Silicon Valley's 'wackiest' ideas were flushed out due to high interest rates, says Stripe co-founder.

• Stripe's president and co-founder, John Collison, stated that the conclusion of the zero interest-rate policy exposed the "craziest" startup concepts, allowing only valuable companies to secure funding.
• Silicon Valley was not healthy during the period when money was freely available, according to Collison's statement to CNBC.
• Last year, Stripe cut its valuation from $95 billion to $50 billion due to the new rate environment weighing on tech valuations.

Stripe's co-founder believes that the rise in interest rates led to a decline in technology valuations and negatively impacted Silicon Valley.

"According to John Collison, president of the online payments company, in an interview at the company's annual conference on Wednesday, the effects of higher rates have been quite good. He stated that the period where money was free was not a healthy time in Silicon Valley."

Stripe, founded by Collison and his brother Patrick in 2010, became a startup sensation and reached a valuation of $95 billion in 2021, making it one of the world's most valuable venture-backed businesses, surpassed only by Elon Musk's SpaceX.

Due to soaring inflation and rising interest rates, starting in 2022, investors began to pull out of risky assets, causing borrowing costs to increase and forcing startups to tighten their budgets.

In a 2023 financing round, Stripe slashed its valuation to $50 billion, despite a recent employee tender offer valuing the company at closer to $65 billion, according to the Wall Street Journal.

"Interest rates influence valuations," Collison stated. Despite this, he emphasized that "Stripe's business is thriving." Regarding the decline in valuation, he remarked, "We're not concerned about it."

Stripe processed $1 trillion last year, up 25% from the 2023, the company announced in its annual report.

The rising interest rate environment helped to eliminate the "wackiest" startup ideas, allowing the best ones to receive funding.

He highlighted the issue of "overfunding" for marginally good ideas and the prolonged existence of "zombie companies."

"Collison stated that dynamic capital allocation in the broader economy is not beneficial when people are working on marginal ideas instead of the most valuable ones."

Since 2022, the Federal Reserve has been gradually increasing interest rates after a period of low borrowing costs. The benchmark rate was raised to its highest level since 2001 last year, and it has remained stable ever since. Recent statements by Fed Chair Jerome Powell and other policymakers suggest that there are no plans to cut rates in the near future.

Collison said there's more pain coming.

"Assuming that the hurt takes a bit longer to arrive is the point of high rates," he said.

Artificial intelligence is a part of the tech market that is thriving in the higher rate environment, with a new AI funding round emerging every week, according to Collison.

This week, Perplexity announced a $63 million funding round, increasing its valuation to over $1 billion. SoftBank and Jeff Bezos are among its investors.

The company's payment processing technology is being utilized by AI startups such as OpenAI, Anthropic, and Hugging Face, which in turn is benefiting from the resulting euphoria.

"In Silicon Valley, there has never been a time when there was as much interest in tech advancements taking place as there is now during the AI boom," Collison stated. "It's an exciting time to be involved in technology, overall."

Stripe's eventual IPO has been a topic of speculation for years due to the company's high valuation and notable investors seeking a return on their investment. However, Collison stated that Stripe is not in a hurry and is currently focused on providing liquidity to employees through secondary share sales.

"We are not announcing a timeline for becoming a public company, but our primary focus is ensuring employees have adequate liquidity."

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