Great post! How do interest rates being high or unexpectedly so directly affect investors’ decisions on funds they’ve already raised. Is it conscious and even formulaic or less direct than that?
Think the main effect is reducing the expected capital deployment rate since you’re now investing at lower valuations and doing fewer deals. This impacts the timing of your next fundraise
Really cool post! Have you looked into using changes in Fed Funds futures on FOMC announcement days as a way to measure the "surprise" component of monetary policy changes? Maybe you don't have enough observations when you do it that way, but it is a very clean way to identify the effects of monetary policy on asset valuations.
Thanks Patrick! Yes I did look into this but decided not to use it as I've found that high frequency shocks are more useful when the variable of interest is also reasonably high frequency. Venture capital data is too noisy for even monthly level analysis. But then the high frequency surprises don't aggregate super well to the quarterly level. So you're sort of out of luck. And yes I also just don't have enough observations! If I did this for public companies I'd definitely want to use the high frequency approaches
Great post! How do interest rates being high or unexpectedly so directly affect investors’ decisions on funds they’ve already raised. Is it conscious and even formulaic or less direct than that?
Think the main effect is reducing the expected capital deployment rate since you’re now investing at lower valuations and doing fewer deals. This impacts the timing of your next fundraise
Really cool post! Have you looked into using changes in Fed Funds futures on FOMC announcement days as a way to measure the "surprise" component of monetary policy changes? Maybe you don't have enough observations when you do it that way, but it is a very clean way to identify the effects of monetary policy on asset valuations.
Thanks Patrick! Yes I did look into this but decided not to use it as I've found that high frequency shocks are more useful when the variable of interest is also reasonably high frequency. Venture capital data is too noisy for even monthly level analysis. But then the high frequency surprises don't aggregate super well to the quarterly level. So you're sort of out of luck. And yes I also just don't have enough observations! If I did this for public companies I'd definitely want to use the high frequency approaches