This is a brief review of the essay Making Markets in Time by Abhraham Thomas.

I first heard of Abraham Thomas, from my then IIMA junior Sudhir Sitapati. This was just before Malhar ’97, the Xavier’s college fest. I was in the IIMA team for the Malhar quiz, and Sudhir told me that AT (as Abraham Thomas was called) was a formidable quizzer representing IITB. For some reason Sudhir, ever the narrator (even then!) positioned it as a Sajith vs AT miniduel ha ha! IITB / AT won; I think it was a close one, at least my memory says so. But memory can of course be misleading.

I subsequently heard from Sudhir that AT was coming to IIMA for this MBA, then heard that he had cracked 800 in GMAT, and that instead of joining the elite US B-School he was admitted to, was joining a Japanese hedge fund. He then had an entrepreneurial stint, founding an alternative data startup Quandl and then exiting to Nasdaq. Post the acquisition, he now angel invests, and writes an infrequent newsletter, bringing out thought-provoking essays on economics and operations of data businesses, and venture capital.

A few years back, he wrote an excellent and more importantly, well-timed essay titled Minsky Moments in Venture Capital. ‘Minsky Moments’ happen when capital inflows lead to reduction in perceived risk (true risk remains). He posited how the then accelerating timelines in venture (this was late ’21 / early ’22 before the cycle turned) when decelerated could spark a bust like the one that impacted the credit markets in ’08-09. I thought the piece was v clever. In particular the observation on time acceleration in VC was astute. Some of what he said indeed has turned out true, but then it seems we are back to accelerating timelines in venture again (at least for AI companies!).

AT is back again with an excellent essay, this one titled Making Markets in Time. There are broadly two parts to the essay. The first section is where he contrasts Wall Street with Venture. Just as Wall Street is in the business of spatial arbitrage (helping smoothen geographical trade) via derivative / future & options markets, venture is in the business of temporal arbitrage, he writes. It is a good analogy. Just as Wall Street divided and defined risks across different trades / markets across space, Silicon Valley / venture divided and defined risk across different stages (Seed to A, to B, to F etc). This in itself is not new – I have written in my essay ‘Exhaust Fumes’ on how venture’s true genius was to invent the concept of long-term multiparty staging games as a way to value and move a company from idea to IPO. Still, I like the way AT contrasts the two markets (Wall Street and Silicon Valley) and lays out how each has made risks / arbitrage opportunities ‘legible’. There is also an interesting segment in the essay about how this staging / dividing and defining, leads to consensus thinking / group think amongst VCs. I really loved that line about venture being the ‘Keynesian beauty contest’ in its purest form.

The second part, where he uses the above segment on consensus thinking to leap into how how VCs are effectively price makers, and how increased capital flows as well as ambition is leading to them becoming market makers was excellent however. It explains what is leading to the rise of venture majors as AT calls them, or capital agglomerators (as Kyle Harrison puts it) – the likes of A16Z, General Catalyst, Lightspeed, Sequoia which are multistage multisector funds increasing their marketshare of venture capital. I loved the segment on how he shows venture majors / agglomerators show all the attributes of market makers (like Goldman, Morgan Stanley etc., on Wall Street) such as desire for coverage, consensus thinking etc. It is the best clear (and correct) explanation for what is leading to the rise of these large capital agglomerators and their behaviour.

The essay is called ‘Making Markets in Time’, and it is worth a read for every venture investor.