Tech Companies and Capital Efficiency

Episode Transcript

November 2025

Transcript

The Shift from “Growth at All Costs” to “Efficient Growth”

You’re listening to Unlocking Liquidity, powered by PrimaryMarkets.In this episode we look at Tech Companies and Capital Efficiency - the shift from ‘Growth at All Costs’ to ‘Efficient Growth’

The technology sector has long been associated with breakneck growth, investor exuberance and billion-dollar valuations seemingly built on little more than vision and velocity. For more than a decade, many startups operated under the mantra of ‘growth at all costs’, supported by a macroeconomic environment of near-zero interest rates, abundant venture capital and insatiable investor appetite for disruption. However, in the past two years, the conversation has shifted dramatically. As capital has become more expensive and scrutiny around profitability has intensified, a new imperative has taken hold: capital efficiency. ‘Efficient growth’ has replaced ‘blitz scaling’ as the preferred strategy among founders, boards and institutional backers alike.

This transition is not merely cosmetic. It represents a fundamental recalibration of how technology companies are built, scaled and valued. Companies that once prioritised user acquisition, eye balls, clicks and market share at the expense of margins are now judged by their ability to first generate revenue and then convert revenue into sustainable operating profits. At the heart of this change lies a broader reckoning with the end of the zero interest rate policy (ZIRP) era, in which venture and growth capital was effectively subsidised by monetary policy. The result is a more disciplined and arguably more mature tech sector, one where the ability to generate durable returns on invested capital increasingly defines long-term success.

Nowhere is this clearer than in the altered expectations of public and late-stage private investors. During the ZIRP years, companies were often rewarded for high burn rates so long as they could point to rapid revenue expansion or user growth. This logic supported the rise of numerous loss-making unicorns, from Uber to WeWork, whose IPOs were premised on eventual dominance rather than current-day real world economics. However, as rising interest rates and volatile markets reshaped investor risk appetite, many of these same firms found themselves under pressure to cut costs, slow expansion and focus on achieving break even and then profitability.

For venture capital firms, this new environment has required a rethinking of fund strategy and portfolio support. Rather than encouraging startups to raise capital in successive rounds to fuel expansion, many VCs are now focused on ensuring that their existing companies can extend their runways and reach profitability without relying on a constant inflow of new capital. This shift has led to widespread layoffs, reduced marketing budgets and a return to fundamentals in areas like unit economics, pricing strategy and operational efficiency. Metrics like gross margin, EBITDA and free cash flow—once seen as secondary in the startup world—have now become critical KPIs in boardrooms and investor updates.

Australian technology companies are by no means immune to this transformation. In fact, many of the country’s most prominent startups and listed tech firms have been at the forefront of this capital efficiency shift. Take the example of Atlassian, one of Australia’s most globally recognised software companies. Despite its scale and growth, Atlassian has increasingly focused on controlling costs and ensuring operating discipline. As macro headwinds have increased, it has rebalanced its growth initiatives.

Another example is Xero, the New Zealand-founded and ASX-listed accounting software firm with a strong Australian presence. Xero has historically invested heavily in expansion and acquisition while growing its subscriber base. But in response to tightening capital markets and evolving shareholder expectations, the company has sharpened its focus on profitability. Investors have rewarded these changes with Xero’s share price rebounding.

In the private markets, Australian scale-ups like Canva have also had to adjust their growth strategies. Canva has benefited from a strong product-led growth engine and a highly efficient go-to-market model. Yet even Canva, which has long been admired for its capital-light scaling model, has taken steps to become more focused on monetisation and organisational efficiency in anticipation of public market scrutiny. As it eyes a potential IPO in the coming years, Canva’s ability to demonstrate sustainable margins and operational discipline will likely be key to maintaining investor confidence.

The broader lesson for both Australian and global tech founders is that the era of endless capital has come to a close and with it, the notion that scale can be pursued irrespective of cost. Companies are being forced to do more with less—not just because investors demand it, but because the macroeconomic environment requires it. Interest rates have risen to levels not seen since before the global financial crisis, while inflation, geopolitical instability and slowing global growth have increased the cost of capital and the value of free cash flow.

This new environment does not mean that growth is no longer prized. On the contrary, growth remains essential, particularly in the technology sector where innovation cycles and winner-takes-all dynamics still exist. What has changed is the expectation that growth must now be underpinned by a sustainable efficient business model. Investors are increasingly asking whether a company can grow its revenues without proportionally increasing its expenses and whether that growth ultimately contributes to a viable, long term profitable business model. In other words, is the growth efficient?

One practical consequence of this shift is the rise in popularity of software-as-a-service (SaaS) models that demonstrate high gross margins, recurring revenue and low capital requirements. These businesses are seen as particularly well suited to the efficient growth paradigm because they can scale rapidly with limited incremental costs.

Moreover, the investor landscape itself is evolving. Growth equity investors and funds that previously prioritised revenue multiples are now increasingly focused on profitability metrics and free cash flow yield. The IPO market, still subdued compared to pre-2021 levels, has become more discerning, favouring companies that exhibit clear paths to profitability rather than relying on speculative forward projections. This change in sentiment is encouraging a new generation of founders to build businesses with more conservative capital structures and stronger governance.

This reorientation also reflects a maturing of the technology ecosystem. Previously, many founders pursued growth at all costs because it was the only way to stand out and secure funding in a competitive field. Today, with a more sophisticated investor base and better access to data and benchmarking, it is increasingly possible to build a successful tech company by being disciplined from the outset. The winners in this new environment will be those who can balance vision with execution and ambition with restraint.

In many ways, this is a healthy correction. The tech industry has always benefited from cycles of exuberance followed by consolidation. Just as the dotcom bust in the early 2000s cleared the way for more durable tech business models, today’s capital efficiency shift may ultimately produce stronger, more resilient companies. Founders are now forced to build companies that can survive shocks, adapt quickly and deliver real value—not just scale.

In conclusion, the shift from ‘growth at all costs’ to ‘efficient growth’ marks a new chapter in the evolution of the tech sector. As access to capital becomes more selective and investors demand clearer paths to profitability, both private and public tech companies must adapt to new expectations around cost control, cash flow management and return on capital. Many Australian companies are now focussed on this transformation, showing that it is not only possible to grow efficiently, but that such a strategy may be the best path to enduring success in an increasingly volatile global economy. Efficient growth is not the enemy of ambition—it may be its most powerful expression.

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This has been another episode of Unlocking Liquidity, powered by PrimaryMarkets. Thanks for listening – and join us next time as we continue exploring the ideas and innovations transforming global investment.

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