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In the long term I think you're pretty much right, but in the short term, all these businesses that were structured around the assumption of easy massive fundin
by cableshaft 3y ago
In the long term I think you're pretty much right, but in the short term, all these businesses that were structured around the assumption of easy massive funding rounds from low interest rates have to figure out how to operate in high interest rates again, and will likely shed a lot of employees in the process.
- hello_moto 3y agoAll businesses are used to certain range of interest-rate for the last 20 years.
- thfuran 3y agoSure, but most businesses at least try to be profitable, whereas many in tech were fundamentally untenable without a constant injection of external capital to prop up a venture aiming only to grow rather than to actually be sustainable.
- cableshaft 3y agoStill blows my mind that Uber's first reported quarterly earnings that showed a profit in its entire history was Q2 2023[1]. And the company was founded in 2009. They've been losing money for well over a decade and yet still getting wave after wave of cash from investors. [1]: https://techcrunch.com/2023/08/01/uber-reports-first-quarterly-operating-profit/ https://techcrunch.com/2023/08/01/uber-reports-first-quarter...
- lotsofpulp 3y agohttps://www.crunchbase.com/organization/uber/company_financials https://www.crunchbase.com/organization/uber/company_financi... >Their latest funding was raised on Sep 14, 2020 from a Post-IPO Debt round. I would not even count that since "getting wave after wave of cash from investors" usually means receiving cash in exchange for equity, not borrowing money. It seems the most recent cash they received from investors was at IPO in May 2019, and before that, Softbank in Jan 2018: https://www.investopedia.com/articles/personal-finance/111015/story-uber.asp https://www.investopedia.com/articles/personal-finance/11101...
- cableshaft 3y agoYour own link shows that they've had 32 funding rounds. I'm sure they've had an increasingly smaller burn rate in recent years, as they've gotten closer and closer to profitability, and thus required less cash less often (also if the funding round is large enough, they'd need to do it less often), but I'd consider 32 funding rounds wave after wave of cash from investors to me. That's even more rounds than I assumed, that's more than 2 each year on average.
- kipchak 3y agoGrowth businesses like tech and startups also tend to be more sensitive to rate increases due to changes in the time value of money. At 0% rates a business that generates a return in 10 years is fairly close to the same as a business that generates a return in 1 year, but at 5% rates the math is very different.
- bluefirebrand 3y agoHow many of these businesses even existed 20 years ago? Or even 15 or 10?
- paulpauper 3y agoVC boomed in the late 90s when interest rates were very high. The federal funds rate in 2000 was as high 7%. If VCs expect to double their money on the latest AI fad, do they care if the interest rate is 0% or 5%? likely this does not factor much into their decisions.
- disgruntledphd2 3y agoThe VCs don't care but their limited partners who supply the money certainly do.
- hackernoteng 3y agoCorrect. If risk free return is 5% there is less need to take more risk on risky VC or private equity bets. Those allocations would necessarily be smaller overall. In addition the same effect on term sheets - the VCs will expect MORE return on their money for taking the investment risk which will be reflected in the terms.