of IPO, recurring revenue was 98%, gross margin was 84%, and it had an attrition rate of just 0.4% for FY2015. That’s 0.4 for the year. (Many SaaS companies would be delighted having 0.4 on a monthly basis.)

They didn’t oversell. They didn’t rush. They didn’t stuff it up. Instead, they allowed for a growth rate that would lead the business to have stunning platform metrics.

And the result?

1H24 highlights were for total revenue of $500.4 million, up 32%, with a 46% EBITDA margin.

FY24 guidance range was calling for revenue of $1,040 million–$1,095 million (representing revenue growth of 27%–34%) and EBITDA of $455 million–$490 million (representing EBITDA growth of 18%–27%). So between 45 and 61 on the Rule of 40.

That growth rate is still well short of 100%, and yet this period will represent close to $220m of new revenue. In a single year.

And so it’s not a rocketship. Its always grown in an efficient, natural manner. The company rarely raised capital before its public listing, meaning the founder Richard White had 50%+ ownership going into the IPO.

Wisetech proves the point that growing at the right pace while focusing on things that matter can create amazing value.

Note: The above is all public information and represents my own views; I have no direct connection with or knowledge of Wisetech other than being a shareholder.