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This could have wide implications for the startup community. A lot of people think that the current really high late-stage startup valuations, and the money pou

by SeoxyS 11y ago

This could have wide implications for the startup community. A lot of people think that the current really high late-stage startup valuations, and the money pouring into the seed stage is an effect of the low interest rates. With no way to get any decent yields with these rates; it incentivizes institutional money to chase returns in alternative investment classes.

api 11y ago
Not sure how much it will impact startups with saner valuations, but yes I do suspect we might see a unicorn apocalypse at some point in the future. If it happens it will unroll more slowly than a public market crash since these markets are mostly illiquid and private. What you'll see is former unicorns raising down rounds and a general regression of other valuations in proportion to how over-inflated they might be. I wonder if it might even help the other "99% of startups" by making their saner valuations seem... well... sane. Tangential but I've wanted to ask around here for a long time: WHY would a founder seek such insane valuations? I feel like there must be something I don't get. I understand wanting a higher valuation to raise more money with less dilution to a point, but insane valuations strike me as very dangerous. If these valuations fall then the effect is not terribly unlike a full ratchet and multiple liquidation preference and other founder-hostile terms. Right? Or am I clueless here?
- stanleydrew 11y ago
  You are not clueless. It's just nearly impossible to draw an actionable line in the sand where on one side your valuation is sane and on the other it isn't. You certainly can't do that in any kind of general sense. Every startup is by definition unique. And there's almost always a way to justify a higher or lower valuation for any given company.
  - api 11y ago
    Oh sure, it's a judgement call. I would say as a founder that it's best to seek a high but not insane valuation, and of course the definition thereof depends on multiple factors: what I think a reasonable growth estimate is (while not under the influence of drugs), what the market is currently paying for capital (average, not outliers), etc. If every living multicellular organism on Earth would have to create an account on your service for it to be worth X, X is probably insane. If you have no meaningful revenue, then in most cases a valuation more than one standard deviation among the mean for your sector and maturity is probably nutty.
xienze 11y ago
Well, interest rates are still ridiculously low even after this "hike".
jayess 11y ago
Yes, this is precisely how central banking creates bubbles.
gotchange 11y ago
> This could have wide implications for the startup community. More like a tempest in a teacup. I wouldn't qualify a meagre 0,25% interest rate increase as huge or potentially having wide implications on the market.
gozur88 11y ago
It will probably have some effect, but that effect will be swamped by other considerations.
tdaltonc 11y ago
Are there any in depth analysis of this idea (short term interest rates have a quick, big effect on the availability of VC capital)?

by SeoxyS 11y ago

api 11y ago

Not sure how much it will impact startups with saner valuations, but yes I do suspect we might see a unicorn apocalypse at some point in the future. If it happens it will unroll more slowly than a public market crash since these markets are mostly illiquid and private. What you'll see is former unicorns raising down rounds and a general regression of other valuations in proportion to how over-inflated they might be. I wonder if it might even help the other "99% of startups" by making their saner valuations seem... well... sane. Tangential but I've wanted to ask around here for a long time: WHY would a founder seek such insane valuations? I feel like there must be something I don't get. I understand wanting a higher valuation to raise more money with less dilution to a point, but insane valuations strike me as very dangerous. If these valuations fall then the effect is not terribly unlike a full ratchet and multiple liquidation preference and other founder-hostile terms. Right? Or am I clueless here?

stanleydrew 11y ago
You are not clueless. It's just nearly impossible to draw an actionable line in the sand where on one side your valuation is sane and on the other it isn't. You certainly can't do that in any kind of general sense. Every startup is by definition unique. And there's almost always a way to justify a higher or lower valuation for any given company.
- api 11y ago
  Oh sure, it's a judgement call. I would say as a founder that it's best to seek a high but not insane valuation, and of course the definition thereof depends on multiple factors: what I think a reasonable growth estimate is (while not under the influence of drugs), what the market is currently paying for capital (average, not outliers), etc. If every living multicellular organism on Earth would have to create an account on your service for it to be worth X, X is probably insane. If you have no meaningful revenue, then in most cases a valuation more than one standard deviation among the mean for your sector and maturity is probably nutty.

xienze 11y ago

Well, interest rates are still ridiculously low even after this "hike".

jayess 11y ago

Yes, this is precisely how central banking creates bubbles.

gotchange 11y ago

> This could have wide implications for the startup community. More like a tempest in a teacup. I wouldn't qualify a meagre 0,25% interest rate increase as huge or potentially having wide implications on the market.

gozur88 11y ago

It will probably have some effect, but that effect will be swamped by other considerations.

tdaltonc 11y ago

Are there any in depth analysis of this idea (short term interest rates have a quick, big effect on the availability of VC capital)?