A lot of this is because VCs are in bed with the media, especially tech news sites. They've been publicly and loudly unhappy with the prices of rounds for several years now. They raised an enormous amount of capital over the last few years that they are expected to deploy as soon as possible. This is all coordinated with a drop in public markets and, yes, somewhat of a tech bubble, to force valuations down and make them more palatable for VCs.
Source: Former SV startup CEO currently helping with a raise at an AI company. We aren't getting pushback on anything except our valuation which they constantly use the news of the day to try to lower.
It's not like VCs don't have capital on hand and it's not like they will all have big paydays if they don't invest it. They just want better returns and have for a while.
The whole economy is intertwined. This is a very simplistic way of looking at it, but if you can park risk-free capital somewhere which generates high interest, the opportunity costs of investing in tech become higher, so VCs stop investing. Also - you're committing money in a business with a higher risk of not returning them given the economic outlook of their customers and revenue. Tech isn't isolated from the world.
>"This is a very simplistic way of looking at it, but if you can park risk-free capital somewhere which generates high interest, the opportunity costs of investing in tech become higher, so VCs stop investing."
But if the funds are not investing, that money is not doing any work. How long are investors willing let that cash sit idle before they ask for redemptions?
When interest rates are low, there's a lot more money sloshing around in search of better return, instead of just comfortably getting a high, low-risk return. When more money sloshes around, higher-risk investments like VCs get more money.
Most of these tech companies build business models around giving away money, with a plan of eventually making a profit. They are affected by interest rates because the higher interest rates you have today, the more attractive it is to have money today instead of tomorrow. Interest rates available today are the discount rate for those future cash flows (profit).
This. Historically, a company is fundamentally valued by the discounted rate of its free cash flows into the future. The discount rate is decided by several factors including the risk free rate.....which is frequently tied to interest rates. So interest rates go up, the risk free rate goes up, cash flows become worth less, and corporate valuations go down.
We only have data for the present and the past. Prediction is hard, especially for the future.
I prefer using nominal quantities, known values, and ignore people's predictions. Not that they are always wrong, or never right. But because I like to make decisions based on facts.
in addition to the article mentioned by the replier, also, keep in mind that the way that equity markets work: it's all about the ratio of buying to selling. if there's even a small skew in buyers to sellers it can send prices up or down by quite a bit. IE: a 10 Billion$ fund, doesn't need to see 2B sold in order to go down 20%, a much smaller amount sold can affect the price quite dramatically, depending on the ratio. So, if a few buyers turn into sellers, it can cause quite the correction.
also, keep in mind that markets are forward looking to about 6 months. right now they're starting to price in a mild recession.
I think the dynamic for private (VC) money and public markets are different
VC money will dry up as endowments look to shift more money into safer asset class when interest rate is high
public markets company valuation models change with interest rates changing. when rate is close to 0 investors are willing to buy asset with a very long term view for expected future profit (say 10 years). when rates go up that time frame shortens since opportunity cost of buying that stock today is now much higher.
The issue is that when tech companies look reasonable, everyone and their mother buys in until they look unreasonable.
There is nothing else to believe in. We have one growth industry in this world and it’s tech. It’s not a bubble, it’s the economy running on one lung. You can deflate it and hold your breath, but once you need oxygen, you are going to fill it up rapidly from holding your breath that long.
The same is true for housing. We need other viable industries.
No no no, don’t say that. Your water, roads, sewage, and electricity have not been universally solved. It has nothing to do with better opportunities. It’s a shithole you guys are not committing to fixing.
It's easier to move (yourself and your family) to a more favorable country than to change an entire country to be more favorable, especially considering how large and complicated these nations are.
The downside is that the people leaving also tend to be the most capable of producing that change so the brain/skills-drain is self-perpetuating once it starts.
> The downside is that the people leaving also tend to be the most capable of producing that change
Some % of people, yes. But not everyone leaves. As long as enough brilliant people remain and there can be economic and scientific progress breaking the shackles of a millennia of rule, things can become right. These things are slow and take time though.
Better to yell when the car diverts west when it really needs to turn south immediately to get to the destination. Otherwise you end up all the way west and that’s the biggest waste of time of all. This is where being friendly is not optimal (or even correct).
