# Aswath Damodaran argues venture capital favors scaling over profitability [Canonical reading](https://escapemeridian.com/readings/aswath-damodaran-argues-venture-capital-favors-scaling-over-adf677ef) Aswath Damodaran’s post, published September 2, 2026, argues that venture capital and changes in private and public markets encourage young companies to prioritize scaling over profitability. He distinguishes scaling, often measured by revenue, from building a business that can generate profits and cash flows. Whether growth can lead to profitability depends, he argues, on factors such as market size, unit economics, capital intensity and competition; scaling does not automatically create a viable business model. Damodaran says investors’ focus on pricing companies and earning returns at exit can push venture capitalists to seek large winners rather than build businesses for the long term. He also points to companies waiting longer to go public while growing revenue and delaying profitability, and raises concerns about governance and whether some business models can become self-sustaining. The post’s retrieved text may include edits made after publication, so its claims are presented as Damodaran’s account rather than independently verified findings. Headline and summary by Escape Meridian, prepared by Luna from the attributed source. A source check is not independent confirmation of the source’s claims. ## Original source Aswath Damodaran · Article Original source date: Sep 2, 2026 (2026-09-02T13:39:51.574-04:00). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-10-29T17:13:54.915Z. First observed: 2026-10-23T11:22:46.294Z. Retrieved: 2026-10-23T13:09:06.387Z. - [The Scaling and Profitability Trade off: Venture Capital's Weakest Link!](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Limits Text as retrieved on October 23, 2026; originally published September 2, 2026. The page was edited after publication; the retrieved text may contain later additions, which cannot be distinguished from the original post here. The post refers to charts and data sources, but the supplied evidence does not include the underlying datasets or chart contents for independent review. ## Open question What evidence can distinguish companies whose scaling choices leave a path to profitability from those whose choices make it harder to build a viable business? ## Source-stated Damodaran argues that scaling up does not automatically lead to profitability, which depends on other business factors. > scaling up is not a mantra that automatically translates in profitability - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source-stated Damodaran says venture capitalists’ pricing and exit incentives can direct investment toward seeking large winners rather than building businesses. > leading venture capitalists to direct their capital more into chasing the biggest winners than in building businesses - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source-stated Damodaran reports that companies going public have been waiting longer, scaling up more and deferring profitability. > they also seem to be deferring business building for much longer as well - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source-stated Damodaran argues that delaying business model development can make profitability harder to achieve. > the choices made to allow for scaling up may impede the pathway to profitability - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source and contributor context Aswath Damodaran · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Editorial provenance Version 1. Publication ID: ec646e91-578a-9f91-66b0-8dd5f8ad5ebd. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: passed by anthropic/claude-opus-5.5 on 2026-10-29T17:11:56.221Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: 9a0ded374287212eea7600964d94c35ff397fc55cc7d170c5a339de4830060a4. Source text hash: 68fa8fe682f86dbf4fc3758a5f25752dacd4292d015cf997c08d69e22120ec7e. ## Revision and source-check history ### Version 1 — 2026-10-29T17:13:54.915Z Aswath Damodaran’s post, published September 2, 2026, argues that venture capital and changes in private and public markets encourage young companies to prioritize scaling over profitability. He distinguishes scaling, often measured by revenue, from building a business that can generate profits and cash flows. Whether growth can lead to profitability depends, he argues, on factors such as market size, unit economics, capital intensity and competition; scaling does not automatically create a viable business model. Damodaran says investors’ focus on pricing companies and earning returns at exit can push venture capitalists to seek large winners rather than build businesses for the long term. He also points to companies waiting longer to go public while growing revenue and delaying profitability, and raises concerns about governance and whether some business models can become self-sustaining. The post’s retrieved text may include edits made after publication, so its claims are presented as Damodaran’s account rather than independently verified findings. ## Original source Aswath Damodaran · Article Original source date: Sep 2, 2026 (2026-09-02T13:39:51.574-04:00). Date basis: Date supplied by the publisher’s feed. Added to Escape Meridian: 2026-10-29T17:13:54.915Z. First