5 ms·

> It is buffeting young tech firms particularly hard because much of their value is derived from the prospect of profits far in the future, whose present value

> It is buffeting young tech firms particularly hard because much of their value is derived from the prospect of profits far in the future, whose present value is being eroded by rising interest rates I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? Also, I wonder if we’ll ever see a return of enthusiasm and investment in tech related to the hard sciences. That’s what I originally went into, but career growth and earning potential couldn’t match soft tech so I ended up pursuing that instead. I really miss the physical sciences though. Is the problem that anticipated returns on investment are so far in the future that investors don’t think they would see any benefit in their lifetime? Or is it that we’ve already obtained all the low hanging fruit and what’s left is incredibly difficult?

marvin 4y ago
>much of their value is derived from the prospect of profits far in the future, whose present value is being eroded by rising interest rates I've seen this finance meme over and over again, and it's mostly an irrelevant argument. Yes, of course interest rates affect the valuation of growth companies, but a successful startup might grow 1000x from early investment rounds to the time when it's an established company with lower growth and a world-dominating role in its domain. An interest rate increase on the order of 2% is laughably small in that context. What's probably going to happen is that valuations will be a bit lower at all stages, but why should that affect motivations and outcomes? The most motivated people aren't primarily in it for the money anyway, and there is plenty of room for getting rich. Tens of thousands of people got rich after the dotcom crash, and interest rates were much higher back then. Interest rates are just a minor scaling factor.
- FabHK 4y ago
  > An interest rate increase on the order of 2% is laughably small in that context. When rates increase from 1% to 3%, the present value of a very long stream of future cashflows drops by a factor of three, which is not small. But you're right, it pales compared to the uncertainty embedded in the "1000x".
  - deleted 4y ago
    [deleted]
  - cs137 4y ago
    At the same time, I can't help but think higher interest rates are fundamentally good. If World A has me paying 6% interest to get a personal loan while some rich guy with corrupt connections pays 1%; and world B has me paying 20% while the rich connected guy pays 15%, I'd be inclined to take my chances on World B, as opposed to A in which the wealthy scumbag (let's be honest, none of the guys on top are clean in this country) gets money six times cheaper (and, let's say, can buy six times more housing, on top of his already greater purchasing power). Of course, high interest rates have other problems... One of the fatal flaws of this kind of capitalism is that the only quantitative central management mechanism--lawmaking is central but qualitative, which wouldn't be a problem, except that we're in a state where the laws are written by rich people for the benefit of other rich people, so the qualitative nature of it enables willful obfuscation--is to vary the interest rate. If you lower it, you're giving connected people disproportionately more money; if you increase it, you're causing a capital strike. Either way, it's bad for the 99%.
- deleted 4y ago
  [deleted]
- CoffeeOnWrite 4y ago
  > An interest rate increase on the order of 2% is laughably small This hurt my head to read. It's 200 basis points, which doesn't sound generally laughably small (and is materially not generally laughably small; see sibling comment). Using "2%" is unnecessarily liable to give wrong impression. Of course, your argument still stands. cf. Powell's quote in https://www.cnbc.com/2022/06/15/fed-hikes-its-benchmark-interest-rate-by-three-quarters-of-a-point-the-biggest-increase-since-1994.html https://www.cnbc.com/2022/06/15/fed-hikes-its-benchmark-inte... for example
  - randomdata 4y ago
    > It's 200 basis points This hurts the head only slightly less. Once a basis point figure contains two trailing zeros, it's time to switch to the percentage point (pp).
    - CoffeeOnWrite 4y ago
