There's always so much going on in the world of investing and the new economy. It can be hard to stay up to date with all the latest developments for businesses and investors, especially with all the inflation, disrupted supply chains, and employee scarcity many are facing. Here are the Frugal Finance news stories you need to know now:
Stocks ticked higher overall, despite a rocky week rumbled by fears that China's Evergrande could cause global turmoil if it can't pay its soaring $300 billion debt. And you thought your credit card bill was high! Last week, markets wobbled as Chinese property giant Evergrande missed an $83 million payment — and it’s just the tip of a $300 billion debt iceberg. Investors fear that Evergrande's collapse could cause a Lehman-esque global stock slump, and throw local markets into turmoil. If Evergrande defaults, its financial partners, including HSBC, BlackRock, and UBS, could lose big money. Investors are watching to see if Evergrande will come up with the cash during its 30-day grace period — or miss more payments.
The US Treasury’s borrowing is limited by a “debt ceiling.” If it needs more cash, it asks Congress to raise the cap. Now, the US needs a higher ceiling to cover trillions worth of Covid expenses, but Congress can’t agree on a limit. If a deal doesn't happen, the US could default on its debts for the first time. Analysts say there’s a 20% chance of default, which could wipe out as many as 6 million jobs and $15 trillion in wealth.
Agtech fundraising continued its upward growth in Q2 of 2021. The Covid-19 pandemic caused a surge in funding for agtech startups addressing vulnerabilities in supply chains. Now extreme weather events are highlighting new challenges and driving investment in soil sensors, weather prediction services and aerial imagery that help growers mitigate the effects of climate change. A Q2 installment of Emerging Tech Research on agtech includes spotlights on private companies such as Benson Hill, Semios and CropX. The report also tracks major industry trends, covering funding records, exits, and developments in areas like insect farming and agriculture drones.
Boston's VC ecosystem is thriving. The Boston Massachusetts venture capital ecosystem is often grouped with Silicon Valley's, but the two could not be more different. Boston, home to world-class universities like Harvard and MIT, is fueled by life sciences. Since 2007, pharma and biotech startups have raised more capital than their software counterparts every year, sometimes by a 3-to-1 margin. But Boston's growing tech scene is a juggernaut in its own right with a thriving technology development scene. Boston's software startups are predominantly B2B-related, including hundreds of cybersecurity, network management, robotics, and AI-powered software companies. Boston and adjacent cities like Cambridge, Waltham, and Arlington MA are already enjoying a record year for venture capital, having surpassed their previous year's record for funding.
Fantasy soccer startup Sorare just hit a mind-blowing $4.3 billion valuation. SoftBank has led a $680 million Series B for Sorare, valuing the French fantasy soccer specialist at $4.3 billion. It's the largest-ever Series B in Europe, according to reports. Sorare offers a blockchain-based platform to let users trade digital sports cards. With the new funding, the startup plans to team up with the top 20 soccer leagues worldwide and expand to include other sports. The round is the second-largest deal in VC gaming this year, behind Epic Games' $1 billion funding round in April. Sorare has 600,000 registered users on its platform and has licensed players from over 180 soccer organizations. Atomico, D1 Capital, Eurazeo and other backers participated in the round, as did existing investors Benchmark, Accel and Headline.
Private equity companies were recently rethinking sports investing strategy after fans, teams cry foul In August, CVC Capital Partners agreed in principle to acquire a minority stake in Spain's La Liga soccer league, but not every team is happy about it. Private equity's push into professional sports investing initially appeared to be a slam dunk. But investors have recently faced increasing pushback from players and fans as they attempt to establish themselves in the elite world of pro sports team and league ownership. In August, Real Madrid filed suit against CVC Capital Partners and Spain's La Liga after the firm struck a deal to acquire a 10% stake in the league's commercial activities for around €2.7 billion (about $3.2 billion). The All Blacks rugby team and New Zealand Rugby Players Association have voiced opposition to a deal that would see Silver Lake buy a minority stake in the league. With the PE industry becoming more active in fighting a negative public perception, executives must now ask whether pursuing professional sports investments is worth the possible reputation implications. Interestingly enough, Hollywood stars Ryan Reynolds and Rob McElhenney somewhat recently bought 100% of a smaller Welsh football club the Red Dragons and have had excellent public relations results and approved by fans.
Private funds might have to give up a bigger share of their profits In the US, Democratic lawmakers have floated a proposal that could not only increase tax rates on so-called carried-interest profits but also extend the length of time general partners must hold an asset before they can benefit from a favorable tax rate. Carried interest is the cut (typically 20%) that GPs get on the money returned to investors after a liquidity event. In principle, it gives managers incentives in a way that benefits limited partner investors like pensions and endowments. Alongside the management fee, a 2% annual fee on capital managed by a fund, carried interest is an important component of the "2 and 20" fee structure that underpins private funds. It also represents a lot of potential tax revenue. Under the current system, carried interest earned is treated as capital gains. This means managers typically only pay a federal tax rate of 23.8%, which comprises the 20% net capital gains tax plus a 3.8% net investment income tax, instead of the 40.8% top rate. This is provided that the fund has held onto an asset for more than three years (until the Tax Cuts and Jobs Act of 2017, that threshold was one year). This rarely poses a challenge for the private equity asset class, where typically the holding extends well beyond three years. But some Democratic lawmakers want to extend that to five years. What's more, that holding period may need to be even longer than five years for the manager to qualify for the preferential tax treatment. Cécile Beurrier, a tax lawyer with Debevoise & Plimpton, explains that under the proposals in the US, the clock won't start ticking until the fund is fully deployed. "This is a very important nuance in the context of a fund that lasts eight to 10 years, because usually in the first couple of years the fund is in ramp-up mode, so it usually is not substantially invested until the end of the investment period of maybe three to five years." This is a problem for fund managers, especially when it comes to investments made during this ramp-up period.
According to recent financial data, US buyout firm holding periods have been getting shorter. The median time has fallen from 6.2 years in 2014 to 4.9 years so far in 2021. For venture capital in the US, meanwhile, median holding periods—dated from the first VC round—have risen from 4.8 years to 5.5 years in the same period. But even if holding periods were to trend downward in the coming years, many investments could still likely fall outside preferential tax treatment. What's more, it could influence when managers decide to exit a startup company.
Private equity and politics potentially prohibit profits. Politicians on both sides of the Atlantic who have long argued that the government should carve a larger slice out of private equity and venture capital profits could be closer to getting their way. The end result could not only eat into private equity profits but could even undermine an important tool for aligning the interests of fund managers and their investors. Some 27% of venture capital, corporate venture capital and private equity firms lost a partner or key recruit in 2021.
From 2010 to 2020, the median late-stage valuation of VC-backed companies tripled in the four most active hubs across the US: New York, Boston, Los Angeles and the San Francisco Bay Area. That increase is significantly higher than the next six most active US VC areas, indicating that factors such as an ecosystem's cost of living, employee compensation, commercial real estate prices and availability of talent have a major influence on deal size and valuation metrics.
India has produced 41 unicorns to date—including edtech giant Byju's and ridehailing company Ola, which is reportedly planning to raise $1 billion in its upcoming IPO. More than 40% of the companies on that list were minted in 2021 alone, according to new data. And, in light of the Chinese government's heavy-handed approach to private enterprises, investors' excitement around India is unlikely to abate soon.
Did you know that 28% of transgender respondents in a recent survey said they had postponed medical care in order to avoid discrimination? The LGBTQ community represents a largely underserved segment of the US population. This inequity can be attributed to several factors, including unequal care opportunities, fear of discrimination and lack of insurance coverage. Our latest installment of Emerging Tech Research delves into the growing LGBTQ-focused healthtech sector and highlights emerging startups that provide gender-affirming treatments, mental healthcare and family-building services for these individuals.
The logistics specialist Transfix is expected to go public soon via SPAC. Transfix, an online platform that connects freight shippers with truck drivers, has agreed to go public via SPAC at an enterprise valuation of $1.1 billion. The blank-check company is sponsored by G Squared, a late-stage firm and primaries and secondaries investor that had previously backed the New York-based logistics specialist. G Squared managing partner Larry Aschebrook told media outlets earlier this year that the firm intended to take a portfolio company public via its SPAC. G Squared is one of a number of venture firms that have formed blank-check companies with the goal of targeting an existing investment. While this may seem like a conflict of interest, these deals are not prohibited if specific guidelines are met. SPAC deals where a firm is involved on both sides of the transaction have the potential to be very lucrative because the proceeds from selling the private company and the "promote" for managing the SPAC are both realized by the firm. The first such transaction to be cleared by regulators was SmartRent, which went public last month via a SPAC sponsored by Fifth Wall, a property tech-focused VC firm that had previously invested in the company via one of its funds.
Why are investment firms scooping up life insurers as well-established companies leave the industry in droves? Here's the history. With "no technology and no experience," Chinese real estate developers are being forced to enter other markets in the face of high costs and low profits for builders. In big steps for accessible footwear, Nike designers have made it halfway to a completely hands-free shoe.
Last quarter, Bed Bath & Beyond's sales of bathroom and home organization products surpassed pre-pandemic levels, doubling from last year. Cue: BB & B raised its annual sales expectations, and expanded its DoorDash partnership to offer more delivery. We’ll see if the bedding icon saw a back-to-college boost when it reports quarterly earnings Thursday. Fashion vs. #Flation means consumer spending surged this spring when shoppers “revenge spent” on new outfits and plane tickets after a couch-bound year. While boosted unemployment benefits have ended, $300 / month child tax credits are now getting doled out. Experts expect spending to keep rising, but prices are also continuing to rise. We’ll see if "revenge spending" has continued when inflation-adjusted consumer spending numbers drop soon.
The Wall Street Journal got its hands on some juicy Facebook-internal docs, and the bad headlines have been snowballing. Controversies include: a secret Facebook moderation program that exempts celebs from usual posting restrictions, and a test initiative that pushed positive news stories about Facebook.com to users. The latest shocking revelation: The Facebook Company has extensive internal research showing that Instagram is toxic for teens. Criticism of social media's impact on mental health has been building for years, amplified by documentaries like The Social Dilemma and vocal lawmakers. What's notable about Facebook is the scale of the problem. Facebook researchers consistently found that Insta is harmful for a significant percentage of users — especially young girls. 32% of teen girls said that when they felt bad about their bodies, Instagram made them feel worse. 6% of American users who reported suicidal thoughts traced those desires to Instagram. For British users, it was 13%. +178%: Suicide deaths for children ages 10 to 14 nearly tripled from 2007 to 2017, when social media saw mass adoption. The paradox is that the most problematic social app features also seem to drive the most engagement — along with profits and stock prices. Last quarter, FB's revenue soared, and profit nearly doubled to $9.5 billion. Snap and TikTok are also experiencing strong growth, largely thanks to young users who are growing up with these apps: 40%+ of Instagram users are 22 and younger. Snap reaches 90% of US 13- to 24-year-olds. And 60% of TikTok users are between the ages of 16 and 24. Despite all the bad PR, social companies' revenue engines are thriving. Extensive regulations exist to protect our physical health like the FDA for food and drugs, and the NHTSA for driving. But we don't have many guardrails to protect mental health. If social giants start seeing regulatory and public criticism hit their balance sheets, an inflection point could force change. Already, lawmakers are pressing Facebook to abandon its plan to launch Instagram for kids.
Universal Music shares soared 40% last Tuesday after going public, as the $53 billion music giant competes to make a soundtrack for the digital economy. Mine: Ford partnered with "urban mining" company Redwood Materials to recycle its EV batteries from cars like the Mustang Mach-E. IRL: Amazon reportedly plans to open physical department stores that feature QR codes, touch screens, and techy dressing rooms. The goal: end "retail ghosting."
Robinhood's IPO Access has already seen the launch of 7 IPOs with 556,180 investors joining in on initial public offering investment share purchases. Robinhood customers have been getting their hands on company shares purchased at the IPO price, and HOOD investors have profited powerfully! When they introduced IPO Access, we wanted to give our customers the opportunity to invest in companies that go public. And we want to invite you to discover some of those upcoming IPOs as well. Check out the IPOs currently in flight with IPO Access on Robinhood.com or the Robinhood mobile app.
IPOs can be risky and speculative investments, and may not be appropriate for every investor. See our full risk disclosure here. Customers will be required to have sufficient cash in their account to cover the 120% buying power hold in order to place a Conditional Offer to Buy (COB). There is no guarantee that requests for IPO shares will be fulfilled. All IPO requests are subject to availability – requests are filled randomly the morning of the company’s IPO. Learn more about our allocation process here. No offer to buy the IPO shares can be accepted and no part of the purchase price can be received until the registration statement has become effective, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to notice of its acceptance given after the effective date. All investments involve risk and loss of principal is possible. Past performance is not a guarantee of future results. This is not a recommendation of a security or investment strategy. Robinhood Financial LLC is a registered broker dealer (member SIPC). Robinhood Securities, LLC provides brokerage clearing services (member SIPC). Robinhood Crypto, LLC provides cryptocurrency trading. All are subsidiaries of Robinhood Markets, Inc. ("Robinhood").
Speaking of Robinhood, they now have an option to grow your cryptocurrency investments even greater. Crypto recurring investments are here! Sit back and watch your coins stack up, commission-free. Starting today, you can buy your favorite coins (or fractions of them) automatically, on a schedule you choose, with as little as $1. It is a great way to grow your crypto holdings over time while reducing your exposure to market volatility. You simply create a recurring investment with these steps.
Here’s how it works: Make sure your Robinhood mobile application is updated to the latest version in your Apple App Store or Google Play store. Choose a crypto coin you want to buy in the app—bitcoin, ethereum, dogecoin, litecoin, and more Tap Market order and select Recurring investment Set an amount, customize your schedule, and choose a payment method You’re set! You can edit or cancel your recurring investment at any time, and you’ll always be notified before your next order is placed. Learn more about recurring investments in our Help Center.
Want Robinhood cryptocurrency wallets? Well you are now in luck! As of a few days ago, you can start joining the crypto wallets waitlist. With wallets, you’ll be able to send your coins to your other crypto wallets and receive supported cryptocurrencies into your Robinhood Crypto account. Be one of the first to get access! Here’s how HOOD is saying it works: Join the waitlist. Secure your spot in line with a couple taps Invite friends and move up the list. Jump the list by half for every friend that you successfully invite to Robinhood. Learn more Take a look behind the scenes. A handful of Robinhood customers will get an early peek at what they're building, and they will share their thoughts on our blog they are committed to making crypto more accessible and easier to use for everyone. Learn more about wallets and join the waiting list to secure your spot in line.
You can simplify your audit preparation with Vanta. Vanta is the easy way to get SOC 2, HIPAA or ISO 27001 compliant. More than 1,500 fast-growing companies trust Vanta to automate their security monitoring and prepare for compliance audits—in weeks instead of months. Vanta helps restore trust in internet businesses by giving startups an easy-to-use toolkit to improve—and prove—their security. Simply connect your tools to Vanta, fix the gaps on your customized dashboard and then work with a Vanta-trained Certified Public Accountant to complete your audit.
The number of female founders in asset management hasn't changed much in the past 30 years. Värde Partners co-founder Marcia Page wants to fix that. For 100-year-old Betty Reid Soskin, being the oldest active ranger in the US National Park Service is only the latest chapter. As the trial for disgraced Theranos founder Elizabeth Holmes continues, "Bad Blood" author John Carreyrou discusses Holmes' defense strategies and the likelihood that he'll be called as a witness. Why more startup CEOs are moonlighting as VC investors. It's no secret that bitcoin isn't environmentally friendly. A look at how some sustainable alternatives are aiming to challenge the cryptocurrency's dominance. When Apple's offices reopen, the company expects its employees to be at their desks at least three days per week. That policy is creating an unexpected battle within the tech giant. Google is in a similar situation with requiring hybrid work or requisite back to office policies.
"We are seeing venture capital firms increase total cash compensation across the board, most notably among associates and managing general partners, indicating VCs are willing to pay a premium to recruit and retain top talent."
—Jody Thelander, founder and CEO of compensation data provider J.Thelander Consulting.
Keep reading more Frugal Finance blog posts and news articles to stay updated on top financial stories, remote working, or stock market trends worldwide!
