Vision Fund Woes Signal Changing Environment of Tech Start-Ups and Venture Capital

Haphazardly investing billions into scores of tech startups may be falling out of fashion. The struggles of SoftBank’s Vision Fund—a true titan of the venture capital world—provide a striking example. The market has not been kind to SoftBank CEO Masayoshi Son’s brain child: WeWork has failed to go public and the performance of other key SoftBank investments, such as Uber and Slack, has been lackluster. Furthermore, given that Vision Fund and related investments constitute over 10.5% of global venture capital volume, the fund’s woes may signal a wider retraction in the venture capital environment.

Since its October 2016 announcement, Vision Fund’s $100 billion entrance into the tech market has transformed the venture capital market. While start-ups raising $100 million in a single funding round were once a rarity in Silicon Valley, giant funds like the Vision Fund—which has a minimum investment of $100 million—have made money plentiful. Meanwhile, the Vision Fund has rapidly invested in scores of tech companies. Investments in Uber, the We Company, and Didi Chuxing currently account for nearly 30% of the Vision Fund portfolio by value. Other large investments, out of its 81 total, include Coupang, a South Korean e-commerce platform, Sprint, a wireless services provider, and Grab, a southeast Asian taxi-hailing company.

WeWork’s IPO debacle has been the harshest condemnation of the Vision Fund thus far. SoftBank valued the workspace provider at $47 billion this January, but it is now expected that WeWork is worth less than a third of that valuation. Further, of the six public companies that comprise the Fund’s portfolio, only two—Guardant Health and 10x Genomics—are trading above their IPO prices. Particularly damning are Uber and Slack’s performances, trading at 25% and 36% lower than their IPO prices, respectively.

Mr. Son, for his part, is nevertheless moving forward undaunted and launching a second iteration of the Vision Fund. However, CNBC reported that SoftBank may change the new fund’s investment strategy, perhaps in response to investors’ concern. The pace of investment will be slower—at least slower than the $80 billion spent in less than three years by the original Vision Fund. Further, the Fund will target companies closer to being profitable.

If such a change does materialize, Vision Fund 2’s more conservative strategy might herald a new era of venture capital. In the future, venture capital may find its way only to start-ups that are close to an IPO. Investors may no longer be willing to invest in a company that expects to burn through multiple rounds of funding with no clear goal of going public in sight. Thus, with the current bull market seemingly losing its vigor, Silicon Valley and other tech start-up hotbeds may have to come to terms with increased investor skepticism and a decreased appetite for risky bets.

Vision Fund Woes Signal Changing Environment of Tech Start-Ups and Venture Capital

Wealth Tax: A Noble Idea Fraught with Practical Difficulties

As part of their election campaign, Democratic presidential candidates, Elizabeth Warren and Bernie Sanders, have proposed the introduction of wealth taxes that threaten the economic stronghold of the richest Americans. The proposal attempts to address the alarming concentration of wealth among rich Americans along with the threat it has posed to the nation’s democracy.

Warren’s tax is aimed at households worth above $50 million. In contrast, Sanders has suggested a lower threshold covering households with a net worth of over $32 million. Professors Emmanuel Saez and Gabriel Zucman from University of California, Berkeley, whom the candidates consulted in shaping their proposals, estimate that this tax would hit at least 75,000 families and raise over $2.75 trillion over a 10-year period.  Warren and Sanders both aim to use these proceeds to fund social programs such as tuition free college, universal child care and “Medicare for all.” Although the idea of wealth taxation has generated popular support from across the political spectrum, many academics and politicians have expressed concerns over its implementation and doubt whether this will ever see the light of day.

For starters, skeptics believe that taxing individuals on the basis of wealth appears punitive and is likely to undermine business confidence which would undoubtedly stunt economic growth. The proposal also ignores “trickle down” benefits of having a wealthy class in that it disregards the positive effects of having a high number of job-creating businesses.

Experts have also highlighted practical challenges associated with administering wealth tax. Given that wealth taxes would apply to accumulated assets of individuals, there are questions as to how illiquid assets such as vacation homes, art collections, and jewelry would be identified. Valuating these assets could increase administrative costs making the plan difficult to execute.  Individuals who are yet to realize gains from their assets could be forced to liquidate their belongings solely for the purpose of meeting tax obligations.

