I am excited for the weekend. I had a nice ride yesterday and plan on a couple long rides today. February in Phoenix has been a little chilly but perfectly sunny.
I have a busy week next week with a board meeting in Los Angeles Monday and the rest of the week in New York. I am in catch up mode after being out of action for a few months, but my body is holding up pretty well.
This chart from Visual Capitalist on the 700 years of declining interest rates is really on my mind today. It is the trend to end all trends for long-term investors. We are pretty lucky as consumers and investors to be living in this downward trend.
I read this great post by Alex Danco (he has a great newsletter which is free) titled ‘Debt Is Coming‘ that speculates about debt becoming a much bigger part of the technology industry including venture capital. I really enjoyed it. I shared it with some debt capita investors/friends of mine in New York and will be chatting about it at dinner with them Tuesday. I clipped the ending for the lazy:
The risk to VCs isn’t that their role disappears. It’s that once this happens, the muscle memory for how to structure funds and term sheets immediately goes out of date. VC firms should spend time today thinking about how they’re going to prepare for this new world, in case it comes true.
If you think there’s too much money flowing into startups now, just wait until someone makes a high-yield fixed income product for institutional investors to buy recurring revenue. In my 10 predictions for the 2020s post, one of my predictions was a that we’re going to replay the Softbank capital-as-a-moat funding calamity, but with enterprise software this time. Recurring revenue securitization will be like gas on the fire. Forget Softbank; imagine what it’s going to be like competing against someone who’s hooked up to the debt market.
VCs need to be ready for this new game. Many of them are already preempting it, deliberately or not, as they transition into these multi-stage battleship firms with scout programs, venture teams, and growth funds. I’m not sure it makes sense for these firms to raise their own debt funds though. More likely, we’ll see a few top-flight firms announce partnerships with Stripe Capital and Goldman Sachs, and just roll it right in with their Series B term sheets.
Expect, at this point, some pretty funny “Actually, four legs good, two legs better” blog posts from some of the same VCs who told us to never take debt a few years before. “Ah, see, that debt was reckless gambling; this debt is being equity efficient”. K thanks.
And when founders really get a taste of that credit? That sweet, sweet taste of dilution-free capital, flowing freely to and from a continuous growth vehicle, and learn the dark arts of securitization? And then when their competitors learn about it? It is game over for the old way.
Proceed carefully, but get excited too. This is a good thing. A realignment between financial and production capital is long overdue, and it’s going to hit like an earthquake. But it’s going to level up our collective ability to put capital to work into new and interesting businesses. We could be around the corner from a technological golden age, where software and the internet can get massively deployed in a production-forward way. The world wants this so badly. And we’re almost there.
With respect to the stock market, continued lower rates are likely the biggest driver of higher prices.
My friend Yoni Assia – the founder/CEO of Etoro – had lunch with Warren Buffett and one of his questions was about the markets and valuations and I have clipped it below:
As millennials say and do…BTFD!