      Neat, thanks for sharing, this was new to me. But easily corroborated, eg https://www.cnbc.com/2022/06/15/powell-says-the-fed-could-hike-rates-by-0point75-percentage-point-again-in-july.html https://www.cnbc.com/2022/06/15/powell-says-the-fed-could-hi... (get it together CNBC, heh!)
- jonfw 4y ago
  You don't compare against best case scenario (1000x), you compare against expected value. Because very few startups have a 1000x exit
nonrandomstring 4y ago
> Also, I wonder if we'll ever see a return of enthusiasm and investment in tech related to the hard sciences. That's what I originally went into, but career growth and earning potential couldn't match soft tech so I ended up pursuing that instead. I led the technical team of a London startup for a few years and it was super exciting from a physics and electronics stance. We did did R&D into acoustics, vibration, materials sciences, 3D printing and manufacturing. We basically invented new kinds of surface microphones. Slowly the smartphone and app ecosystem ate into our priorities. We shut down the lab, binned the prototypes, shelved the designs. Nothing got patented. I ended up saying in a meeting one day, "This isn't a startup any more. We're all just employees of Apple". Everyone nodded. Then carried on. I left when about 80 percent of the daily grind was jumping through legal and PR hoops to get things past the App Store gatekeepers, who I took to be hostile saboteurs. Although the company lives on (and is doing well). looking back now I'd say the pathological fixation on smartphones and apps circa 2015 killed a very promising transducer tech project.
- Nextgrid 4y ago
  I wouldn't say smartphones are bad - they are an amazing platform that can make people's life better and open a lot of possibilities that weren't there before. The problem is the "attention economy". It used to be that you made money mostly from selling something that people found valuable. In the past decade or so however, the market has been turned upside down and you can make more money just hoovering up user data and wasting their time with ads - a lot of consumer tech eventually became a glorified ad serving machine (right down to the world's most popular desktop operating system). However that is clearly unsustainable - advertising is ultimately there to drive demand for real, paid products, and its value is directly correlated to how effective they are at doing that. The market has been propped up by VCs (you could start a company that would never become profitable and still get tons of VC money to live off as long as you could show "growth & engagement") but that's now coming to an end and the market is readjusting.
- usrn 4y ago
  Smartphones are killing a lot of stuff. IMO they've been mostly regressive. EDIT: RE: Smartphones enable new things I don't think there's anything new that smartphones have made possible actually. They've only made what was already possible popular. I had a very portable laptop with Wireless PCMCIA cards in 2010 (it was a hand me down from my dad and was made around 1999 so it certainly was available in 2006.) In fact I ran self hosting dev environments (plural) on it along with both Linux and Windows. Both OSes had overlapping window management and real multi tasking. It also had IRDA built in so you could (in theroy) send apps between them (I always just used the internet but smartphones can't even do that without going through an intermediary.) Tons of stuff smartphones can't do at all. RE: Smartphones are a UI improvement Compared to what cameras had? Maybe (I'm not entirely convinced of that even. Touch UIs are awful even without notifications and other modal UI elements popping and sliding underneath eachother while you're trying to do something unrelated.) Smartphone UIs are a massive regression from what the PDAs and PCs had before them though. RE: Smartphones don't have to be distracting if you don't install distracting apps No. The whole UI is built around giving all your attention to a single thing and scrolling through it. The web browsers are even design to be anti-productivity.
ghaff 4y ago
