This article was written by Adlin Pertishya
For years, the startup model has been based on raising capital, growing quickly, and neglecting short-term profits to gain more market share. That strategy allowed businesses to build scale, but also resulted in high cash burn, poor unit economics, and strong reliance on subsequent funding rounds.
But, in a more selective investment climate today, startup profitability has moved from nice-to-have to something investors actively screen for, and founders who ignore that shift are finding it harder to raise.
The change is more pronounced in software and artificial intelligence startups with venture capital backing. According to Bessemer Venture Partners‘ 2025 Cloud 100 Benchmarks report, the top private cloud and AI businesses have a combined valuation of over $1.1 trillion, yet the average revenue multiple has fallen to 20x, down from 23x in 2024 and 26x in 2023.
Almost a quarter of the 2023 Cloud 100 companies also achieved cash-flow positive, and 94% of the companies were expected to be profitable by the end of 2025.
The figures do not indicate that venture capital has shifted to a profitability-based industry, however. AI companies particularly attract significant investment due to their rapid adoption and massive market size. In fact, the average time for AI companies to generate $100 million in annual recurring revenue in 2025 was 5.7 years, compared to 6.9 years for non-AI companies, according to Bessemer.
The lesson for founders, then, isn’t to chase growth less aggressively, but to show investors that startup profitability and scalable growth aren’t mutually exclusive – that’s the real difference between growth that scales and growth that’s simply bought with cash.
India offers an early look at what that discipline looks like in practice. As tech companies in the country go public, Business Standard reported in May 2026 that investors are prioritizing profitability, corporate governance, and sustainable growth over the funding frenzy that occurred in 2021.
Public listings like Groww, Lenskart, and PhysicsWallah have also increased scrutiny of revenue quality, operating losses, and profitability trajectory, giving founders elsewhere a preview of the questions they’ll eventually face, too.
Financial discipline is becoming a strategic requirement in this sense, not a back-office concern. Hiring needs to track productivity and business goals instead of headcount targets, and marketing spend needs measurable return attached to it.
Investors, after all, are looking at customer acquisition cost, customer retention, gross margins, and contribution margins, as well as the duration required to recover acquisition spending.
Startups are also leveraging AI to enhance their business operations. Automated customer service, software development tools, sales systems, and back-office processes can provide the means for businesses to boost output without expanding headcount at the same pace, but technology cannot solve a poor business model on its own. It needs to be backed up by sound customer value and good economics.
Venture capital isn’t disappearing, therefore, and it isn’t becoming allergic to ambition, either. But in a market this capital-intensive and this selective, the founders who raise well are the ones who can show, in hard numbers, that every additional dollar of investment builds something durable. Not solely something buying growth.
Featured image: Getty Images via Unsplash+
