5 ms·

Layperson here, I didn't know we were in an economic crisis that bad, is it global? What are the reasons?

rrrrrrrrrrrryan 4y ago
Inflation and interest rates are rising (for lots of reasons), which means money is getting much more expensive. This means that high-growth companies and unprofitable companies are going to get burned hard in the near future, because their very existence relies on access to cheap money. The wider economy isn't terrible. Inflation is rising and GDP is pulling back a little bit, but unemployment is low, and wages are mostly flat. But the NASDAQ (comprised of mostly tech stocks) is down 26%+ year-to-date and falling. People on this forum mostly work in software, and this downturn will almost certainly shift the balance of power from unprofitable high-growth companies (especially crypto, Web3, etc.) to companies that actually make real money.
gen220 4y ago
There's a trend of global economic inflation, caused by supply issues in energy (oil, gas in all forms) related to the war in Ukraine, supply issues more broadly related to a hangover from COVID's supply/demand shocks. Interest rates are rising, to appease inflation. As the interest rate goes up, allocators of capital have less appetite for risky allocations. This makes access to capital for VC firms becomes more competitive. This makes access to capital for "startups" becomes more competitive. There's also a bigger macrotrend, which is another hangover from COVID: investment poured into the tech sector, which was booming during COVID. Investors over-bullishly priced-in the idea that this boom was, in fact, a new baseline or indicative of future exponential growth. As we recover from COVID, these pricings are increasingly revealed to be wrong as companies generally report post-COVID numbers that are closer to pre-COVID numbers. This is bad for investors leveraged on tech. Therefore, it's bad for VCs that raised LP capital on the basis of COVID performance. Therefore, it's bad for companies that raised >20x ARR multiples on the basis of COVID performance. Basically, it's a single or double whammy for most of the economy, but a double or triple whammy for unprofitable startups.
- MaxHoppersGhost 4y ago
  Energy prices being high are only a small part of it. Unfettered stimulus, even when we didn’t need it (eg rent payment moratoriums and stimmy checks while at full employment), is what’s driving it.
  - mikeg8 4y ago
    The largest portion of "unfettered stimulus" went to private companies in PPP loans... but that's rarely brought up, which I always find interesting.
    - 650REDHAIR 4y ago
      Every once in awhile I look up PPP loans of companies I know didn’t suffer any Covid-relates downturn (some even thrived) and am never surprised to see fat checks fully forgiven. Must be the greatest theft in US history.
      - jackcosgrove 4y ago
        > Must be the greatest theft in US history. In nominal terms it was.
  - gen220 4y ago
    The way I phrased it made it sound like energy prices were the only component, my bad. Yes, stimulus is a contributing factor. But I don’t think it’s the primary contributing factor, it depends on the sector. The price of oil affects the price of food, heavy things, etc much more than stimulus checks. I’m not saying stimulus has no impact on prices, but I think it’s erroneous to say it’s the “driving force” of 8% YOY inflation — maybe it’s the driving force of 2 or 3% of that? The price of gasoline is very underrated as an influence on prices generally: the cost of transport is the backbone of our globalized economy. On the flip side, partially thanks to direct stimulus checks, child credits, etc, median household savings are at an inflation-adjusted high watermark, and the debt:income ratios are also in a decent spot so the median American is better prepared for this recession than previous ones.
pyb 4y ago
The stock market is down and inflation is up, but are we really in an economic crisis just yet, or just predicting one in the future ?
somewhereoutth 4y ago
Zero Interest Rate Policy. Encourages resource mis-allocation, which means there is less stuff we actually need to go around. We should have used fiscal policy more aggressively to fix the Great Recession, but that would entail taking money from rich people and giving it to poor people, and we can't have that can we?
TameAntelope 4y ago
I wouldn't take this to be a guarantee that we're moving into a recession, but the VC market is drying up quickly, and this is an appropriate level of concern for YC to have for its companies.
quadcore 4y ago
Interesting. Local news says today US tech is in pain.