The relative change in the number of goods/services for sell. This is determined by taking the $ output and then dividing by regularly adjusted industry specific normalizing factors to try to convert $ to quantity.
Labor productivity (what this article is mentioning) is then further divided by total hours worked across all considered industries.
How do you differentiate what you are saying versus what people have always said about reading comic books all day, or playing video games all day, watching tv, listening to certain music, spending all your time on the internet, etc?
Life is boring as fuck. It really is. It takes a lot to keep a human captivated.
Life is what you make of it. Personally, since I've become an adult, I couldn't tell you the last time I remember experiencing boredom. And I have deliberately disconnected myself as much as I can. My phone is always on silent mode, and I've turned off notifications for every app except text messaging and calling. I deleted my last social media account a few years ago, and I try to the best of my ability to use my computer and my phone for things that are not mind-numbing, e.g. I don't play mobile games, I don't mindlessly watch youtube videos, etc. I limit my consumption.
Even if you spent the entire day sitting in front of a blank wall, there are literally endless things you could think about and explore. You could think about the things in your immediate environment, how they work, how they came to be, how you could improve on them. You could run any number of thought experiments like if we made contact with an alien civilization how would we come to understand each other? You could think about your goals in life and steps to achieving them, explore why you are experiencing problems with certain people and how to resolve them, or just reminisce and be grateful for things you have.
>Even if you spent the entire day sitting in front of a blank wall, there are literally endless things you could think about and explore. You could think about the things in your immediate environment, how they work, how they came to be, how you could improve on them. You could run any number of thought experiments like if we made contact with an alien civilization how would we come to understand each other?
I spent 9 days in the hospital a few years ago, mostly unable to move. The boredom was absolutely crippling. I consider myself a fairly scintillating person who enjoys time by himself, but I couldn't go more than a couple hours staring out my window without needing the warm sedation of daytime TV. There are only so many alien civilization thought experiments one can run without needing some external stimuli!
But - I would also argue that boredom is not a negative state of mind. Boredom motivates us to think, to dream, to change, to move our bodies, to be creative, to seek connection, to free associate, to let our minds rest, to..., to..., to…
Perhaps, our minds aren’t built to be captivated all day (though the root of the word does feel appropriate to the conversation).
> I think it’s important to point out that this is what the Fed has been waiting for since 2008. We needed inflation. Now this debt gets washed away.
Can you elaborate on that? It seems related to my observation that balance sheet reduction ideas partially handle themselves.
The Fed and the rest of us are still operating on the general expectation that the borrower repays. The Fed holds collateralized debt backed by mortgages being repayed, they hold corporate bonds, and they hold US treasuries. A default of course would be largely inconsequential and only mildly embarrassing for the Fed, as there are no Federal Reserve shareholders affected by the Fed's performance (although there are shareholders).
Aside from being able to point at their balance sheet and say "see, numba go down!" I really can't extrapolate too much more from that. It is convenient that the Fed's own market manipulations assist in the declining asset valuations to make that number go down faster. But its merely an observation.
The balance sheet expansion beginning in 2008 was mostly the purchasing of these mortgage backed securities, but more than half was from covid relief packages that Congress forced the Fed to participate in (but lets not pretend a scared congress wrote those packages overnight, that stuff was prewritten opportunist end game moves, accelerating the existing macroeconomic trends that were just waiting for a catalyst)
Given so many purchasing sprees and balance sheet increases have occurred since 2008, I can't really focus on 2008. The maturing assets are being repaid and most(? maybe?) have a fixed interest rate thats already set in stone, so I can't really worry about this idea of the Fed's hands tied or actions related to this. Yes, if the mortgage holders have a disruption in ability to repay - and the same for the corporations - then the Fed.... has faster declining asset values? I don't know if they really care about the performance.
That’s one way to look at it. The other way is to determine confidence. Either way, these are character traits and filtering for one or the other is unfortunate. Teams should mimic villages, everyone is there. Everyone. The shy, the arrogant, the nice, etc. There will be flawed people in a village, but that is a village. Not utopia.
