Often, innovation is real and transformative. But sometimes, it is just a cylinder rotating smoothly while a spiral painted on its surface gives the illusion of ascent.
November 22, 2025
A reflection on value creation, circular finance and the illusion of growth in modern venture capital
There is a moment in financial history that I often return to whenever today’s markets seem a little too self-assured. It is the story of the seventeenth-century European goldsmith-bankers—men who discovered, almost accidentally, that not everyone would reclaim their gold at the same time. By quietly lending out the deposits entrusted to them, they birthed a new economic engine: fractional-reserve banking. Suddenly, growth no longer depended on the amount of gold in the vault—it depended on confidence.
That shift created enormous prosperity, but it also created fragility. Credit expanded faster than reserves. Periodic panics followed. And eventually, the first central banks emerged to stabilise a system built partly on belief.
We tell ourselves that we now operate in a far more sophisticated world. Our venture capital firms, private equity funds, and technology ecosystems pride themselves on discipline, innovation, and rigorous financial models. Yet sometimes, when I examine how private markets function, I sense echoes of the same structural illusion: value expanding not because the underlying asset grows, but because participants collectively agree it has.
A modern spiral painted on an old cylinder.
Early banking was anchored to external, tangible assets: gold, silver, copper, land.
Modern venture finance is anchored to internal, interpretative ones: IP, implied growth, future cash flows, founder charisma, and market positioning.
These are not meaningless anchors—but they are not stable in the way precious metals were. They depend on reinterpretation. They rely on belief.
The quant Aswath Damodaran once wrote that a valuation is “a storytelling exercise with numbers attached.” Today it is often the story, rather than the numbers, that carries the weight.
It is no coincidence that a popular academic description of portfolio construction uses similar imagery. In The Circle of Investment, quantitative researcher R. Kashyap writes:
“The entire investment process can be seen as a dotted circle, with no clear centre and no fixed radius.”
The metaphor is apt: the system orbits itself.
One YouTube commentator, discussing the recent surge of AI start-ups, put it bluntly:
“The entire AI industry is being propped up by a complicated web of circular financing deals where all the companies are funding each other.”
It may sound dramatic, but the underlying logic is familiar across tech sectors. A pattern emerges:
Yet real customer demand is unchanged. No new market has been created. No underlying productivity has improved.
Another commentator explained the mechanism in even clearer terms:
“Round-tripping is when companies pass the same money around in a circle to mutually inflate their valuations.”
It is not always illegal. It is often subtle. And it is surprisingly common.
The spiral moves—but the cylinder beneath remains the same size.
Most outsiders imagine that investment committees, fund managers, and technology strategists operate in a marketplace of discipline where prices reflect some hard economic truth. But early-stage finance is far more social than analytical. Valuations are as much endorsements as they are calculations.
A tight circle of investors co-invest, share deal flow, validate each other’s theses, and—intentionally or not—create a feedback loop of perceived success.
This insulation from the outside world is not a conspiracy; it is simply how early capital markets behave. But it means many start-ups are valued not according to what the public demands, but according to what insiders believe the public will eventually demand.
Even sceptics within the industry acknowledge the dynamic. In a Bloomberg interview about AI valuation bubbles, one strategist noted that “circular investments” exist but didn’t see them as concerning—suggesting again that belief, rather than evidence, governs risk.
It is reminiscent of the goldsmiths: as long as confidence holds, the system works.
When confidence cracks, the spiral stops.
This raises a practical question: can we map these circular flows?
Imagine an application that:
A kind of value integrity scanner.
Visually, the system would reveal precisely what the public often cannot see:
where a genuine spiral of growth exists—and where a simple cylinder has been painted to look like one.
When a banking system runs on circular logic, it collapses quickly.
When a tech ecosystem runs on circular logic, it collapses slowly—and often quietly—but with broader consequences:
The public sees rising valuations and assumes something profound is happening. Sometimes it is. Often, innovation is real and meaningful. But sometimes, the spiral is merely rotating while the cylinder underneath remains unchanged.
As one critic of modern valuation trends in tech put it:
“If growth is funded by investors rather than customers, it isn’t growth—it’s theatre.”
This is not cynicism. It is simply an acknowledgment that today’s financial system, like the seventeenth-century one, is held together by confidence.
Confidence is not a problem. But misplacing it can be.
If we want stronger markets—and better public understanding of how value is truly created—we need better tools, clearer data, and a willingness to look beyond the painted spiral.
Until then, the lesson from the goldsmiths remains:
value is only as sound as the anchor beneath it.
And when the anchor becomes a narrative rather than a material reality, the system depends entirely on belief not to wobble.
Noel Braganza is a designer and founder who enjoys working at the intersection of technology, behaviour and clear, thoughtful design. As Co-founder of MuchSkills.com - a Swedish SaaS company and Up Strategy Lab, he draws on a background in Interaction Design and research experience at the MIT Design Lab to build practical tools that help people and organisations understand themselves better.
He is especially interested in questioning inherited assumptions—about work, skills, growth and what it means to build a company with integrity. His ambition is to create tools and ideas that outlast trends, empower people, and challenge the conventional narratives around success, visibility and value.