Inflation and interest rates are rising (for lots of reasons), which means money is getting much more expensive. This means that high-growth companies and unprofitable companies are going to get burned hard in the near future, because their very existence relies on access to cheap money. The wider economy isn't terrible. Inflation is rising and GDP is pulling back a little bit, but unemployment is low, and wages are mostly flat. But the NASDAQ (comprised of mostly tech stocks) is down 26%+ year-to-date and falling. People on this forum mostly work in software, and this downturn will almost certainly shift the balance of power from unprofitable high-growth companies (especially crypto, Web3, etc.) to companies that actually make real money.

gen220 4y ago

There's a trend of global economic inflation, caused by supply issues in energy (oil, gas in all forms) related to the war in Ukraine, supply issues more broadly related to a hangover from COVID's supply/demand shocks. Interest rates are rising, to appease inflation. As the interest rate goes up, allocators of capital have less appetite for risky allocations. This makes access to capital for VC firms becomes more competitive. This makes access to capital for "startups" becomes more competitive. There's also a bigger macrotrend, which is another hangover from COVID: investment poured into the tech sector, which was booming during COVID. Investors over-bullishly priced-in the idea that this boom was, in fact, a new baseline or indicative of future exponential growth. As we recover from COVID, these pricings are increasingly revealed to be wrong as companies generally report post-COVID numbers that are closer to pre-COVID numbers. This is bad for investors leveraged on tech. Therefore, it's bad for VCs that raised LP capital on the basis of COVID performance. Therefore, it's bad for companies that raised >20x ARR multiples on the basis of COVID performance. Basically, it's a single or double whammy for most of the economy, but a double or triple whammy for unprofitable startups.

MaxHoppersGhost 4y ago
Energy prices being high are only a small part of it. Unfettered stimulus, even when we didn’t need it (eg rent payment moratoriums and stimmy checks while at full employment), is what’s driving it.
- mikeg8 4y ago
  The largest portion of "unfettered stimulus" went to private companies in PPP loans... but that's rarely brought up, which I always find interesting.
  - 650REDHAIR 4y ago
    Every once in awhile I look up PPP loans of companies I know didn’t suffer any Covid-relates downturn (some even thrived) and am never surprised to see fat checks fully forgiven. Must be the greatest theft in US history.
    - jackcosgrove 4y ago
      > Must be the greatest theft in US history. In nominal terms it was.
- gen220 4y ago
  The way I phrased it made it sound like energy prices were the only component, my bad. Yes, stimulus is a contributing factor. But I don’t think it’s the primary contributing factor, it depends on the sector. The price of oil affects the price of food, heavy things, etc much more than stimulus checks. I’m not saying stimulus has no impact on prices, but I think it’s erroneous to say it’s the “driving force” of 8% YOY inflation — maybe it’s the driving force of 2 or 3% of that? The price of gasoline is very underrated as an influence on prices generally: the cost of transport is the backbone of our globalized economy. On the flip side, partially thanks to direct stimulus checks, child credits, etc, median household savings are at an inflation-adjusted high watermark, and the debt:income ratios are also in a decent spot so the median American is better prepared for this recession than previous ones.

pyb 4y ago

The stock market is down and inflation is up, but are we really in an economic crisis just yet, or just predicting one in the future ?

somewhereoutth 4y ago

Zero Interest Rate Policy. Encourages resource mis-allocation, which means there is less stuff we actually need to go around. We should have used fiscal policy more aggressively to fix the Great Recession, but that would entail taking money from rich people and giving it to poor people, and we can't have that can we?

TameAntelope 4y ago

I wouldn't take this to be a guarantee that we're moving into a recession, but the VC market is drying up quickly, and this is an appropriate level of concern for YC to have for its companies.

quadcore 4y ago

Interesting. Local news says today US tech is in pain.