business stuff, Dylan Gallagher

If Marc, Fred and Bill can talk about it – so can I

That would be Marc Andreessen, Fred Wilson and Bill Gurley (if you don’t know who they are Google them).  As venture capitalists’ they are seeing an environment amongst technology companies who have raised money and are burning through it because they have no understanding that money doesn’t grow on trees.  While I am not in the venture capital business I see an amazing comparison to in my every day activities.

When Lisa and I applied for our first mortgage our interest rate was 6.75% and I thought that was a deal.  Going further back I have heard from numerous investors whom I manage money for that they remember borrowing money at 20% plus.  Over the past decade interest rates have been low and in my daily dealings there seems to be this expectation that not only should everyone qualify for financing but that it should be at the lowest rates.  There undoubtedly is a lack of understanding in the market (generally speaking) of how to plan for higher costs of capital let alone how interest rates are determined. Yes the economy is stable and yes interest rates continue to be low but I think it is logic to consider that one day they may not be.  I heard it said that:

“the further away you are from the last economic event the closer you are to the next one”

so in light of this I continue to believe that individuals and businesses should be spending time figuring out how to handle their finances when interest rates go up.  At the very least it would be prudent to run the math and see what would happen if your mortgage rate was 2.0% higher or your working capital line was 9.0% – what would the impact be and how what adjustments would you have to make.

For those of you that are interested, here is a link to a Pando article that summarizes Marc’s rant.

 

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