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Here in India, Sequoia has backed multiple startups that had glaring lapses in corporate governance (Zilingo and most recently, GoMechanic) This is another sym

by spaceman_2020 4y ago

Here in India, Sequoia has backed multiple startups that had glaring lapses in corporate governance (Zilingo and most recently, GoMechanic) This is another symptom of zero interest rate policies. It encourages bad behavior up and down the pecking order. There are already strong calls to reduce interest rates. Imo, most people crying out for lower interest rates are likely swimming naked and just want the tide to come back in.

woodruffw 4y ago
This seems like misdirected blame: maybe low interest rates incentivize this behavior, but surely we expect VC firms to be capable of operating within host legal frameworks, right? I think it’s maybe more judicious to look at the culture these VC firms have fostered instead: one where law and civic interest are secondary at best responsibilities. Racing to an obscene valuation that gets saddled on public investors is the #1 priority.
- jmeister 4y ago
  Parent is comment is referring to poor corporate governance, not necessarily illegal.
- spamizbad 4y ago
  Yeah it’s strange these firms, staffed with expensively educated professionals from top institutions, with decades of industry experience, somehow lose all autonomy if interest rates get too low for too long. It seems like every egregious mistake firms make somehow gets traced back to interest rates. A very convenient way to absolve people of responsibility.
  - vba616 4y ago
    >it’s strange I don't understand what's strange about it. Short term thinking spreads even among people who know better because of competition. If you're not taking the risks other people are, then how do you do business? A fairly well known quote from a bank CEO is "As long as the music is playing, you’ve got to get up and dance". The corollary, from that perspective, seems to be that government regulation is required to save industry because individuals can't prevent a crisis.
    - FormerBandmate 4y ago
      Tiger Global thrashed every other VC because they did no due diligence, so everyone else stopped doing it. Competition frequently leads to market failures
- cloutchaser 4y ago
  You are partially right, of course the individuals bear responsibility. But you also have to acknowledge that at a macro level every economic crises since 1999 has been caused by central banks blowing bubbles. Including the recent VC bubble.
  - woodruffw 4y ago
    In general, I’m skeptical of any sort of “look what you made me do” reasoning. Central banks can incentivize more or less risky market behavior, but they don’t strip investors’ autonomy. It takes a conscious effort to dump your money into patently fraudulent ventures.
    - vba616 4y ago
      >In general, I’m skeptical of any sort of “look what you made me do” reasoning Sure, I would be too. But you're not conversing with the people who did it, are you?
      - woodruffw 4y ago
        Not sure what you mean; the GP’s comment is an example of this reasoning format.
- nprateem 4y ago
  A VC firm charging 20% carry has a massive incentive not to put their civic interests before profit. Plus, if they don't chase returns, their competitors will, then they'll struggle to raise subsequent funds. Market forces + low interest rates are a recipe for recklessness.
- raincom 4y ago
  A lot of human activity is mimetic--from learning slang/jargon, accents, all the way to hiring and laying off people. If one top tier VC invests in a company X, other top tiers pile on X, thereby increasing the valuation multiples.
- xwolfi 4y ago
