The Scaling and Profitability Trade off: Venture Capital’s Weakest Link!

Aswath Damodaran · 2 Sept 2026 · aswathdamodaran.blogspot.com ↗

5 korrents from this piece

Aswath Damodaran did not write this page.

Every claim below was made in this piece, quoted word for word and numbered in the order the piece makes them, so you can read it there rather than take our word for it. The sentence above each quote is our reading of the claim, not their wording. Each quote was checked against a stored copy of the page at build time; where the two differ, the quote is the fact.

Our reading
Applying scale-first, profit-later to every business is a cookbook that turns small failures into big ones.

Their wordsAny investor or founder who blindly follows the pathway of scaling first and profiting later for every business is using a cookbook approach to business building, and runs the risk of making small failures into big ones.

Interesting
Our reading
Venture capitalists are judged on the price they entered and exited at, not on the quality of the business they built.

Their wordsVC success is measured based on price at entry and price at exit on an investment, rather than the quality of the business built

Interesting
Our reading
The median venture capitalist has produced no more excess return than the median mutual-fund or private-equity manager.

Their wordsthe median venture capitalist has not been much better at harvesting alpha than the median mutual fund manager or PE investor

Interesting
Our reading
The pull of fundamentals that used to reverse market momentum has weakened, so betting on mean reversion is more dangerous than it was.

Their wordsthere is evidence that the reversal effect has weakened over time, leaving investors who bet on mean reversion and a return to fundamentals in the lurch

Interesting
Our reading
Companies now go public later, bigger and unprofitable: fewer than a quarter of the last decade’s IPOs were making money.

Their wordsWhile it was routine for companies going public in the 1980s to be profitable (>80% were), less that a quarter of the companies that have gone public in the last decade have been profitable.

Interesting