Link: https://www.theverge.com/23598517/interest-rates-tech-vc-sea-change
The article “Interest rates on tech VC sea change” on The Verge, makes some sweeping statements that are not entirely accurate or supported by current economic data as per my views. So, I have summarized the article into key statements and took a neutral approach whilst writing contradicting points to it..
The article makes the following strong statements:
Statements:
- The Fed announced that they would increase interest rates in November 2021 and would not stop until enough people are unemployed
- Low interest rates have shaped the tech industry for more than 10 years, by making it easy for venture capitalists to raise money, and let companies to take out massive debts.
- Blitz scaling will be much harder to execute as VCs will be influencing companies’ management to spend less money.
- Companies that took out massive debts such as Netflix, Tesla, and Dell, will have to face challenges in paying back their debts
- With the high interest rate future, consumers will likely see more interstitial ads, poorer audio or video quality, and more pop-ups.
- The cryptocurrency world and creator economy may be in for a rock-strewn adjustment, as investors have more options for returns and may lose interest in rambling speculation.
I understand the nature of the above statements. And I don’t think they were written with a neutral view that is a writer’s must have. So, I have presented below some counter arguments or rather you could call it suggestive edits. I leave the decision to the reader, as to what analysis and conclusions he makes from the comparison. But, I am doing my job of providing facts as a neutral tech writer.
Counter Arguments:
- The article suggests that the Federal Reserve will continue to increase interest rates until unemployment rises, but this is not the case, As the Fed has stated that it will raise rates to combat inflation, but it will also be closely monitoring employment data to make sure that the recovery continues. And it should have been made a key point in the article.
- Secondly, the article claims that the tech industry is in trouble solely because of rising interest rates, but this is a simplistic view. While higher interest rates can and do affect the tech industry, it is not the only factor at play. There are other factors to consider such as Innovation and technological advancement, Economic conditions, Government Policies, Consumer behavior and preferences, Demographic trends etc. However, we will not discuss the other factors in details. Rather I’ll try to stay on point to provide counter arguments to statements made in the article.
- Thirdly, the article argues that the low-interest-rate environment was the main driver of the VC-driven tech boom of the past years, there is some truth to it but it is also not entirely accurate or in layman’s terms, not the whole truth. While low-interest rates did make it easier for venture capitalists to raise funds, it was not the only reason for the tech industry’s growth boom. Other factors such as advances in technology, changes in consumer behavior, Economic conditions and Government Policies also played a significant role in the development of tech industry.
- The article raises a point, that the high interest rate future will impact customers and consumers negatively, there are several cases to consider before making this statement. Because, high interest rates could also bring out new challenges, and with new challenges come new solutions. Companies try to maximize their profits, but they also have to remain competitive and maintain their customer’s satisfaction, in order to stay in the market, and to also keep their customers and clientage happy and all to themselves. As consumers get multiple choices, they always opt out for the best, that is also least expensive. So, consumers will always switch to companies that offer better products, services and are least expensive.
- And the last statement made in the article, speculates about the impact of rising interest rates on the Crypto Industry and the Creator Economy also called influencer economy. While it is true that influencers and crypto industry will be affected, yet it is difficult to predict the exact impact of rising interest rates on tech industry. The cryptocurrency industry, for example, has shown resilience when it comes to market fluctuations. And it is very likely that it will evolve and adapt to changing economic conditions and other factors influencing it.
Conclusion:
The article discusses the impact of the Federal Reserve’s decision to raise interest rates in response to inflation on the tech industry, especially the venture capitalist (VC) driven tech boom. During the era of low-interest rates, it was easy for VCs to raise money, and companies like Uber and WeWork could afford to bleed cash in the hopes of driving competitors out of the market, a strategy known as Blitz scaling. However, the era of easy money is ending, and VCs will now be riding companies’ management to spend less money. The article also discusses how high-interest rates will affect companies that have taken out massive debt, such as Netflix, Tesla, and Dell, and what the high-interest rate future looks like for consumers. Furthermore, the article examines the impact of high-interest rates on the cryptocurrency world and the creator economy, which is heavily reliant on ad rates.
To conclude my points, the article does not tell the whole truth as far as the factors and economic data go. It’s true that the VC driven tech boom will face some new challenges. But it neglected the adaption of the past decade by the tech industry. Hence, I felt the need to write and show the other side of the picture.
Thank You for reading 🙂