It is equally optimistic to hope that this proposal will garner considerable support in Congress and fructify into law. It also remains to be seen whether imposing direct wealth taxes, that aren’t equally distributed by state population, would pass constitutional muster. In the event it does, the wealth tax would need to be vigorously enforced to prevent the super-rich, with their armies of lawyers and accountants, from gaming the system (as they have with estate tax).

All complications aside, the arguments in favor of taxing the rich are definitely compelling. Warren and Sanders, however, have one too many hurdles to overcome in order to resolve wealth inequality and change the economic landscape of the country.

Wealth Tax- A Noble Idea Fraught with Practical Difficulties

Striking Out: Workers Demand More as Economy Booms

Although corporate profits have climbed to their pre-recession peak, thousands of workers across the nation are striking for higher pay and better working conditions. In 2018, nearly 500,000 workers participated in significant strikes – the highest number since the 1980s. The picket lines show no signs of slowing in 2019. Twenty major strikes have already occurred this year, while only seven occurred in 2017. The walkouts have spanned several industries, from teachers, to auto workers, to hotel staff. The disputes largely focus on stagnant wages and meager benefits. However, the new wave of work stoppages may also be fueled by a deeper sense of inequality.

Employers claim that globalization and rapid technological advances have pressured the business to keep wages low. Employees, on the other hand, assert that the companies are hiding behind excuses to hoard profits. Workers who agreed to austerity plans during the economic crisis argue that as the economy rides a 10-year high and corporate profits soar, it is high time to reverse budget cuts. In addition, some are demanding that employers address pressing social issues such as affordable housing, protections for immigrants and refugees, and job security.

In some respects, the strikes are not surprising. Years of strong economic growth and low unemployment have emboldened workers to demand more from their employers. The movement may also be backlash to the Supreme Court’s 2018 ruling in Janus v. Afscme. The Court held that government employees who do not want to join a union cannot be forced to contribute money to the organization. Although many predicted that the decision would be a major blow to unions, labor leaders have responded with more work stoppages and expanded union recruitment efforts.

However, the demands for changes beyond just wages and benefits suggest that striking workers are also motivated by rising inequality and social and economic policies that do not align with their interests. It is possible that the recent spate of high-profile work stoppages will put workers across the country in a better bargaining position to demand more from their employers. At the very least, it is certain that this issue will be at the forefront of the 2020 Presidential election.

Striking Out- Workers Demand More as Economy Booms

Facebook’s Political Ad Policy: Getting Paid for “Free” Speech

Mark Zuckerberg recently gave a speech at Georgetown University defending Facebook’s policy that allows political ads with inaccurate or baseless information to remain on its site. Zuckerberg stated that the policy promotes “free expression” by giving users the “power to express themselves.” In support of this proposition, Zuckerberg referenced the First Amendment, Martin Luther King, Jr., and emphasized the corporation’s commitment to the United States’ long-standing values of free speech.

Facebook’s policy came under scrutiny when the Trump campaign circulated a “30-second video ad that falsely claimed [Joe] Biden committed corrupt acts in Ukraine” – an allegation for which Trump is being investigated. Biden’s campaign requested that Facebook take down the ad, but it refused, citing the same free speech concerns echoed by Zuckerberg.

Since Facebook adopted this policy, several high-profile individuals have stressed the dangers associated with allowing political candidates – mainly the Trump campaign – to pay for the digital dissemination of blatantly false information. For example, Marc Benioff, the CEO of Salesforce, has been vocal in his disapproval of Facebook’s policy, demanding Congress enact legislation barring false advertisements on social media.

Recently, Elizabeth Warren took more drastic measures and purchased a fake ad that claims Mark Zuckerberg endorses Donald Trump for re-election. In response to Facebook’s acceptance of the ad, Warren tweeted that “Facebook [is throwing] its hand up to battling misinformation in the public discourse, because when profit comes up against protecting democracy, Facebook chooses profit.”

