Inflation and startups - Editorial by Ionut Patrahau

A bit of time has passed since I believed that the only effect of the rise in inflation is an increased economic momentum, and since I thought that a rise in demand induced by growing consumption can be seen as an indication of a rise in wealth and prosperity of the whole planet – aside from being a factor in the rise of the price index. As the years passed, I have witnessed a few “crises” and I learned to look more at the figures and less at the philosophy behind the event itself. So, I have noticed the numbers below.

These were released by Eurostat and represent a relatively solid base for other economic calculations. Again: it’s quite a while since I believed that this calculation can be indeed relevant, as they’re based on feeble assumptions that do not take into account all global variables. And these are many, too many. So many that they render any economic forecast a mere joke. It is like we’d ask a financier how he’d get out of a pit, and he says: “let’s imagine we have a ladder”.

Let’s consider one thing: the gas price has risen before the current war started, with no connection to the Russians as their prices were fixed by long-term contracts. What actually caused it was the decision of the Dutch government to stop extracting gas from the Groningen region – on the one hand, and the trading on the stock exchange of the short- and medium-term contracts – on the other hand. This resulted in good earnings for traders and, not to forget, the producers. Have you noticed that OMV has had a record profit? So have had the other energy companies, producers or not. This triggered price rises that lead a total inflation of 14%. Have you seen the profits of the banks in the first quarter? A record, too!

And now a question: what has the war to do with inflation? Well, a lot, but it does not yet show in the prices. How can we reduce the inflation if we’re still focusing on others’ businesses? Should we keep musing about the causes and the possible solutions to reduce inflation? Or, maybe, we’re losing precious time for ourselves and our finances?

Coming back to the numbers: how can we protect the value of our savings whilst any bank’s interest on deposits is so much less than the inflation? How to protect our investments if all projected returns, resulting from calculating the profitability for the following years, will need to be recalculated taking into account a different discount rate? What can we do when the yields brought in by real-estate investments will be negative?

All we can do is to balance our sources i.e., diversify our investment portfolios by including assets with high yields on long term. We’re talking here about the assets that can be considered profitable only in diversified portfolios.

When the war started, I said that suddenly the value of our investments has become negative, due to the low-interest rates – on the one hand, and exaggerated evaluations – on the other. Today I have some advice for you: look for investments that are not over-evaluated. Build your portfolio in such a way that you have a chance of positive yields coming from 10-15% of the startups or scale-ups you’ve invested in. Face the inflation and do not believe all positive estimations; they can prove true or false.

I conclude with an English proverb: „what’s bad, can be worse!” So, protect yourselves! Adapt your investments the same way a sailor adapts his sails according to the wind direction. Do not invest when the wind is filling your sails, as it can be deceptive and you might end up in the eye of the storm. A chill runs down my spine..

--

Editorial written by Ionuț Pătrăhău, Managing Partner & Corporate Development @ SeedBlink. 
In addition to his vast experience in banking, Ionuț Pătrăhău also worked in the medical services field, being former CEO of the private health network Regina Maria and co-founder of the Brain Institute, a neurosurgery center developed in partnership with the Monza Hospital.

--

To learn more about startup investing and tech opportunities, sign up now.

__