Innovation versus profit – do we need a shift in model?

Stock markets and tech have a notoriously tricky relationship. Everyone wants to invest, but tech startups often avoid going public.

Tech companies are hellbent on the long term, but the stock market errs on the side of volatility. Traditionally, investors put immediate profits above long term growth.

This presents a problem for tech startups; they often need to become a household name before they can start to generate the big bucks. The pressures of the dog-eat-dog stock market impact on tech’s ability to achieve the grand vision. That’s why despite demand, tech startups shy away from IPOs. When they finally do go public, their share prices are too high for the average punter to access, which can lead to undemocratic operations.

It looks like tech companies need some encouragement. Could a shift in the way we invest in tech companies be the answer? By focusing on innovation and growth over profit, Chris Hull, the co-founder of Life360, believes the relationship between stocks and tech could be repaired.

Life360 is a family tracking app. It allows you to see metrics about your loved ones, including their location, driving performance, and even crimes that have been reported near them. The app operates on a ‘freemium’ model. This means that users can access the service for free, but if they pay for a subscription, they can unlock extra features such as roadside assistance and emergency response. This also allows them to get discounts from well-known, third party affiliates. Life360 turns revenue in two ways: via affiliate marketing and subscription fees.

Despite positive performance following its IPO in May, Life360’s value has since dwindled. The share value is now $3.30, down from $5.30 six months ago.

People are often skittish around technology that is too innovative. This is especially true when it involves consumer trust. While Chris Hull feels Life360 should be in the toolkit of every parent, the media has likened Life360 to something you’d see in Black Mirror. Unsurprisingly, this causes some trust issues for both investors and the consumer.

However, as any business person will tell you, the early days are all about building trust. The co-founder of Life360, Chris, acknowledges this as the challenge the app is facing in the stock market. It’s a popularity contest in phase one of a public listing.

By working with well-known affiliates, Life360 is more likely to be acknowledged as a mainstream product that’s a part of every family’s life. This will help them get to the second phase: growth.

It seems to be working, slowly but surely. Life360 brought in $19.2 million from subscription fees last year, up 60% from the year before. The indirect affiliate advertising revenue hit $5.4 million. Despite continued losses and lacklustre share performance, Life360 is still on-track to meet its $58.6 million revenue goal by the end of this year.

This shows that Life360 has a lot of potential for long term profitability, even if the investors experience losses in the now.

If tech investors embrace innovative growth rather than focus on immediate profits, would that encourage tech startups to go public sooner? If so, early investors could reap the long-game rewards.