Moreover, Bernice King, Martin Luther King, Jr.’s daughter, publicly addressed Zuckerberg’s reference to her father in his recent speech, tweeting that the “disinformation campaigns launched by politicians . . . created an atmosphere for [MLK’s] assassination.” She further stated that “King knew that democracy . . . requires a deep foundation of truth, or it is a house upon sand.”

Facebook has remained steadfast in its position of promoting free expression on its social platform and still refuses to remove any erroneous political ads. With that said, the widespread discontentment with Facebook’s policy may give rise to possible changes in federal legislation. Specifically, 47 U.S.C. § 230 – which limits many social platforms’ liability for unconstitutional speech because these companies are not considered “publishers” of user information – may be called into question. Perhaps Congress will respond to the barrage of false political advertisements by reducing the standard of liability for platforms that have less control over the content generated on their sites.

Facebook’s Political Ad Policy- Getting Paid for “Free” Speech

EU Goods Hit Hard by US Tariffs

As of last week, Italian cheese, Spanish olives, Scotch whisky, and French wine, among other EU goods, have just become more expensive to import – thanks to a decision from WTO arbitrators announced earlier this month.

These tariffs are forcing American importers to pay up to 25% more for the targeted items, collectively worth about $7.5 billion. The big hit on imports is expected to severely impact sales, profit margins, and jobs.

The decision to impose these tariffs comes from a 15-year old case that has just recently concluded, where the World Trade Organization ruled that the US could attempt to recover the $7.5 billion lost from ‘unfair state subsidies’ given by the EU to Airbus, an airplane manufacturer.

Spain, the largest producer of olive oil, will be hit hardest by the tariff hike. Over half of the world’s olive oil supply is coming from Spain (2018-2019), and over a tenth of Spanish exports are currently sold into the US.

Scotland is also impacted by the tariffs, as Scotch whisky is integral to the region’s economy; exports to the US were worth nearly $1.5 billion last year. According to the WTO, the tariffs will impact Scotch and Irish whisky produced in the UK, but not whiskey from Ireland.

It signals a troubling future for post-Brexit UK, and the business and union leaders are worried. Scotland’s Secretary of the GMB Union, Gary Smith, was particularly critical of the decision, citing that it represented a “troubling glimpse into the post-Brexit future” for the UK.

That hasn’t stopped the spirits association from fighting back. Over a week ago, a group of fifteen spirits associations from the US and EU called for an end to these tariffs. In their letter to the US administration and EU Commission, they said that their industries had become collateral damage in a bitter, acrimonious trade war.

However, the EU’s chance to retaliate won’t come until next year, when the WTO prepares to rule on what tariffs the EU can impose in retaliation to separate US state aid given to Boeing, Airbus’ competitor.

EU Goods Hit Hard by US Tariffs

 

 

Boeing Removes Chairman Weeks Before Congressional Hearing

After markets closed on Friday October 11th, Boeing announced the removal of Dennis Muilenburg as Chairman. While Muilenburg will retain his titles of CEO, President, and Director, Boeing has designated David L. Calhoun to take over the Elected Non-Executive Chairman role.

This change comes seven months after the Federal Aviation Administration (FAA) grounded the entire 737 Max 8 fleet in response to two deadly crashes that killed 346 passengers. Since then, Boeing has lost an estimated 30 billion dollars in market capital, in addition to the nearly 5 billion dollars it has had to dole out to compensate airlines for lost profits resulting from the grounding. The high capacity, fuel-efficient 737 Max 8 plane was Boeing’s best seller prior to the crashes.

However, Boeing asserts that the separation is not punitive but rather will enable Muilenburg to direct his focus to returning the 737 Max 8 fleet to service. In an official statement released by Boeing, Calhoun reiterated the board’s confidence in Muilenburg’s continued leadership.

While Boeing insists the 737 Max 8 fleet will be ready to return to service by the fourth quarter, many hurdles remain. The company has yet to send the necessary software fixes to the FAA for safety review. Once those fixes are regulator-approved, Boeing will need to ensure pilots are properly trained to handle the updates. Even then, the company must convince elected officials and the general public that these planes are truly safe.

An initial test of public confidence will take place on October 30th when Muilenburg testifies before Congress about the system failures that caused the fatal crashes. There, Boeing will likely face harsh criticism of its governance for failing to provide the oversight necessary to prevent the accidents. As such, the recent shift of leadership may indicate Boeing’s attempt to exhibit responsiveness to these concerns.

Despite the change in official title, Muilenburg remains tasked with the key role of quickly and safely returning the 737 Max 8 fleet to the skies.

Boeing Removes Chairman Weeks Before Congressional Hearing

American Businesses: Patriotism Over Greed?

Since October 4, 2019, the NBA has unwittingly found itself in the battle ground of a geopolitical conflict after Daryl Morey, the Houston Rockets General Manager, tweeted an image with the words “Fight for freedom – stand with Hong Kong.”  The owner of the Rockets, Tilman Fertitta, engaged in damage control, tweeting that “[Morey] does NOT speak for the [Rockets]” and emphasized that the team is “NOT a political organization.”

Yet, the damage was done.  On October 6, 2019, Chinese sports media outlets retaliated by banning coverage of the Rockets.  Nets Owner, Joe Tsai, the billionaire co-founder of Alibaba, criticized Morey’s tweet for harming the NBA’s relationship with Chinese fans and characterized the Hong Kong pro-democracy protesters as separatists.

The following day, the NBA apologized for Morey’s tweet offending “friends and fans in China” as “regrettable” but claimed it will not censor because the league supports individual expression.  The NBA’s two-faced apology drew the scorn of many Americans including Democrat and Republican politicians.

Nor was China satisfied with the apology.  On October 8, 2019, China’s state television broadcaster’s sports channel banned coverage of the NBA preseason and a Chinese tech company barred two preseason games on its streaming platforms.  By the following day, all elevent Chinese companies that were official partners of the NBA severed ties.  China’s response was a strong message to the NBA that it is not immune from paying homage to the Chinese Communist Party if it desires to do business in China.

The NBA controversy is illustrative of a broader business trend of U.S. companies compromising American values to gain access to China’s market of 1.4 billion people and its growing middle class.  It’s hard to believe the NBA’s apology was not strongly influenced by the fact that an estimated 10% of the NBA’s current revenue comes from China, with that revenue potentially increasing to 20% by 2030.

Other American businesses within the past two years have caved to China’s pressure to conform to its propaganda.  For example, in an Orwellian manner, U.S. airlines, no longer refer to Taiwan by its name, “Taiwan.”  Similarly, fashion companies have not been immune from scrutiny. Luxury fashion company Coach apologized after a backlash from Chinese consumers, for making T-shirts that implied Hong Kong and Taiwan were countries, while Gap said sorry for an allegedly “incorrect map” of China, for omitting Tibet and Taiwan.  Even hotel giant Marriot apologized for disrespecting China through a customer survey listing Tibet and Taiwan as independent countries.

It is clear that China is using American businesses to legitimize its claims over disputed lands.  Unfortunately, American businesses have demonstrated little interest in standing up to China.  Since the NBA incident, tech companies have already yielded to China’s pressure.  Blizzard punished a player for openly supporting Hong Kong protesters, Apple removed the Taiwanese flag emoji in Hong Kong and an app tracking Hong Kong police, and Google removed a pro-Hong Kong game.

Numerous other incidents demonstrate the troubling trend of U.S. businesses abandoning basic values of free speech, democracy, and openness to do business in China.  China’s economic growth has provided it the power to bully foreign businesses to comply with its wishes.  Although American businesses have fortunately become more willing to advocate for social causes, they have overwhelmingly failed to take a principled stand on geopolitical issues involving China.  Despite NBA superstar Lebron James’s claim that “[not] every issue should be everybody’s problem,” injustice abroad does not make it any less of an injustice.

American businesses truly have the power to make a difference in the world.  We should hope they choose to use their power to make the right kind of a difference.  In response to the recent events in the NBA, many Chinese fans “said they would choose patriotism over their love of the game.”  One cannot help but wonder whether American businesses including the NBA may one day likewise summon the courage to unequivocally choose patriotism over their love of money.

