Equity Will rising interest rates decimate startup valuations?
Feb 19, 2022
Anshu Sharma, Founder and CEO of Skyflow, offers deep insights from his extensive tech background, including roles at Salesforce and Oracle. He discusses how rising interest rates might affect startup valuations and challenges common misconceptions about investment strategies. Sharma emphasizes the importance of long-term growth versus short-term valuation methods. He also shares practical advice for founders on navigating cash management and rethinking funding strategies in a changing economic landscape.
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Business as Real Estate Analogy
- Businesses, like real estate, require investment and generate cash flow.
- Interest rate sensitivity varies depending on the nature of the business and its assets.
DCF Valuation Fallacy
- Discounted Cash Flow (DCF) models use interest rates as a key input, impacting valuations.
- Real-world factors beyond spreadsheets influence company value, similar to how Black-Scholes doesn't fully determine option prices.
Historical Tech Investments
- Consider if investing in GE over Microsoft in 1990 or IBM over Salesforce in 2010 would have been better.
- The answer highlights that high-growth companies' earnings power depends more on growth rates than interest rates.