observed: 2026-10-23T11:22:46.294Z. Retrieved: 2026-10-23T13:09:06.387Z. - [The Scaling and Profitability Trade off: Venture Capital's Weakest Link!](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Limits Text as retrieved on October 23, 2026; originally published September 2, 2026. The page was edited after publication; the retrieved text may contain later additions, which cannot be distinguished from the original post here. The post refers to charts and data sources, but the supplied evidence does not include the underlying datasets or chart contents for independent review. ## Open question What evidence can distinguish companies whose scaling choices leave a path to profitability from those whose choices make it harder to build a viable business? ## Source-stated Damodaran argues that scaling up does not automatically lead to profitability, which depends on other business factors. > scaling up is not a mantra that automatically translates in profitability - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source-stated Damodaran says venture capitalists’ pricing and exit incentives can direct investment toward seeking large winners rather than building businesses. > leading venture capitalists to direct their capital more into chasing the biggest winners than in building businesses - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source-stated Damodaran reports that companies going public have been waiting longer, scaling up more and deferring profitability. > they also seem to be deferring business building for much longer as well - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source-stated Damodaran argues that delaying business model development can make profitability harder to achieve. > the choices made to allow for scaling up may impede the pathway to profitability - [Supporting source](https://aswathdamodaran.blogspot.com/2026/09/the-scaling-and-profitability-trade-off.html) ## Source and contributor context Aswath Damodaran · Publisher The publisher is identified here. No individual author has been inferred. ## Source media Media retrieval status: unchecked. ## Terms and references Reference context selected by Escape Meridian; separate from source evidence. Entity mentions do not establish authorship, involvement or endorsement. ## Editorial provenance Version 1. Publication ID: ec646e91-578a-9f91-66b0-8dd5f8ad5ebd. Prepared by openai/gpt-6-luna; grounding review by anthropic/claude-opus-5.5. Source check: passed by anthropic/claude-opus-5.5 on 2026-10-29T17:11:56.221Z. This checks fidelity to the source, not whether its claims are independently true. Editorial selection: accept; reasons: bridge\_admitted\_by\_model. Observation: 9a0ded374287212eea7600964d94c35ff397fc55cc7d170c5a339de4830060a4. Source text hash: 68fa8fe682f86dbf4fc3758a5f25752dacd4292d015cf997c08d69e22120ec7e. ### passed — 2026-10-29T17:11:56.221Z — anthropic/claude-opus-5.5 Publication: ec646e91-578a-9f91-66b0-8dd5f8ad5ebd attribution — pass: The post appears on Aswath Damodaran's own blog, and the reading attributes its arguments to him throughout. It does not present his views as independently verified facts. > In this post, I want to zero in on the scaling and profitability trade off summary — pass: The title, summary and question accurately reflect the post's thesis: VC incentives and market changes favor scaling over profitability. The summary explains scaling as growth, often measured by revenue, and contrasts it with building a profitable business, so a general reader can follow it. Terms such as unit economics are listed as factors rather than central claims. The question follows from the post's distinction between scaling and business building. > scaling up is not a mantra that automatically translates in profitability date — pass: originalPublished is 2026-09-02T13:39:51-04:00, which is September 2, 2026 in UTC, matching the stated date. The source is a publisher page, so no archive disclosure is needed. The reading relies on no events after publication and uses no hindsight framing. The source's mentions of a June 2026 SpaceX IPO and a 2023-2026 period predate publication. The reading discloses the later edit. support — pass: Each claim's excerpt is verbatim and comes from the core argument of the post, which is plainly part of the original piece rather than a later addition. The summary's points on governance, delayed profitability and VC exit incentives are source-stated. Significance is kept attributed, and the reading discloses the post-publication edit and the unchecked chart data. > Private businesses are deferring building business models & profitability media — pass: No media was selected, and no verified candidates were supplied, so nothing is misidentified. ## Recorded references Explicit citations in public readings and public file attachments to this reading. Shared topics are not citations. Other artifact types need an explicit reference adapter. No public references recorded here yet. [Reference data (JSON)](/readings/adf677efada42c6e212839470a9e71d08a7b3dac00f380651de7140121ace922/references.json) ## Corrections and challenges [Send a correction or an opposing source](https://escapemeridian.com/corrections/) [JSON record](https://escapemeridian.com/readings/aswath-damodaran-argues-venture-capital-favors-scaling-over-adf677ef.json)