NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.
Today’s gem is a book excerpt from George Soros’ Alchemy of Finance, written in the late 1980s discussing venture capital’s boom and bust.
This could’ve been written today and it would still hold true as I’d wager we are in a similar position today. Too much venture capital has resulted in being overbuilt in technology startups as of late.
When Soros says “industry grew by the multiplication of companies” … this is what the author of Capital Returns was referring to as fragmentation. Too much capital flowing into a sector will results in fragmentation (new entrants), and in turn, investor returns worsening. More capital doesn’t mean more demand, but it certainly means more supply.
This book excerpt from ~35+ years ago is just more evidence that everything in finance is cyclical. We learn lessons in bear markets but quickly forget them in bull markets.
Shoutout to Arda Capital for surfacing this gem!