Fintech Macro Part 1 Rising rates is good for banks & bad for early stage Fintech
Fintech is not immune from the macro environment and unless you live in blissful ignorance of the markets, you will have noticed some macro turbulence. High inflation leads to higher rates which is bad news for anybody with a variable rate mortgage but good news for banks who make their money from lending. It is also bad news for startups for four reasons:
1. The discount rate used in NPV venture valuation models is tied to interest rates.
2. Investors in private equity get worried when public market stocks decline and at least negotiate harder based on lower public market comparables.
3. Investors have other options such as bonds if interest rates rise.
4. Rising rates lead to recession fears which hurts all companies.
Could the market suffer a long slow puncture? This has happened before but recent crashes have led to a buy the dip mentality; a long slow puncture will kill the buy the dip mentality.
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