Why VCs Wrongfully Undervalue Inorganic Growth
Consider the following question.
Which option is more valuable?
1) $10M of annual revenue added organically (non-acquisition-based growth)
2) $10M of annual revenue added inorganically (acquisition-based growth)
In our experience, it’s common for investors to view option one as higher-quality growth. Why? The logic is often that a business with strong product-market fit shouldn’t need inorganic growth. Inorganic growth is often viewed as a crutch to organic growth, a secondary option.
While we understand the logic and have held this viewpoint in the past, our thought process at Volition has evolved. Organic growth is capital allocated to sales and marketing to acquire customers, and inorganic growth is capital allocated to corporate development to reach customers. The critical question for us is which is a better use of capital?
To answer this, considering asking questions like…