“Our startup is worth a billion dollars!”

Here’s how the magic trick works.

An investor puts in money. The startup spends it on advertising, sales teams, discounts, and customer acquisition. People sign up. The startup announces: “Look how fast we’re growing!”

Another investor pays a higher price. Cue the press release about a billion-dollar valuation. Growth bought with investor money becomes the reason to ask the next investor for even more money.

And the price of that latest deal is presented to the world as if it were an objective measure of what the company is worth.

How many customers would stay if the acquisition budget disappeared tomorrow? How much profit does each customer generate after the cost of winning them? Somehow, those numbers never make it into the celebratory announcement.