What is ZIRP, and how did it impact the startup world? [video]
During the Zero Interest Rate Policy (ZIRP), the Federal Reserve keeps rates near 0%, boosting VC funding to startups. This led to rapid unicorn growth, new investors, and altered founder strategies. Challenges and opportunities arose, urging strategic decisions.
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ZIRP, short for Zero Interest Rate Policy, is a period when the Federal Reserve maintains interest rates close to 0%, allowing commercial banks to borrow money at minimal costs. This policy, particularly evident during the pandemic, led to a surge of cash flowing into venture capital (VC) and startups. While an influx of funding may seem beneficial, it can have negative consequences if not managed properly. The impact of ZIRP on the startup world included the rapid rise of unicorns, an increase in new investors, and a shift in founders' perspectives. Y Combinator founders were advised on navigating this unique situation, emphasizing the importance of making strategic decisions amidst the unsustainable market conditions. Dalton Caldwell and Michael reflect on the outcomes of this period, highlighting the challenges and opportunities it presented for startups.
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4 comments1) Engineering (what software folks call hardware), especially cross-functional engineering across several fields, such as chemical and electrical.
2) Software, typically including applications of ML.
3) R&D. Research And Development, folks. The thing investors don't want you to do.
Those types of companies will almost never come out of venture capital. They start with a small founder investment (what VCs tell us is called 'bootstrapping'), significantly supported by federal government grants and contracts (the best source of funding for true R&D), and then product development and commercialization.
The ZIRP-era of pure software, VC-driven type of technology entrepreneurship tries to skip all the way to the end, scale beyond all bounds, and exit big and fast. No wonder we're experiencing groupthink, and why the Bay Area is hollowing out: in this form of technology entrepreneurship, there is no deep economic basis for growth.
In short: technology entrepreneurs should take on technology risk. That means raising capital late, not early, because investors will always be skittish about R&D and longer timeframes. And it means following your own vision first and foremost, rather than letting venture capitalists define how you see the world.
Investors are not where the action is. It is founders and early employees who built the likes of Sony, Qualcomm, General Atomics -- each of these, a real technology company.
BTW it's also the only sensible monetary policy in an economy that issues its own currency on a floating exchange rate. Paying interest on reserves or bonds is solely a policy choice and acts as a transfer payment (ie. welfare) for the rich.
YC seems to be focusing more on whatever the buzzword topic that is trending amongst the Twitter monoculture.
Rather than educating founders on more fundamental topics such as how to get from 0-1, how to hire, fostering positive culture etc. For which there is still such little content on.
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