That's not it.

When interest rates are low and you have piles of money, you seek higher risk investments with higher returns because low risk investments have virtually no returns on interest (if you factor in inflation, you've lost money over time in a low interest environment).

Think about this way: you wouldn't put $10,000 into a cash deposit for risk free 0.1% annualized return, but you might for 5%. So the shift in interest has changed the favorability of different investment vehicles.

If you are a VC, you might fund 100 companies and only 2-3 will be super profitable and generate the majority of your returns. Those returns in aggregate need to be greater than what could be achieved by parking the money in lower risk instruments. Easy in 2020 when interest was nearly 0. Now? Those lower risk instruments are much higher performing than they were 3 years ago. So if a VC portfolio had returns of 5% previously and now I can just park my $1m in a CD and get 4% RISK FREE, that VC suddenly has to perform at a higher level to compete. Otherwise if I'm a wealthy investor, why not just park my money in bonds or other investments that benefit from higher interest?

VC's probably aren't, at least not in the way you or i might, rather they're the recipient of other's investment cash. If interest rates are low, there are fewer opportunities for getting any kind of a return, so more investors will look at riskier options. Institutional investors, mutuals, retirement finds etc all have targeted return rates, even if it's "just" x% above inflation. So while their risk models might still only let them invest a small fraction of their capital in high risk instruments, that's still a small fraction of a very, very big pie. Google tell me the US VC market is 68.9bn, measured by revenue or 233bn globally.

While it's the extreme comparison, Blackrock have 8.5 trillion worth of assets under management.

So it would seem to me that relatively small changes in risk appetite have the potential for huge changes to vc funding.. because it was always a tiny part of the wider market

No, but some people have put their money into startups because banks were paying 0.5% interest.

Now, investors are getting a much better offer from the banks. Maybe they'll decide selling $10 taxi rides for $7 isn't something they want to continue funding.

Most banks would pay a negative interest. If you have any sort of fortune, you need to invest to make any interest, otherwise you'd see that fortune become smaller and smaller.

Arguably some have found it beneficial to invest in bonds with negative yields, because then they'd at least know that their money was safe and exactly how much it would cost over a given period.