  VC firms are not really capable of anything purposeful: they're here to find a discount, which helps the company return a premium: they're a symbiotic parasite and whatever the culture they foster, when discount is hard to find or when premium look gigantic, well they jump on anything forgetting that finding a discount in a difficult period or a gigantic premium is a red flag. But do you expect parasites to start thinking ? They cant. Sequoia put in their own website that the FTX CEO was playing a video game while pitching hundreds of millions of investment. The same firm would kick me out of the door if I went without a tie to interview for a secretary job. Difference is that I dont promise a huge premium at a huge discount. And it's a red flag for any sentient when someone is distracted in a high stake conversation, but not to the Sequoia parasite only eating premiums.
- spaceman_2020 4y ago
  It doesn’t absolve VCs of their fiduciary responsibilities, but it does explain their callousness. If both founders and their backers know that money is practically free, governance lapses can always be papered over by raising another round. And since interest rates are negligible, there’s too much money chasing too few deals. Any VC that stops to do active due diligence is too late to close the deal.
vba616 4y ago
> Imo, most people crying out for lower interest rates are likely swimming naked and just want the tide to come back in. Is it possible that zero interest rates are bad and excessively high rates are bad at the same time? The long term inflation goal in the US, I believe, is 2%. And long term interest rates here that are determined by the market are higher, but not as high as policymakers have set short term rates to. Would it not make sense to set rates somewhere in that window (roughly 2-4%) and stop messing with them? For other countries, scale rates accordingly. Metaphorically, I feel like the US federal reserve was driving a car with the gas pedal to the floor and it didn't respond for a while, so they kept going until they suddenly found themselves going 100 mph, and now they are determined to keep on the brakes as hard as they can until they are 100% motionless. This is not a good way to drive in traffic, even if you do survive it. There is an alleged tendency of almost everybody to justify their job by looking busy even if what they are doing is worse than doing nothing. And that's what I think of when I think of central banks in my adult lifetime. Along with being a passenger in a car where the driver is on and off the gas and brakes constantly to the point of nausea. Inverted yield curves worry people even if they can't agree on how linked they are to recessions. So...why not just not invert them? I believe that markets have to be regulated, but they also should be listened to.
- raincom 4y ago
  High interest rates are product of high inflation. That's why 2% inflation target means 2 percent interest rate target. Nominal interest rate = inflation rate + real interest rate.
  - vba616 4y ago
    Are you agreeing with something I wrote, or disagreeing, or what? I wonder if HN has banned using ChatGPT to comment or is considering it.
- __derek__ 4y ago
  > Would it not make sense to set rates somewhere in that window (roughly 2-4%) and stop messing with them? For other countries, scale rates accordingly. That alone wouldn't work because inflation is affected by factors beyond interest rates, but this is basically a part of Modern Monetary Theory: set short-term interest rates at a fixed price, then use other levers to push inflation back to target. IMO, a more compelling alternative to the current system is Nominal GDP Targeting.[1][2] [1]: https://www.mercatus.org/research/research-papers/case-nominal-gdp-targeting https://www.mercatus.org/research/research-papers/case-nomin... [2]: https://www.mercatus.org/research/working-papers/nominal-gdp-targeting-and-taylor-rule-even-playing-field https://www.mercatus.org/research/working-papers/nominal-gdp...

woodruffw 4y ago

This seems like misdirected blame: maybe low interest rates incentivize this behavior, but surely we expect VC firms to be capable of operating within host legal frameworks, right? I think it’s maybe more judicious to look at the culture these VC firms have fostered instead: one where law and civic interest are secondary at best responsibilities. Racing to an obscene valuation that gets saddled on public investors is the #1 priority.

jmeister 4y ago
Parent is comment is referring to poor corporate governance, not necessarily illegal.
spamizbad 4y ago
Yeah it’s strange these firms, staffed with expensively educated professionals from top institutions, with decades of industry experience, somehow lose all autonomy if interest rates get too low for too long. It seems like every egregious mistake firms make somehow gets traced back to interest rates. A very convenient way to absolve people of responsibility.
- vba616 4y ago
  >it’s strange I don't understand what's strange about it. Short term thinking spreads even among people who know better because of competition. If you're not taking the risks other people are, then how do you do business? A fairly well known quote from a bank CEO is "As long as the music is playing, you’ve got to get up and dance". The corollary, from that perspective, seems to be that government regulation is required to save industry because individuals can't prevent a crisis.
  - FormerBandmate 4y ago
    Tiger Global thrashed every other VC because they did no due diligence, so everyone else stopped doing it. Competition frequently leads to market failures
cloutchaser 4y ago
You are partially right, of course the individuals bear responsibility. But you also have to acknowledge that at a macro level every economic crises since 1999 has been caused by central banks blowing bubbles. Including the recent VC bubble.
- woodruffw 4y ago
  In general, I’m skeptical of any sort of “look what you made me do” reasoning. Central banks can incentivize more or less risky market behavior, but they don’t strip investors’ autonomy. It takes a conscious effort to dump your money into patently fraudulent ventures.
  - vba616 4y ago
    >In general, I’m skeptical of any sort of “look what you made me do” reasoning Sure, I would be too. But you're not conversing with the people who did it, are you?
    - woodruffw 4y ago
      Not sure what you mean; the GP’s comment is an example of this reasoning format.
nprateem 4y ago
A VC firm charging 20% carry has a massive incentive not to put their civic interests before profit. Plus, if they don't chase returns, their competitors will, then they'll struggle to raise subsequent funds. Market forces + low interest rates are a recipe for recklessness.
raincom 4y ago
A lot of human activity is mimetic--from learning slang/jargon, accents, all the way to hiring and laying off people. If one top tier VC invests in a company X, other top tiers pile on X, thereby increasing the valuation multiples.
xwolfi 4y ago
VC firms are not really capable of anything purposeful: they're here to find a discount, which helps the company return a premium: they're a symbiotic parasite and whatever the culture they foster, when discount is hard to find or when premium look gigantic, well they jump on anything forgetting that finding a discount in a difficult period or a gigantic premium is a red flag. But do you expect parasites to start thinking ? They cant. Sequoia put in their own website that the FTX CEO was playing a video game while pitching hundreds of millions of investment. The same firm would kick me out of the door if I went without a tie to interview for a secretary job. Difference is that I dont promise a huge premium at a huge discount. And it's a red flag for any sentient when someone is distracted in a high stake conversation, but not to the Sequoia parasite only eating premiums.
spaceman_2020 4y ago
It doesn’t absolve VCs of their fiduciary responsibilities, but it does explain their callousness. If both founders and their backers know that money is practically free, governance lapses can always be papered over by raising another round. And since interest rates are negligible, there’s too much money chasing too few deals. Any VC that stops to do active due diligence is too late to close the deal.

vba616 4y ago

> Imo, most people crying out for lower interest rates are likely swimming naked and just want the tide to come back in. Is it possible that zero interest rates are bad and excessively high rates are bad at the same time? The long term inflation goal in the US, I believe, is 2%. And long term interest rates here that are determined by the market are higher, but not as high as policymakers have set short term rates to. Would it not make sense to set rates somewhere in that window (roughly 2-4%) and stop messing with them? For other countries, scale rates accordingly. Metaphorically, I feel like the US federal reserve was driving a car with the gas pedal to the floor and it didn't respond for a while, so they kept going until they suddenly found themselves going 100 mph, and now they are determined to keep on the brakes as hard as they can until they are 100% motionless. This is not a good way to drive in traffic, even if you do survive it. There is an alleged tendency of almost everybody to justify their job by looking busy even if what they are doing is worse than doing nothing. And that's what I think of when I think of central banks in my adult lifetime. Along with being a passenger in a car where the driver is on and off the gas and brakes constantly to the point of nausea. Inverted yield curves worry people even if they can't agree on how linked they are to recessions. So...why not just not invert them? I believe that markets have to be regulated, but they also should be listened to.

raincom 4y ago
High interest rates are product of high inflation. That's why 2% inflation target means 2 percent interest rate target. Nominal interest rate = inflation rate + real interest rate.
- vba616 4y ago
  Are you agreeing with something I wrote, or disagreeing, or what? I wonder if HN has banned using ChatGPT to comment or is considering it.
__derek__ 4y ago
> Would it not make sense to set rates somewhere in that window (roughly 2-4%) and stop messing with them? For other countries, scale rates accordingly. That alone wouldn't work because inflation is affected by factors beyond interest rates, but this is basically a part of Modern Monetary Theory: set short-term interest rates at a fixed price, then use other levers to push inflation back to target. IMO, a more compelling alternative to the current system is Nominal GDP Targeting.[1][2] [1]: https://www.mercatus.org/research/research-papers/case-nominal-gdp-targeting https://www.mercatus.org/research/research-papers/case-nomin... [2]: https://www.mercatus.org/research/working-papers/nominal-gdp-targeting-and-taylor-rule-even-playing-field https://www.mercatus.org/research/working-papers/nominal-gdp...