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The causes of inflation are, of course, complex, and there is currently no inflation formula. However its fair to say that the distribution of money does not ca

The causes of inflation are, of course, complex, and there is currently no inflation formula. However its fair to say that the distribution of money does not cause inflation. Equally lots of people getting govt money does not cause inflation. Even less so since a) its not life-changing amounts and b) it's mostly replacing lost incomes from elsewhere. The movement of money (aka this thing we call The Economy) is the direct goal of the distribution. We Want people to spend the money - it is precisely why its being distributed. Again, while inflation is complex, it's fundamentally caused by an imbalance of supply and demand. Ie an oversupply of money coupled with an under supply of what people want to spend that money on. This happens locally all the time, an over supply of VC money into SF leads to a housing shortage, which causes massive rent inflation. The US economy (ie the balance of goods and money supply) at a national level is based on consumer consumption of cheap goods. Cheap food (locally produced) and cheap consumer goods (mostly imported - much of it from China) coupled with cheap energy (local / imported). In the US on thing matters - the consumer price - the ultimate _cost_ is not considered. The current issue for inflation is not the over-supply of money. Its the costs of things like Trade wars, tariffs, and the like. Those costs translate into higher prices at the till (driving up prices to make US products competitive is the exact goal of tarrifs). Ultimately some inflation would be a good thing. A lot of it is bad. But I don't think you need to worry. Govt cheques to poor people, will ultimately end up swelling the coffers of VC accounts - which in turn will lead to more money for them to distribute. Put another way, inflation affects all investments - especially cash - if anything it just increases the appetite for a big score.

olhausler 6y ago
Yes, all those funds will finally end up in VC coffers, and exactly this I find worrying, when looking at it from the startup's side. Let me make an example with numbers: In a normal world, during a funding round a startup receives for example $10MM for 20% of their stock. They typically calculate with 2 years to spend the funds plus 18 months runway. Not calculating the extra money the startup must raise to be on the safe side, if the $10MM is worth a lot less at the end of a cycle because of inflation, part of the stock they sold went into "funding inflation". As the startup can only do so many rounds until founders are fully diluted, at some point, inflation will dilute founders so much that they may walk away, for the bad of both sides. IMHO, like so many things, the current investment model only works well when inflation is low.

olhausler 6y ago

Yes, all those funds will finally end up in VC coffers, and exactly this I find worrying, when looking at it from the startup's side. Let me make an example with numbers: In a normal world, during a funding round a startup receives for example $10MM for 20% of their stock. They typically calculate with 2 years to spend the funds plus 18 months runway. Not calculating the extra money the startup must raise to be on the safe side, if the $10MM is worth a lot less at the end of a cycle because of inflation, part of the stock they sold went into "funding inflation". As the startup can only do so many rounds until founders are fully diluted, at some point, inflation will dilute founders so much that they may walk away, for the bad of both sides. IMHO, like so many things, the current investment model only works well when inflation is low.