How do high interest rates in the US, impact startups in India?

There is a lot of talk about India being a bright spot in the global economy today. You may even hear that we are 'decoupled' from the problems of the west.

Well, we are not.

Most of us are superficially aware that many risky asset classes are negatively impacted when interest rates (IRs) ??

• Stocks ??
• Bond yields ??; Bond prices ??
• Venture capital/ private equity funding ??

Here's the race to raise Its globally

?? But why do high interest rates matter for Indian VCs with #drypowder?

?? Do they have direct or indirect impact on our startup ecosystem ?

Unfortunately, high interest rates in the US can have both direct and indirect effects on #venturecapital activity in India.

The extent of these effects will depend on -

• The degree of economic interdependence between the US and India
• Global market conditions, and
• The overall health of the #indianstartups

Here are 5 possible effects, you should be aware of as an early-stage startup -

1. Reduced foreign investment ?? : High interest rates in the US may encourage US-based investors to focus on domestic investments or other assets that offer better returns with lower risk. This could lead to a decrease in foreign investments, including VC funding, in the Indian startup ecosystem.
2. Currency fluctuations ?? : High US interest rates can lead to a stronger US dollar, which could result in a depreciation of the Indian rupee. While this may make Indian startups more attractive for foreign investors due to lower valuations, it can also increase the cost of imports and debt servicing for Indian companies, which can negatively impact their growth prospects and financial stability.
3. Changes in global liquidity ??: High interest rates in the US can lead to a tightening of global liquidity, as capital flows out of emerging markets and into the US in search of higher returns. This could potentially reduce the amount of capital available for Indian startups and make it more challenging for them to secure funding.
4. Economic spillover effects ??: The US is a significant trading partner for India, and high interest rates in the US can have broader economic implications, such as reduced demand for Indian exports, lower foreign direct investment, and a potential slowdown in global economic growth. These factors can indirectly impact the health of the Indian startup ecosystem and the availability of VC funding.
5. Impact on Indian interest rates?? : In response to high US interest rates, the Reserve Bank of India (RBI) may decide to raise interest rates to maintain financial stability and curb inflation. This could make borrowing more expensive for Indian companies, including startups, and impact the overall investment climate in the country.
6. Lower LP confidence ????: Lastly, it's important to not forget that VCs who have successfully raised funds, will still need to make capital calls to their LPs who committed capital. While there is an obligation by the LP for the commitment, rarely will a GP take their LPs to court to force a capital call. It's not the game theory optimal move to make, when you're building for the long term. All in all, this again means, lesser capital for founders in the short run.

That being said, the Indian startup ecosystem has its unique characteristics and may not be entirely dependent on US interest rates or investment flows.

• Domestic economic growth,
• Government policies, and
• Local investor appetite for venture capital

Are 3 important factors that will play a significant role in shaping the VC landscape in India.

To sum up, high interest rates in the US will have varying effects on Indian venture capital. The specific impact though, will depend on the broader economic context and the resilience of the Indian startup ecosystem.

The interconnected world, treads a twin edged sword. ??