undefined | Better HN

0 pointsthaumasiotes9d ago0 comments

> The high interest environment means that biotech investing has been hit extremely hard

I don't think this reasoning can work. To the extent these things are directly related, the relationship would have to be: returns on investment are at an all-time high --> more investing than usual.

0 comments

5 comments · 1 top-level

anon848736289d ago· 4 in thread

When interest rates are low, capital is willing to go to riskier enterprises like biotech in order to get a larger return compared to the alternatives.

When interest rates are high, capital shifts to yield-generating, interest-bearing investments. They give higher returns with less risk.

So basically the ROI of biotech becomes less competitive compared to alternatives. You have the same number of people/firms chasing a smaller supply of investment dollars.

thaumasiotesOP9d ago

This doesn't work the way you imagine.

Suppose the ROI of biotech becomes more competitive compared to alternatives, because there's an ongoing series of technological breakthroughs.

The return on investing goes up (by assumption) and this means interest rates go up (by definition; they are the return on investing).

Is this bad for biotech? Does it shift capital out of biotech? Obviously not.

mike_hearn9d ago

High interest rate environment usually means the government specifically is paying a better rate on its debt. Then other interest rates are downstream from that. Government interest rates aren't connected to returns on investment (or only very indirectly).

Tech investments don't come with interest payments usually, so if interest rates go up it pulls money into government and corporate bonds which are much lower risk. Why take a gamble on new tech that might lose you everything to get 10% ROI, if you can get 6% "risk free" in bonds?

klipt9d ago

You're using "high interest rate" to mean "biotech has great returns right now".

Everyone else is using it to mean "the Federal Reserve has set the interest rate high right now"

Very different situations.

thaumasiotesOP9d ago

The difference between those two situations can't be determined by observing the level of interest rates. That's my whole point.

1 more reply

j / k navigate · click thread line to collapse