Aswath Damodaran analyzes the tradeoff between expansion and profitability: the weakest link in venture capital

Aswath Damodaran, a professor at NYU Stern School of Business, writes that the current venture capital industry generally prioritizes corporate expansion over profitability, a tendency that has become more pronounced over the past two decades. He breaks down six core factors influencing a company's expansion potential, including market size, market growth rate, industry structure, capital intensity, customer inertia, and dependence on key individuals. He also identifies the key variables determining a company's profitability feasibility as unit economics, economies of scale, and competitive barriers.