>I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? In general, I'd say it depends. If you're bootstrapped and are bringing in enough money to get by, you can continue in that mode for a long time. But if you don't have revenue, the piggy bank is likely going to empty faster. As far hard sciences, typically more capital needed, harder to scale, longer time to revenue, etc. None of which makes it non-viable as either an investment or a career but it's not hard to see the attraction of pure software businesses. (Of course, as things scale up, especially for B2B, many of the costs associated with physical goods businesses apply to software as well.
cs137 4y ago
I really miss the physical sciences though. Is the problem that anticipated returns on investment are so far in the future that investors don’t think they would see any benefit in their lifetime? Or is it that we’ve already obtained all the low hanging fruit and what’s left is incredibly difficult? When speaking about investors, one has to differentiate between passive capitalists (i.e., the people whose money is being invested) and the career decision-makers. They have very different sets of incentives. As for what passive capitalists want, it doesn't matter all that much, 95 percent of the time. They have objectives (X amount of annual income, Y growth rate of principal) but don't really care how those goals are achieved. It's important not to piss them off, but they don't decide on strategies. The career decision makers, notably, are optimizing for their own career goals. Corporate capitalism would be bad enough if it were oriented toward profit maximization (paperclip maximizer) and from the outside, it looks as it's so; but the internal experience of a worker in capitalism shows something else entirely--that managers and executives care about one thing--staying in charge, advancing their personal reputations--more than anything else. A twenty-year investment might make sense to a company or to a nation-state, but it makes no sense at all for an individual manager, whose definition of success is to be two levels higher than he currently is in one quarter of that time. He can't make the case for himself as someone who deserves (whatever that means, in this degenerate context) to be a career decision maker if it's going to take 20 years (or even 2 years, in many cases) to know how his decisions played out. In any case, for a project of that size and duration, attribution becomes difficult: it's impossible to know whether the results (whether successful or otherwise) were caused by one set of decisions and circumstances vs. another one. In sum, it doesn't matter what passive capitalists (the principal investors) think, and the decision makers (agents) aren't interested in long-term wins because there's no career benefit. I don't know how to fix this. Capitalism is obviously a dead end--invariably, it becomes corporate capitalism (corruption), which itself becomes managerial capitalism (stagnation). However, in terms of proposing what will be better, we are to some degree speculating. A gradual transition to democratic socialism (as in Scandinavia) seems optimal, but (a) the world right now is going the other way (toward inequality and nondemocracy), and (b) there's no guarantee that fixing our social and economic problems will suffice to restore Cold War levels of innovation and dynamism.
andsoitis 4y ago
> I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? If future cash inflows are more uncertain, or known to be less than they were estimated to be than before, or if the discount factor to present value (interest rate) is higher, then the value of the business is lower, regardless of financing method.
rr888 4y ago
This view is also wrong as inflation is running higher than interest rates so discounting future cashflows at negative real rates should be a win.
gnicholas 4y ago
> I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? Probably the folks in the best position are those that just raised a ton of money but haven't committed to spending it yet. Bootstrapped startups may be subject to the same economic headwinds, but have less of a cash buffer than VC-funded startups. The funded startups that have a high burn rate may need to cut costs dramatically to make it through, but the ones that just raised may have the longest runway and biggest buffer of them all. They may still have a challenge avoiding a downround in their next raise, if this one was done in a frothy environment.