 

Facebook may be ordered to remove digital content worldwide, E.U. says

On October 3, 2019, the European Union Court of Justice (the “ECJ”) ordered Facebook to remove illegal content worldwide. Not only does this ruling have global implications for other social media platforms, but it gives rise to freedom of speech issues.

According to the facts of the ECJ case, Ms. Eva Glawischnig-Piesczek – a member of the Nationalrat (National Council of Austria) as well as chair and federal spokesperson of the parliamentary party “die Grünen” (the “Greens”) – sued Facebook Ireland in Austria. Glawischnig-Piesczek sought an injunction to force Facebook Ireland to remove an insulting and defamatory comment published by a Facebook user.

Based on these facts, the Oberster Gerichtshof (“Supreme Court of Austria”) sought a ruling from the ECJ interpreting the EU’s Electronic Commerce Directive (“Directive”). Under the Directive, a host provider (e.g. Facebook) is not liable for digitally stored information if it has no knowledge of its illegal nature. However, this exemption does not prevent courts from ordering host providers to remove and disable access to illegal information.

Ultimately, the ECJ held that the Directive does not preclude a member state court from ordering a host provider to remove information or block access to information worldwide so long as it was “within the framework of the relevant international law.” The ECJ noted that, in this case, it was up to member states to take that law into account.

The decision by the ECJ has been heavily criticized by Facebook, primarily on the grounds that “it undermines the long standing principle that one country does not have the right to impose its laws on speech on another country.” Furthermore, “it also opens the door to obligations being imposed on internet companies to proactively monitor content and then interpret if it is ‘equivalent’ to content that has been found to be illegal.”

In the United States, §230 of the Communications and Decency Act protects internet technology companies from liability arising from content created by its users. As a result, this has allowed social media companies to grow. The protection of the Communications and Decency Act encompasses everything from product reviews to political rants. However, this law has been heavily criticized by both Democrats and Republicans.

In response to this criticism, Facebook unveiled a blueprint for an independent oversight board (“Oversight Board”) last month. The Oversight Board will be responsible for reviewing appeals of the company’s policy decisions regarding posts, photos, and videos it takes down or leaves online. The authority of the prospective Oversight Board is intentionally far reaching. For example, it will have the authority to override decisions regardless of whether or not Mark Zuckerberg agrees.

The aforementioned decision by the ECJ is just one of many recent examples of steps taken by the EU to investigate the technology industry’s data and privacy practices, and ultimately, regulate the technology sector. For example, European regulators fined Google $1.7 billion in March based on allegations that its advertising practices violated antitrust laws.

While Facebook is not allowed to appeal the ECJ ruling, individual European countries have the power to ignore the ruling. Moreover, the United States could use trade agreements to pressure the EU to adopt more expansive internet freedom laws that are similar to the Communications and Decency Act.

Nevertheless, this ECJ decision underscores an important international query: what is the best way to regulate technology giants like Facebook and Google in order to curtail online falsehoods (i.e. fake news) and protect individual users without infringing upon digital free speech? Unfortunately, the answer is far from simple. With that said, it is apparent that the ECJ decision is largely unenforceable around the globe, as international law does not provide any real enforcement mechanisms. Therefore, it is up to individual countries to create meaningful policy to address these countervailing approaches.

Facebook may be ordered to remove digital content worldwide, E.U. says

 

 

 

 

 

 

Oracle’s Secret Weapon: Safra Catz to Potentially Lead as Sole CEO

Oracle’s Safra Catz had been co-Chief Executive Officer (CEO) with Mark Hurd since September 2014. On October 18, 2019, Hurd died at the age of 62. He was known as the leading force behind Oracle’s sales, customer and technical support, business development, and marketing team. Oracle’s co-CEO structure allowed Catz to be the dominant force behind finance, M&A, legal, and human resources – traditionally considered the “back end” of a company. Catz is the financial wizard at Oracle and the mastermind behind Oracle’s economic strategy. She has been rightfully called “The Enforcer.”

