How does 0% interest rate actually affect this though? Are that many companies actually funded on debt now? Or are are sales down because their customers were purchasing with debt?
ZIRP means that huge capital managers (sovereign wealth funds, pension funds, 401k managers, etc.) get very, very little money on the super-safe stuff they like to buy.
They need to make returns somehow, so if a VC is promising them 15% returns, that sounds quite promising compared to T-Bonds that return 1.5%!
But over the last two years, the yield on super-safe investments now looks more like 6, 7, 8, 9%. That makes a high-risk investment like VC much less attractive, by comparison.
If VC is less attractive, less capital flows to their funds; smaller VC funds means much more discerning, stingy startup investment.
You can get debt cheap to fund investment. Other side is that lot of money is always searching for some kind of return. With rates going up that money can go back to boring bonds, either from governments or even big reliable companies that are unlikely going anywhere.
ZIRP means that huge capital managers (sovereign wealth funds, pension funds, 401k managers, etc.) get very, very little money on the super-safe stuff they like to buy.
They need to make returns somehow, so if a VC is promising them 15% returns, that sounds quite promising compared to T-Bonds that return 1.5%!
But over the last two years, the yield on super-safe investments now looks more like 6, 7, 8, 9%. That makes a high-risk investment like VC much less attractive, by comparison.
If VC is less attractive, less capital flows to their funds; smaller VC funds means much more discerning, stingy startup investment.