Why Investors Back Unprofitable Companies

Many well-known companies remain unprofitable despite attracting significant investments. The reasons why investors continue to fund such companies vary and are based on their long-term potential and strategic importance.

One key reason venture investors keep funding companies that aren't yet profitable is their significant growth potential. Startups like Uber and Tesla continue to attract investments due to their prospects of capturing a substantial market share and future revenue growth. Investors see opportunities for substantial returns if the company can scale and expand its customer base.

Many of these companies are at the forefront of innovation and new technology development. For instance, investors supported Amazon in its early years because of its ability to innovate and offer unique products or services that could radically change the market. Technological startups like Neuralink attract investments thanks to their groundbreaking developments and potential to create new markets.

Venture investors often focus on the company's long-term strategy, understanding that current losses may be part of a plan to achieve sustainable growth in the future. Companies might invest heavily in infrastructure, marketing, and research, leading to temporary losses but creating a solid foundation for future success. Tesla is an example, having invested in production and technology development for years before becoming profitable.

Bolt: A Startup with Potential

One major reason venture investors continue to fund companies with expenses exceeding their revenues is their immense growth potential. Bolt is rapidly expanding into new markets, starting with taxi services and then adding electric scooter rentals, food delivery, and car rentals. This growth enables the company to increase its market share and attract more users.

Bolt invests heavily in technology and innovation to improve service quality and optimize operational processes. For example, the company is funding the development of its fleet of electric scooters and cars, reducing its environmental footprint and enhancing its market image. These investments require substantial initial costs but promise high returns in the future.

Companies like Bolt aim to achieve economies of scale and network effects, meaning the more users the platform attracts, the more appealing it becomes to new customers and drivers. This helps them increase revenue and reduce operational costs in the long term.

According to Raison analysts, Bolt's expenses currently exceed its revenues, but this is not uncommon in this sector. For instance, well-known companies Lyft, Inc., and Grab Holdings Limited incur significantly higher losses. Analysts note that Bolt's financial metrics look promising: with a 34.40% increase in gross revenue in 2023, operating losses decreased by 64.10% over the same period. If this positive trend continues, there is a high likelihood of the company achieving profitability. Such a scenario would be a strong driver in the company's future valuation.

According to Bloomberg, the company is already preparing for an IPO. The €220 million credit line secured by the Estonian startup is expected to aid in this effort.

"In 2022, Bolt was valued at €7.4 billion after raising €628 million from venture investors like Sequoia Capital, Fidelity Management, and others. Last year, the startup received €126 million to expand its rental car fleet," reports the agency.

Conclusion

Venture investors continue to fund companies whose expenses exceed their revenues, guided by their long-term growth potential, innovative capabilities, and strategic importance. Successful capital raising despite current losses is often based on trust in the company's vision and strategy, as well as expectations of future revenues and market dominance.

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