marvin 4y ago

>much of their value is derived from the prospect of profits far in the future, whose present value is being eroded by rising interest rates I've seen this finance meme over and over again, and it's mostly an irrelevant argument. Yes, of course interest rates affect the valuation of growth companies, but a successful startup might grow 1000x from early investment rounds to the time when it's an established company with lower growth and a world-dominating role in its domain. An interest rate increase on the order of 2% is laughably small in that context. What's probably going to happen is that valuations will be a bit lower at all stages, but why should that affect motivations and outcomes? The most motivated people aren't primarily in it for the money anyway, and there is plenty of room for getting rich. Tens of thousands of people got rich after the dotcom crash, and interest rates were much higher back then. Interest rates are just a minor scaling factor.

FabHK 4y ago
> An interest rate increase on the order of 2% is laughably small in that context. When rates increase from 1% to 3%, the present value of a very long stream of future cashflows drops by a factor of three, which is not small. But you're right, it pales compared to the uncertainty embedded in the "1000x".
- deleted 4y ago
  [deleted]
- cs137 4y ago
  At the same time, I can't help but think higher interest rates are fundamentally good. If World A has me paying 6% interest to get a personal loan while some rich guy with corrupt connections pays 1%; and world B has me paying 20% while the rich connected guy pays 15%, I'd be inclined to take my chances on World B, as opposed to A in which the wealthy scumbag (let's be honest, none of the guys on top are clean in this country) gets money six times cheaper (and, let's say, can buy six times more housing, on top of his already greater purchasing power). Of course, high interest rates have other problems... One of the fatal flaws of this kind of capitalism is that the only quantitative central management mechanism--lawmaking is central but qualitative, which wouldn't be a problem, except that we're in a state where the laws are written by rich people for the benefit of other rich people, so the qualitative nature of it enables willful obfuscation--is to vary the interest rate. If you lower it, you're giving connected people disproportionately more money; if you increase it, you're causing a capital strike. Either way, it's bad for the 99%.
deleted 4y ago
[deleted]
CoffeeOnWrite 4y ago
> An interest rate increase on the order of 2% is laughably small This hurt my head to read. It's 200 basis points, which doesn't sound generally laughably small (and is materially not generally laughably small; see sibling comment). Using "2%" is unnecessarily liable to give wrong impression. Of course, your argument still stands. cf. Powell's quote in https://www.cnbc.com/2022/06/15/fed-hikes-its-benchmark-interest-rate-by-three-quarters-of-a-point-the-biggest-increase-since-1994.html https://www.cnbc.com/2022/06/15/fed-hikes-its-benchmark-inte... for example
- randomdata 4y ago
  > It's 200 basis points This hurts the head only slightly less. Once a basis point figure contains two trailing zeros, it's time to switch to the percentage point (pp).
  - CoffeeOnWrite 4y ago
    Neat, thanks for sharing, this was new to me. But easily corroborated, eg https://www.cnbc.com/2022/06/15/powell-says-the-fed-could-hike-rates-by-0point75-percentage-point-again-in-july.html https://www.cnbc.com/2022/06/15/powell-says-the-fed-could-hi... (get it together CNBC, heh!)
jonfw 4y ago
You don't compare against best case scenario (1000x), you compare against expected value. Because very few startups have a 1000x exit

nonrandomstring 4y ago

> Also, I wonder if we'll ever see a return of enthusiasm and investment in tech related to the hard sciences. That's what I originally went into, but career growth and earning potential couldn't match soft tech so I ended up pursuing that instead. I led the technical team of a London startup for a few years and it was super exciting from a physics and electronics stance. We did did R&D into acoustics, vibration, materials sciences, 3D printing and manufacturing. We basically invented new kinds of surface microphones. Slowly the smartphone and app ecosystem ate into our priorities. We shut down the lab, binned the prototypes, shelved the designs. Nothing got patented. I ended up saying in a meeting one day, "This isn't a startup any more. We're all just employees of Apple". Everyone nodded. Then carried on. I left when about 80 percent of the daily grind was jumping through legal and PR hoops to get things past the App Store gatekeepers, who I took to be hostile saboteurs. Although the company lives on (and is doing well). looking back now I'd say the pathological fixation on smartphones and apps circa 2015 killed a very promising transducer tech project.

Nextgrid 4y ago
I wouldn't say smartphones are bad - they are an amazing platform that can make people's life better and open a lot of possibilities that weren't there before. The problem is the "attention economy". It used to be that you made money mostly from selling something that people found valuable. In the past decade or so however, the market has been turned upside down and you can make more money just hoovering up user data and wasting their time with ads - a lot of consumer tech eventually became a glorified ad serving machine (right down to the world's most popular desktop operating system). However that is clearly unsustainable - advertising is ultimately there to drive demand for real, paid products, and its value is directly correlated to how effective they are at doing that. The market has been propped up by VCs (you could start a company that would never become profitable and still get tons of VC money to live off as long as you could show "growth & engagement") but that's now coming to an end and the market is readjusting.
usrn 4y ago
Smartphones are killing a lot of stuff. IMO they've been mostly regressive. EDIT: RE: Smartphones enable new things I don't think there's anything new that smartphones have made possible actually. They've only made what was already possible popular. I had a very portable laptop with Wireless PCMCIA cards in 2010 (it was a hand me down from my dad and was made around 1999 so it certainly was available in 2006.) In fact I ran self hosting dev environments (plural) on it along with both Linux and Windows. Both OSes had overlapping window management and real multi tasking. It also had IRDA built in so you could (in theroy) send apps between them (I always just used the internet but smartphones can't even do that without going through an intermediary.) Tons of stuff smartphones can't do at all. RE: Smartphones are a UI improvement Compared to what cameras had? Maybe (I'm not entirely convinced of that even. Touch UIs are awful even without notifications and other modal UI elements popping and sliding underneath eachother while you're trying to do something unrelated.) Smartphone UIs are a massive regression from what the PDAs and PCs had before them though. RE: Smartphones don't have to be distracting if you don't install distracting apps No. The whole UI is built around giving all your attention to a single thing and scrolling through it. The web browsers are even design to be anti-productivity.

