4 ms·

QE has nothing to do with VC

by gee_totes 12y ago

deleted 12y ago
[deleted]
kchoudhu 12y ago
Yeah, cheap money never goes searching for yield.
cjensen 12y ago
When demand increases for Apples, the price of Apples increases. When the price of Apples increases, the demand for Oranges increases. Fed demand for Investment Bonds increases the price of Investment Bonds. When the price of Investment Bonds increases, the demand for other investments increases. Textbook Econ 101, as the parent comment noted.
- gee_totes 12y ago
  I would say you're comparing apples to oranges by conflating Investment Bonds (which I'm assuming you mean Treasury Bonds), but you've already set yourself up for the apples and oranges with your example. If you'll check the source article[0] that the Techcrunch graph was pulled from, you'll see that there is a negative correlation between the Treasury bond yield and the amount of money flowing into seed deals. According to your Textbook Econ 101, there should be a positive correlation between these two. But the data shows there is not. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see...
hnnewguy 12y ago
>QE has nothing to do with VC Sure it does. Easy money is easy money. That goes for you and your mortgage at historically low rates, or VCs raising capital. When stimulus is occurring, it's interesting to see where it ends up. I'm not implying anything nefarious. In fact, I'd say it's working as intended (or at least expected).
- gee_totes 12y ago
  To make sure we're talking about the same thing; the pink line in the second graph on the techcrunch article is what you're talking about when "the bubble goes parabolic". That pink line represents the number of seed deals completed, not the amount of money in the system. Unfortunately, I cannot download the original dataset that Mattermark is using, but using a dataset from Pricewaterhouse Coopers[1], and data from FRED[2], I have run some statistical analysis using R. My results are here: http://imgur.com/a/eFzs1 http://imgur.com/a/eFzs1 In short, the only statistical correlation I can find between QE and Seed capital is a negative one, which would contradict your original hypothesis. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see... [1]http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistoricTrend http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistor... [2]http://research.stlouisfed.org/fred2/graph/?id=MBST# http://research.stlouisfed.org/fred2/graph/?id=MBST#
  - hnnewguy 12y ago
    >My results are here Why would you compare quarterly values of seed money to a cumulative total (QE) and expect a correlation? They are completely different series. Try doing a running total for the seed money and the graph will look different. The first and third graphs don't make sense for this reason. The second graph is better, and you can see there is some correlation. Did you test for lags, or do you assume that QE money would flow instantly into the coffers of institutional investors? I applaud your effort, but there is more to this analysis than overlaying two graphs. You need to understand the data.

QE has nothing to do with VC

deleted 12y ago

[deleted]

kchoudhu 12y ago

Yeah, cheap money never goes searching for yield.

cjensen 12y ago

When demand increases for Apples, the price of Apples increases. When the price of Apples increases, the demand for Oranges increases. Fed demand for Investment Bonds increases the price of Investment Bonds. When the price of Investment Bonds increases, the demand for other investments increases. Textbook Econ 101, as the parent comment noted.

gee_totes 12y ago
I would say you're comparing apples to oranges by conflating Investment Bonds (which I'm assuming you mean Treasury Bonds), but you've already set yourself up for the apples and oranges with your example. If you'll check the source article[0] that the Techcrunch graph was pulled from, you'll see that there is a negative correlation between the Treasury bond yield and the amount of money flowing into seed deals. According to your Textbook Econ 101, there should be a positive correlation between these two. But the data shows there is not. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see...

hnnewguy 12y ago

>QE has nothing to do with VC Sure it does. Easy money is easy money. That goes for you and your mortgage at historically low rates, or VCs raising capital. When stimulus is occurring, it's interesting to see where it ends up. I'm not implying anything nefarious. In fact, I'd say it's working as intended (or at least expected).

gee_totes 12y ago
To make sure we're talking about the same thing; the pink line in the second graph on the techcrunch article is what you're talking about when "the bubble goes parabolic". That pink line represents the number of seed deals completed, not the amount of money in the system. Unfortunately, I cannot download the original dataset that Mattermark is using, but using a dataset from Pricewaterhouse Coopers[1], and data from FRED[2], I have run some statistical analysis using R. My results are here: http://imgur.com/a/eFzs1 http://imgur.com/a/eFzs1 In short, the only statistical correlation I can find between QE and Seed capital is a negative one, which would contradict your original hypothesis. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see... [1]http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistoricTrend http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistor... [2]http://research.stlouisfed.org/fred2/graph/?id=MBST# http://research.stlouisfed.org/fred2/graph/?id=MBST#
- hnnewguy 12y ago
  >My results are here Why would you compare quarterly values of seed money to a cumulative total (QE) and expect a correlation? They are completely different series. Try doing a running total for the seed money and the graph will look different. The first and third graphs don't make sense for this reason. The second graph is better, and you can see there is some correlation. Did you test for lags, or do you assume that QE money would flow instantly into the coffers of institutional investors? I applaud your effort, but there is more to this analysis than overlaying two graphs. You need to understand the data.