Article Summary

Abraham Thomas revisits a previous essay "Minsky Moments in Venture Capital," diving into the concept of temporal arbitrage in Silicon Valley. The core idea is that just as Wall Street profits from spatial arbitrage (exploiting price differences in different locations), Silicon Valley thrives on arbitraging time.

Think of it like this: Consider a simple loaf of bread. Its price reflects a complex chain of factors, from wheat prices to bakery costs, all linked and balanced by profit-seeking intermediaries. Financial markets make this more efficient, allowing traders to specialize in specific parts of the chain.

Modern venture capital has done something similar, Thomas argues, but with time. It has divided the journey from startup inception to IPO into stages (seed, Series A, B, etc.), and specialist investors focus on bridging the gaps between these rounds.

This "divide and define" strategy—slicing up the timeline and specifying milestones for each stage—makes the inherently risky business of investing in innovation more manageable. A seed investor, for example, only needs to assess the company's potential to reach the Series A stage. This temporal arbitrage has unlocked massive capital inflows into venture capital over the last 15 years, as it derisks the sector and makes it "legible" to a wider range of investors.

However, this system also breeds a herd mentality.

Because venture capital relies on a strong shared consensus about where a company should be at each stage, VCs prioritize "fund-ability" - building a company that meets the arbitrary milestones that downstream investors care about.

Modern VC firms act as market makers, less concerned with intrinsic value than with whether the next investor will follow. The author concludes that this is the price paid for making venture accessable, which has led to massive capital inflows into the asset class, helping investors and founders alike.