Is there anything relevant to say about the interplay between the benefits to searching for outliers vs. rising central bank interest rates? I’m not sure how startups fare in different economic circumstances, but at least speculative investments are a better bet when interest rates are low. See e.g. this Matt Yglesias article:
When interest rates are low and “money now” has very little value compared to “money in the future,” it makes sense to take a lot of speculative long shots in hopes of getting a big score...
At the end of the day, venture capital is just a slightly odd line of endeavor where flopping a lot is fine as long as you score some hits… Good investors are able to internalize the much more abstract nature of finance and embrace prudent levels of embarrassing failure.
But what I think the VC mindset tended to miss was the extent to which the entire “take big swings and hope for the best” mindset was itself significantly downstream of macroeconomic conditions rather than being some kind of objectively correct life philosophy.
With interest rates higher, you have a structural shift in business thinking toward “I’d like some money now.” Something really boring like mortgage lending now has a decent return, so you don’t need Bitcoin. And if your company is profitable, shareholders would like to see some dividends. If it’s not profitable, they would like to see some profits...
Higher interest rates mean rational actors’ discount rates are rising, so everyone is acting more impatiently.
Is there anything relevant to say about the interplay between the benefits to searching for outliers vs. rising central bank interest rates? I’m not sure how startups fare in different economic circumstances, but at least speculative investments are a better bet when interest rates are low. See e.g. this Matt Yglesias article: