Many are concerned interest rates may rise more than anticipated in 2023 and remain elevated for years to come — including David Munoz, the CEO of Vektrust, a merchant capital investment and advisory firm.
With years of experience in the investment sector, Munoz advises early- and mid-stage companies on strategic realignment, tactical execution, and capital raising — and he’s got a feel for the current volatile economy.
“If you make too many bad decisions, you will not make it,” he warns. “You won’t have enough room to pivot and adjust your thinking, product, customer focus, and team.” He believes high inflation and pricey capital can squeeze companies that don’t treat their funds wisely.
“To make a business successful, you must make hundreds and hundreds of good decisions repeatedly,” he adds. “That’s especially hard to do when you don’t have cheap capital. That’s why a lot of companies don’t make it.”
David Munoz: Inflation Will Reappear in the Coming Decade
Munoz and his team see a confluence of factors pointing to an inflationary decade ahead. He explains, “Efficiency gains in payments and financial markets, a decline in cheap labor, deglobalization, and energy security and sustainability will be core factors that support a higher price environment.
“We won’t experience inflation only once. It will reappear over and over different periods in the coming decade like waves that will keep interest rates higher than we’ve experienced in 20 years.”
For years, investors have indiscriminately flooded mediocre companies with cheap capital, leading to sky-high valuations for unprofitable businesses. However, higher interest rates will cause an economic sea change that will persist for years, forcing firms to adjust. Experts like David Munoz suggest that the process of weeding out businesses with bad business models will begin at the funding stage – not at the product stage, as was done in the past decade.
“What we’ve seen in venture capital funding has been a rampant fear of missing out that has supplanted proper diligence and investment decisioning,” he states. “Investors are hyper-focused now on businesses with a path to profitability and sustainable growth. The era of ‘I’m going to put $30 million into a business that’s been up and running for six months is gone. That’s going to be a harsh environment; people are not ready.”
Despite the cloudy forecast, Munoz believes that businesses will continue to flourish, even if interest rates remain elevated. He sees an opportunity, especially for companies that recognize consumers have become more discriminating about where they spend their money. Consumers can be stingy about paying for digital technologies but will pay for productivity. Munoz puts his money on firms that invent productivity-enhancing apps and software for consumers and corporations.
“People will prioritize their spending on what impacts their lives the most, and especially where it saves time or money,” he says.
In uncertain times like these, financial sector veterans like Munoz can be a valuable resource for level-headed takes on the current state of affairs.
Before assuming the CEO mantle at Vektrust, Munoz worked at BlackRock as Global Head of Credit Strategy and Global Co-head of Macroeconomic Strategy in the Fundamental Fixed Income division and advised portfolios worth more than $780 billion.
In addition, he was CEO of Deltec, a senior investment expert for Lehman Brothers’ Global Principal Strategies division, and a Vice President at Credit Suisse in the Global Mergers and Acquisitions Group. He graduated from Princeton University with a Bachelor of Arts in economics.
While Munoz isn’t alone in his opinion that high interest rates will be required to contain inflation over the coming years — the dreaded specter is an open secret — he’s one of a few who will say it out loud, even if it’s hard to hear.
The End of the ‘Lone Wolf’
The Vektrust CEO predicts that the lone wolf model will go into hibernation or extinction in the new order. He believes that business leaders will make a significant transition to networking. “The rise of the ‘solopreneur’ that we’ve had in the past years, I think that’s going to taper off,” he says. “It’s going to be much harder to be an individual and have enough perspective to make good decisions.” He holds that C-suite types need to solicit diverse opinions before undertaking a business strategy. “You’ll need many different opinions to distill your options to the best decision on what you’re doing,” he advises.
However, he cautions against taking a doom-and-gloom overview. David Munoz reminds us that the world has operated with high interest rates for many decades, and people have built great businesses and made fortunes. He believes that despite stratospheric interest rates, clever entrepreneurs can push ideas to success.