What Could Stop the Startup Boom?

We have been looking at record venture capital numbers from across the world for so long that it is almost time for Q3. Cities, countries, and regions have all achieved new highs. It is difficult to remember what the venture capital and startup sectors were like when there was less money flowing about. For so long, we have been in a bull market for tech startups that it feels like the only way things could be. It is not the case.

Looking back over our notes from data sources, investors, and entrepreneurs over the previous several months, it is evident that macroeconomic forces are supporting the startup economy. There are also changes in the economy that are offering a boost. If you will, call them secular tailwinds.

However, just as the market may give, it can also take away. What factors may stifle the startup craze? A reversal in macroeconomic conditions, similar to how some macroeconomic conditions have offered a long-term boost, may have the opposite effect. The secular factors driving startups — frequently on the demand side because of faster global corporate digitalization — may be unrelated to the bigger economy, as seen by software’s outsized success during the COVID-19-induced economic catastrophe of mid-2020.

Let us chat about what motivates entrepreneurs and their supporters this morning, and what could change, because no bull market can persist indefinitely. Globally low interest rates are one of the most important macroeconomic factors that have aided startup fundraising totals. Money is currently very cheap all across the world.

When compared to historical averages, borrowing money now is quite inexpensive. Because of this dynamic, lending money does not profit as much as it used to. In actual terms, bank rates are negative, and bond yields are not very outstanding.

Money always seeks income, thus the low interest rate environment has prompted many investors to seek out more lucrative investment opportunities. For example, this dynamic is partly responsible for the stock market’s apparently endless rise. It also one of the reasons why so much money is going into venture capital funds and other entities that invest in high-growth private firms. The money is seeking for a good return.