A discussion about markets and entrepreneurs. This is economics as it ought to be:

Markets work. Market prices provide information about lots of disparate things instantaneously. Market prices tell you to dig deeper for more. Every single activity belies a market. Angel investing has a market, with supply and demand and market prices. When someone tells you that in the midwest they could only raise capital at a $3M pre-money valuation, but on the coasts could do it for $6M-is that a bubble on the coasts? Or is the midwest undervalued? Who’s right and who’s wrong is the answer that everyone wants to know.

The answer is that markets set the price and there isn’t a way to arbitrage between angel markets on coasts. Investments are stuck in probability theory. It’s either x, or 1-x. Once the check is written, there are only two outcomes, success or failure. Since it’s easier to start a business than ever before, it’s no surprise that we are seeing a lot fail.

Each separate market is efficient. Additionally, they each have their own supply and demand curves. More supply in this case means more capital. If demand for that capital stays the same, prices will rise. As prices rise, more demand enters the market and you have what looks like a bubble as long as the supply of capital can keep flowing to meet higher and higher levels of demand.