In this article, I will try to bring some rationale to this question by explaining the VC approach as well as the choices faced by founders.

Staying small is perfectly fine

First, it is important to mention that growth is primarily a matter of choice for many business owners. In fact, running a small, profitable business with or without growth ambition is not just perfectly fine, it is also fundamental. SMEs represent the vast majority of our economy and are absolutely critical to the economic fabric of our countries.

Is “scaling” the same as “growing”?

So, scaling is critical to VCs but interestingly, not many entrepreneurs address this aspect in a convincing manner when pitching. Even more interesting, not many VCs can explain what they mean by “scale” in simple terms.

Bigger doesn’t mean better

At a later funding stage, companies usually use multi-million funding rounds to grow, expand or conquer new markets and countries. With a war chest in the bank, many of those soon-to-be unicorns are tempted by a “growth-first” strategy in order to preempt market shares. This is also often encouraged by their own investors. The consequence of this strategy is that it does not address scaling, which can lead to big pain points that might backfire down the line if the growth is not sustainable.

So, in the end, what are VCs looking for?

The theoretical answer is quite obvious. VCs are looking for both scale and growth. The reason is extremely simple. Although growth is what drives the exit valuation, companies with a scalable model will progress faster and with less pain (always good to take!) as soon as funds are invested. The reality is obviously less straightforward, and some VCs can prioritize growth for several reasons.

Ultimately, making sure that the model scales is the win-win situation. The company grows faster and in a sustainable manner. Investors get their unicorn and founders stay in the driving seat of the rocket instead of having the feeling of sitting on a shaky firecracker that can blow up anytime.