This was a consequence of near-zero interest rates, and will be different now that the FED is moving us to an era of nonzero interest rates.

> Suppose you develop a new technology that is valuable to some industry. The old approach was to sell or license your technology to the existing companies in that industry. The new approach is to build a complete, end-to-end product or service that bypasses existing companies.

Technology (software) is a red herring. Read as “suppose you find some way to make an existing business better”. Might be a better version of a product, cheaper way to manufacture, more effective way to market, etc. How do you monetize that? 2 common choices are:
1. Sell the improvement to existing businesses
2. Make a new business to compete with the existing players, and use your new thing as a competitive advantage

The higher the interest rate, the more effective #1 is; the lower the interest rate, the more effective #2 is.

Technology, which OP cited, is just one way to make a company better. In 2014, it was a very common way, since few people were doing it effectively.

In 2009, the FED started QE (near zero interest rates) in response to the ‘08 financial crisis. Consequently type #2 startups started outperforming type #1 startups. Founders and VCs noticed, and started producing more type #2 startups than type #1 compared to before. It didn’t happen overnight, and this is what cdixon was observing in 2014.

Why are interest rates connected to starting new businesses? Consider Uber entering a new city in 2014. Uber is better than taxis because it has an app (for the sake of argument), but traditional taxis have an advantage of an existing network effect of riders and drivers. To build a comparable network and be competitive, Uber can subsidize drivers to attract riders, until it becomes self sustaining and Uber can switch from subsidizing rides to extracting a profit. At the money level, this looks like Uber spending a large lump sum today to make an ongoing profit stream in the future (when they win the market).

In fact, this is the classic structure of an investment: spend a lump sum today to get a profit stream tomorrow. Same as building a factory. So when is it worth it? When is the profit stream worth spending a lump sum on, and when is the lump sum worth more than the profits you’d get from investing it?

That depends on the lump sum, expected yearly profit, and interest rates. In finance there’s an idea called “present value [of future cash flows]” which is what you should pay today to get $X/yr forever. It’s something like PV=$X/f(interest rate). High interest rate -> low PV. https://www.investopedia.com/terms/p/presentvalue.asp This is generally worth understanding because it’ll help you make business-aligned decisions about tech debt. So lower interest rates make investments more valuable, higher interest rates make investments less valuable.

Uber made $17 billion revenue in 2021, and took $25 billion in investment until IPO. Imagine by comparison an alternate universe Uber that sold taxi dispatch software. Alt-uber would make $250MM/yr revenue and cost $100MM to build (lump sum). Alt-uber is more capital efficient (ratio of future profits to invested lump sum), but makes less money in absolute terms ($250MM vs $17BB).

So which is better? With a lower interest rate, the PV($17BB/yr) > $25BB and Uber is worth investing in for people who need to make a large absolute amount of money, even at a low ROI. And it’ll crowd out investment in Alt-uber. At a high interest rate, PV < $25BB, and Uber’s a money-losing investment. Alt-uber’s a good investment at almost any interest rate, and wont have to compete with real-Uber for VC dollars in a high interest rate environment.

So in the 2008-2021 era, we saw new companies (“tech companies”) competing with “traditional” incumbents. This was because of a zero-interest rate environment created by the FED in response to the ‘08 crisis. Before that we saw software companies selling software to traditional companies. Now that the FED is moving to nonzero interest rates in response to COVID-driven inflation, we might see a shift back.