A well written article about the change of dynamics on the economics of the venture capital industry. The author suggests 3 reasons why the return on capital will gradually tend to zero.
- Technology makes innovation cheaper, making capital abundant
- Technology makes capital markets and the allocation of abundant capital more efficient
- The effect of decreasing returns will be even more striking on asset-heavy industries.
The whole premise of this article is that technology progress, foster the process of disruption. If we agree with the theory of disruption, the value that will be created are in greater scale captured by the entrepreneurs, not by the investors who assume the risk. There is a change in the economic value.
The funny thing is that we still talk about sustaining competitive advantages, in a world where any advantage is only transient or temporary.