5 ms·

>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 fin

by 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
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- 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%.
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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

by marvin 4y ago

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