Why VCs Exist: The Growth Math

The whole startup funding world falls out of the growth math. Why do investors fund unprofitable startups instead of steady profitable businesses? Because growth aligns incentives: in a fast-growing company, founders can't get rich without investors getting rich too, while a private business owner can quietly pay themselves and starve minority investors.

Growth also creates what investors actually need: exits. VCs return capital through IPOs and acquisitions, not dividends. Only fast-growing companies produce those outcomes, so only fast-growing companies fit the VC machine.

And the expected-value math works despite the failure rate: startups mostly die, but the rare 142x-a-year style winners are so valuable that funding a portfolio of attempts is rational. Nobody designed this system. It emerges from compounding.