A few months ago, I was listening to The Slow Hunch podcast, on which the founders of the venture capital firm Union Square Ventures (USV) were interviewed. Fred Wilson and Brad Burnham are the founding partners; they shared stories of founding the firm and notable investments such as Twitter, Etsy, Cloudflare, and Coinbase.

Burnham mentioned a framework they used to develop their initial investment strategy. Where he and Wilson thought they were in the period’s technology cycle played a big role in their strategy. It led them to focus on investing in the application layer of the internet because, they realized, the infrastructure phase was behind them. They got this framework from a book Burnham had read. It had a profound impact on him and positioned USV to become one of the top investment firms by identifying the right founders and companies given their understanding of the technology cycle. You can listen to the sections of the interview where Brad talks about the book and how they used it here and here.

This piqued my interest and led to my booking that book, Technological Revolutions and Financial Capital, by the Venezuelan economist Carlota Perez. The book is a blend of a history and a framework. It describes a way of thinking about cycles created by new technology and financial capital and analyzes the five major technology revolutions over the last 250 years and their implications for society: the industrial revolution; steam and railways; steel, electricity, and heavy engineering; oil, cars, and mass production; and information technology and telecommunications.

The core premise of this book is that the combination of new technology and financial capital applied to it creates a technology revolution that leads to speculative bubbles.

According to Perez, each technology cycle lasts roughly 50 years and follows a consistent evolution through three phases:

• Installation. New technology is created, and infrastructure is created to support it.
• Turning point. Speculators’ unrealistic expectations related to the new technology cause a recession or financial crisis.
• Deployment. New technology is distributed widely across society and is accepted, with new rules and regulations being implemented to avoid future crashes.

The book dives deep into the economic and societal impact of each phase, which I found very useful.

Anyone interested in understanding how long technology cycles work, how capital and new technology complement each other, or how speculative technology bubbles work should consider giving Technological Revolutions and Financial Capital a read. It’s dense and full of lots of material that will make you stop and think, so it isn’t a casual read. But Perez’s framing is especially helpful to me as I think about the current AI wave and where we likely are in the long AI cycle.