Ask HN: What happens tech industry in pro-longed high interest rate environment?

6 points by rafiki6 3 years ago | 3 comments

The modern 'tech' industry (i.e. companies that primarily sell software based services), has grown and thrived in a sub 7% fed fund rate environment (which we are fast approaching and will likely need to surpass to fight inflation).

Presumably this worked because many tech based businesses were seen as massive high risk bets that were unproven. VCs were the primary source of funds and many relied heavily on leverage upstream.

Without low rates the VC based funding model will need to change, and companies may need to seek funding from more traditional sources where revenue matters much more upfront. This might mean premature optimization on business models leading to more moderate growth and less of a focus on hypergrowth and global scale.

Does this mean the hypergrowth era is over?

uejfiweun 3 years ago |

While rates are rising like this? Yes, absolutely. However, tech isn't the only industry in trouble from rising rates. Soon, some entity somewhere will collapse and trigger financial contagion, threatening to bring down the global economy. The Fed will pull from the same playbook they have always pulled from to combat this: lowering rates (and now, QE too) [1]. And once that happens, well, the party's back on.

That being said, I think this coming recession is gonna be pretty harsh because we're gonna have whiplash from 2 years of easy money falling from trees turning into the most restrictive environment in 40 years. I'd expect significant layoffs from every part of the tech industry. Unprofitable startups will likely die. Megacaps will likely revert to somewhere in their 2015-2019 levels in terms of stock prices and employment. I unfortunately was hired in 2019 and I work on a team that isn't exactly critical so I'm expecting to get laid off at some point, although damn if I won't bust my ass to try to stave that off as long as possible.

[1] https://fred.stlouisfed.org/series/FEDFUNDS

rafiki6 3 years ago | |

That's an interesting take on what to do personally. I've been thinking the best think to do is just to work hard, keep head down, and if the axe falls, expect that it will likely take at least 1 year to land the next role and it won't be an ideal setup and to just ride it out.

seydor 3 years ago |

let the innovation era begin