we’ve spent so long Staring at record venture capital results around the world from Q2 that it’s almost Q3.
We’ve seen record results from cities, countries and regions. There’s so much money around the venture capital and startup world that it’s hard to remember what they were in the lean times. We’ve been in a bull market for tech upstarts for so long that this seems like the only possible situation.
Perusing our notes from data sources, investors and founders over the past few months, it is clear that there are macroeconomic factors driving the startup economy. And changes are taking place in the economy that are providing that extra lift. Secular tailwind, if you will.
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But as the market gives, it can also take away.
What can slow the startup boom? Just as some macroeconomic conditions have provided a long-term boost, the reversal of those conditions can also be the opposite. Secular trends powering startups – often on the demand side due to more rapid digitization of global business – may be unconnected to the larger economy, a view underscored by the outperformance of software during the COVID-19-induced economic disturbances in mid-2020 .
This morning, let’s talk about what’s fueling startups and their supporters, and what could change. Because no bull market lasts forever.
Prominent among macroeconomic conditions that have helped fundraising totals of startups are low interest rates globally. Money is cheap around the world at the moment.
It doesn’t cost much to borrow money today compared to historical norms. The result of that dynamic is that lending doesn’t make as much money. Bank yields are negative in real terms, and bond yields are not impressive.
money always goes towards yieldTherefore, due to the low interest rate environment, a lot of capital is moving towards more attractive investment options. For example, this dynamic is partially attributable to the ever-increasing stock market. This is also a partial explanation of why so much capital is flowing into venture capital funds and other vehicles that push money into high-growth private companies. Money is looking for produce.