Venture-backed startups are different from traditional companies that focus on profitability. Taking on venture investment is analogous to powering your business with rocket fuel—your growth is expected to skyrocket, at an astronomical pace. Sustainable unit economics is important (for example, spending more than $1 on customer acquisition to generate $1 in revenue is bad business) but, VCs are not looking for profitability if the business supports strong margins and you’re investing in growth (i.e. engineering for new products and sales and marketing). Assuming the same revenue base, a business that demonstrates high growth (even with negative profitability) will receive a higher valuation than a business that grows at a lower rate even if it’s profitable.

When a company takes VC money, the potential outcome for that company in an exit can be significantly larger. It also comes with a big risk of failure, and expectations of driving on large returns. Founders should be ready to sign up for a big vision for their company when taking on venture investment. While the average outcome of a VC-backed company may be higher, it's also important to consider the median outcome, as the vast majority of companies lose their investment. Starting a venture-backed company is a big commitment. It's important to evaluate if it's the best path.