This division of executive functions allowed the co-CEOs to specialize in their respective strength areas. Hurd would handle the “front end,” often appearing in the limelight for press interviews, speaking on stage, and socializing with customers. While Catz has intensely maintained a private identity for an executive, she would be subject to more public visibility if she took the helm as sole CEO. Between Catz’s experience as a trained lawyer, former investment banker, and as a 20-year Oracle veteran, she may be the ideal leader for Oracle as it makes a big push to take on Amazon, Microsoft, and Google within the cloud.

Larry Ellison, the Chief Technology Officer (CTO), former CEO, and founder of Oracle, oversees engineering and product development, but still maintains a final say with respect to executive decisions. He has noted that he is not interested in being CEO again. Ellison gave Oracle’s board five internal candidates to be considered for the next CEO.

One of the named candidates is Steve Miranda, Executive Vice President of Oracle Applications Product Development at Oracle. Additionally, Don Johnson, Vice President of Oracle Cloud Infrastructure, and Thomas Kurian, Oracle’s former President of Product Development, now CEO of Google Cloud, are being considered. Two other contenders, Dave Donatelli, Executive Vice President for Worldwide Sales and Marketing Strategy, and Edward Screven, Chief Corporate Architect at Oracle, are also in the mix.

Although one of Ellison’s five named candidates could potentially rise to co-CEO with Catz, it stands to reason that Catz has more experience as a leader. She has been in the CEO role since 2014 and has the business acumen, legal knowledge, and leadership skills to shine as sole CEO. Some even describe her as “brilliant, [and] tough as nails.” Oracle will need to adapt quickly during this critical stage – with the loss of Hurd – and appoint a leader that will keep the company relevant in a fiercely competitive technology landscape.

Oracle’s Secret Weapon: Safra Catz to Potentially Lead as Sole CEO

Group Nine Media Acquires PopSugar to Access Market of Millennial Women

New York-based digital media company Group Nine Media announced its decision to acquire women’s lifestyle publisher PopSugar earlier this month. The deal is an all-stock transaction and follows Group Nine’s successful round of funding, a $50 million financing led by Discovery Inc. While details of the deal are yet to be disclosed, reports have valued PopSugar at $300 million and Group Nine at $600 million.

PopSugar is now part of the larger portfolio of brands owned by Group Nine, which includes mobile news brand NowThis, animal-story focused The Dodo, tech content publisher Seeker, and digital brand Thrillist, which focuses on travel and entertainment. The women’s lifestyle publisher previously raised $41 million from Sequoia Capital and Institutional Venture Partners (IVP) and claims that it reaches “one in two millennial women in the United States” through its brands.

According to Group Nine CEO Benjamin Lerer, the decision to acquire PopSugar is a strategic decision to expand Group Nine’s outreach to a community that loves the PopSugar brand and will generate an additional 200 million social media followers for the company.  PopSugar’s founder, Brian and Lisa Sugar have said that the transaction will allow PopSugar to create a scalable business model that sets the standard for the next-generation media company. Bringing the entities together is largely aimed at combining the ambition, momentum and leadership of Group Nine with PopSugar’s vast innovative experience in commerce.

According to its spokesperson, a large group of PopSugar’s 500 employees are to be integrated into Group Nine. Additionally, Lisa and Brian Sugar will be taking on executive roles in Group Nine. They will be joined by Sequoia’s Michael Mortiz on Group Nine’s board of directors. Overall, PopSugar’s shareholders look to own a stake of more than 30% in in the surviving entity, which will continue to be called Group Nine Media.

This is yet another transaction in digital publishing sector, which recently saw the high-profile acquisition of New York Media by Vox Media. The deal follows Vice Media’s $400 million acquisition of women’s lifestyle publisher Refinery 29, which was also in talks to be acquired by Group Nine, as a way to enhance its advertising business. The growth of tech behemoths like Google and Facebook has made it difficult for digital media businesses dependent on advertising revenue. This acquisition looks to find a solution to the problem. It falls in line with Lerer’s statement last November where he said that the consolidation of the digital media industry is inevitable as it can diversify revenue generation and can largely benefit advertisers, who will gain exposure to larger audiences. Further, the lack of overlap in the entities’ core businesses adds value to the surviving entity, which is a product of a strategic alliance and could undoubtedly prove to be successful in the long run.

Group Nine Media Acquires PopSugar To Access Market Of Millennial Women