ghaff 4y ago

>I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? In general, I'd say it depends. If you're bootstrapped and are bringing in enough money to get by, you can continue in that mode for a long time. But if you don't have revenue, the piggy bank is likely going to empty faster. As far hard sciences, typically more capital needed, harder to scale, longer time to revenue, etc. None of which makes it non-viable as either an investment or a career but it's not hard to see the attraction of pure software businesses. (Of course, as things scale up, especially for B2B, many of the costs associated with physical goods businesses apply to software as well.

cs137 4y ago

I really miss the physical sciences though. Is the problem that anticipated returns on investment are so far in the future that investors don’t think they would see any benefit in their lifetime? Or is it that we’ve already obtained all the low hanging fruit and what’s left is incredibly difficult? When speaking about investors, one has to differentiate between passive capitalists (i.e., the people whose money is being invested) and the career decision-makers. They have very different sets of incentives. As for what passive capitalists want, it doesn't matter all that much, 95 percent of the time. They have objectives (X amount of annual income, Y growth rate of principal) but don't really care how those goals are achieved. It's important not to piss them off, but they don't decide on strategies. The career decision makers, notably, are optimizing for their own career goals. Corporate capitalism would be bad enough if it were oriented toward profit maximization (paperclip maximizer) and from the outside, it looks as it's so; but the internal experience of a worker in capitalism shows something else entirely--that managers and executives care about one thing--staying in charge, advancing their personal reputations--more than anything else. A twenty-year investment might make sense to a company or to a nation-state, but it makes no sense at all for an individual manager, whose definition of success is to be two levels higher than he currently is in one quarter of that time. He can't make the case for himself as someone who deserves (whatever that means, in this degenerate context) to be a career decision maker if it's going to take 20 years (or even 2 years, in many cases) to know how his decisions played out. In any case, for a project of that size and duration, attribution becomes difficult: it's impossible to know whether the results (whether successful or otherwise) were caused by one set of decisions and circumstances vs. another one. In sum, it doesn't matter what passive capitalists (the principal investors) think, and the decision makers (agents) aren't interested in long-term wins because there's no career benefit. I don't know how to fix this. Capitalism is obviously a dead end--invariably, it becomes corporate capitalism (corruption), which itself becomes managerial capitalism (stagnation). However, in terms of proposing what will be better, we are to some degree speculating. A gradual transition to democratic socialism (as in Scandinavia) seems optimal, but (a) the world right now is going the other way (toward inequality and nondemocracy), and (b) there's no guarantee that fixing our social and economic problems will suffice to restore Cold War levels of innovation and dynamism.

andsoitis 4y ago

> I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? If future cash inflows are more uncertain, or known to be less than they were estimated to be than before, or if the discount factor to present value (interest rate) is higher, then the value of the business is lower, regardless of financing method.

rr888 4y ago

This view is also wrong as inflation is running higher than interest rates so discounting future cashflows at negative real rates should be a win.

gnicholas 4y ago

> I wonder if this will benefit startups that are more bootstrap style. Does less funding necessary for anticipated future growth imply less damage during a recession? Probably the folks in the best position are those that just raised a ton of money but haven't committed to spending it yet. Bootstrapped startups may be subject to the same economic headwinds, but have less of a cash buffer than VC-funded startups. The funded startups that have a high burn rate may need to cut costs dramatically to make it through, but the ones that just raised may have the longest runway and biggest buffer of them all. They may still have a challenge avoiding a downround in their next raise, if this one was done in a frothy environment.