This is when banks loan money with almost 0% interest.
That usually happens after a recession to get business flowing, ie after 2008.
During this period, investors take more risks to invest in companies that are not profitable yet, but could be extremely profitable in the future.

This stopped in 2022, and this is why many companies stopped getting funding.
New investors would only invest in profitable companies, which is why many companies focused on profitability for a while.

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In one sentence

Zero Interest Rate Policy makes money cheap, encouraging investors to fund risky, high-growth companies like tech startups. When interest rates rise, money becomes more expensive, investors become more cautious, and tech valuations and funding often decline.

The Zero Interest Rate Policy (ZIRP) is when a central bank (such as the U.S. Federal Reserve or the Bank of Japan) keeps its main interest rate at or very close to 0% to encourage borrowing and spending.

Think of it like this

Imagine money is a product that banks sell.

• Normal times: Borrowing money costs, say, 5%.
• ZIRP: Borrowing money costs almost nothing (0–0.5%).

When borrowing is cheap:

• People buy more houses and cars.
• Businesses borrow to expand.
• Investors look for higher returns because bank savings pay almost nothing.

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Why do governments do this?

Usually during or after a recession.

The goal is to:

• Encourage companies to invest.
• Encourage consumers to spend.
• Increase hiring.
• Prevent the economy from shrinking further.

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Why was this great for tech companies?

Tech companies often need lots of money before they become profitable.

For example:

A startup wants to build an AI product.

• Revenue: £0
• Expenses: £10 million/year

It needs investors to keep funding it.

During ZIRP

Investors can borrow money cheaply and savings accounts pay almost nothing.

So they think:

"Instead of earning 0.2% in the bank, I'll invest in startups that might grow 100x."

As a result:

• Venture capital firms raised huge funds.
• Startups received funding more easily.
• Public investors bought fast-growing tech stocks.

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Example

Suppose you're an investor with £1 million.

Interest rates = 0%

Bank:

• Return = almost £0

Tech startup:

• Could double or triple your money.

Many investors choose the startup.

More money flows into technology.

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Interest rates = 5%

Now the bank offers:

• £50,000/year with almost no risk.

Suddenly the risky startup looks much less attractive.

Investors become more selective.

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Why did tech valuations rise?

Investors value companies based on future profits.

Imagine:

Company A will earn £100 million...

• ...next year.
• ...or in 10 years.

When interest rates are near zero, money expected in 10 years is still worth quite a lot today.

When interest rates rise, future money is "discounted" more heavily, so those distant profits are worth less today.

This is why growth stocks—especially tech—often fall when interest rates rise.

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Real-world example (2010–2021)

After the 2008 financial crisis, many central banks kept interest rates extremely low for years.

This led to:

• Massive venture capital funding.
• Many startups reaching billion-dollar valuations.
• Rapid hiring by technology companies.
• Strong performance of companies such as Amazon, Microsoft, Shopify, and many software startups.

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What changed after 2022?

Central banks raised interest rates to fight inflation.

Effects:

• Borrowing became more expensive.
• Investors became more cautious.
• Startup funding declined.
• Many tech companies reduced hiring or laid off staff.
• Company valuations fell, particularly for businesses that were expected to generate profits far in the future.