Aswath Damodaran

The NYU economics/finance professor whose round-by-round breakdown of the Instacart IPO is the load-bearing source for Kyle’s essay The Value Chain of Capital. In his Instacart video (“Putting The (Insta)cart before the (Grocery)horse”), Damodaran argues that venture’s “superstar investor” reputation is largely selection bias in the success stories that get written about, amplified by relentless self-promotion: “most successful VCs share more with successful traders than they do successful investors. They play the pricing game… they get judged on timing. When they enter and when they exit.” In aggregate, he says, VCs are average investors who “got caught up in mood and momentum” — “traders on steroids, riding the momentum train, and being ridden over by it, when it turns.”

His second framing that Kyle builds on is the winner-stays-winner flywheel: a brand-name VC wins better terms because founders want them on the cap table to draw in other VCs — the structural seed of the essay’s “back-scratch circle.” Damodaran’s arithmetic also makes the Venture Returns dependency concrete: Instacart’s early-investor returns rest on roughly $1.8B of later, largely unprofitable capital, so a company’s terminal value is dependent on downstream, often money-losing rounds.

His May 2009 working paper Valuing Young, Start-up and Growth Companies is the long-form version of the same skepticism. It argues that the venture capital method (a short forecast, an exit multiple and a 50-70% target rate of return) makes valuation “a bargaining point between the two sides rather than the subject of serious estimation,” and replaces it with discounted cash flow, total beta and an explicit probability of failure.

Context: Aswath Damodaran is a professor of finance at NYU’s Stern School of Business, widely known as “the Dean of Valuation” for his books, public datasets, and blog on company and asset valuation.

X: @AswathDamodaran

Where this appears

• The Value Chain of Capital - Research — the verbatim Instacart quotes, the round-by-round return breakdown, and the “VCs are traders, not investors” thesis.
• Instacart — the worked example whose cap table and capital burn supply Damodaran’s analysis.
• Venture Returns — his “traders on steroids” / pricing-game framing anchors Kyle’s treatment of how venture returns are actually generated.
• Valuing Young, Start-up and Growth Companies — his 2009 paper on valuing young companies, and his critique of VC target rates of return.