Reports of forced labor camps – not unlike those widely used by the Nazi regime throughout the Second World War – in the Xinjiang region of China have become increasingly widespread in recent years. Images from these detention camps and reports coming out of the region indicate that the Chinese government has detained approximately one-million Uighurs, a Muslim minority living primarily in the Northwestern region of China, since 2018. Although Chinese officials insist that these camps are mere vocational-training camps aimed at eradicating violent extremism among the Muslim population, the United States and other foreign entities remain unconvinced.

After months of President Trump refusing to acknowledge the human rights violations taking place within these labor camps, opting instead to preserve favorable trade relations with the Chinese government, his administration has finally adopted a new approach marked by sanctions, memos, and Withhold Release Orders (WRO). Likely sparked by a downturn in trade relations with China, President Trump and his senior officials, including Secretary of State Mike Pompeo, now have taken to the media to publicly condemn the Chinese government for its mistreatment of the Uighur population, warning CEOs of U.S. corporations to “be aware of the reputation, economic and legal risks of supporting such assaults on human dignity.”

The Trump administration, however, has gone much further than mere public statements. Three recent developments stand out. First, the Commerce, Treasury, Homeland Security, and State departments released a (nonbinding) nineteen-page memo urging U.S. companies to refrain from sourcing goods traceable to human-rights abuses in the Xinjian region. Second, the Treasury and State departments imposed sanctions on senior officials in China’s Xinjiang region for their roles in the state-sponsored violence under the Uyghur Human Rights Policy Act of 2020. And third, most recently, the U.S. Customs and Border Protection (CBP) issued five WROs on goods and materials produced in labor and mass detention camps in the Xinjiang region. Mark A. Morgan, the Acting CBP Commissioner, urges the public to view these WROs as a “clear message … that [the U.S.] will not tolerate the illicit, inhumane, and exploitative practices of forced labor in U.S. supply chains.”

Mr. Morgan is entirely correct to presume that the effects of these WROs will implicate U.S. corporations’ supply chains. In fact, because the Xinjiang region produces approximately 85% of all cotton produced in China, those companies forced – for legal and/or reputational reasons – to find suppliers elsewhere will see their global supply chains greatly disrupted. This possibility has only become increasingly likely as several prominent, international auditors have released statements that they will no longer provide labor-audit or inspection services in the Xinjiang region.

With international concern mounting in response to global media coverage of these forced labor and mass detention camps, companies who source materials from Xinjiang, like Gap Inc. and Kraft Heinz Co., find themselves facing a serious dilemma. Ethical, legal, and public relations considerations weigh in favor of, at the very least, not sourcing materials from forced labor camps in Xinjiang. However, the economic effects of such production upheaval and redirection could harm or even bankrupt some companies. It remains to be seen how many of these multinational enterprises will respond to this growing public pressure.

On September 23, 2020, California Governor Gavin Newsom announced an executive order effectively banning the sale of new fossil-fuel powered passenger vehicles in 2035 and medium and heavy-duty trucks in 2045. Gas-powered vehicles sold before these years can still operate and be sold in the used-car market. The order would make California the first state in the nation to mandate the sale of zero-emission automobiles and is set to accelerate global car manufacturers’ burgeoning transition away from combustion engines should it survive court challenges by fossil fuel-industry aligned groups and the Trump administration.

Climate change played a key role in Newsom’s decision. Severe wildfires generated partially by weeks of record-breaking heat have devastated California, forcing mass evacuations of major cities, rolling power shutoffs, and dangerous air quality throughout the state. Research indicates that taking all gas-powered cars off the road in California would reduce carbon emissions by nearly 35%. In addition, California has seen usage of passenger vehicles plummet in recent months due to the COVID-19 crisis. With more people working from home than any other time in living memory, demand for automobiles has plummeted—marking a key opportunity for California to shift away permanently from fossil fuels.

Over the next decade, California will have to continue to develop the infrastructure necessary to handle this important transition. State energy companies, working in concert with Sacramento, have invested millions into ever-growing electric vehicle charging networks, and created tax rebates designed to incentivize electric vehicle purchases. The state’s major regions have also taken initiatives to create more robust and user-friendly public transportation systems that can potentially serve as more convenient alternatives to cars. This includes new subway lines in Los Angeles and San Jose, Bus Rapid Transit expansions in San Francisco, and the long-awaited high speed rail system connecting Northern and Southern California. City planning in the state is also shifting to favor dense homes in urban areas better connected by public transit services over traditional car-centric suburbs.

Newsom’s move will likely accelerate the ongoing transition of automobile manufacturers across the world towards electric vehicles. Some manufacturers, such as Ford, have openly embraced California’s new zero-emission vehicle mandate. GM, which scrapped nearly the entirety of its lineup of gasoline-powered sedans, is gearing up to introduce 12 new electric pickup trucks and utility vehicles. Japanese manufacturer Toyota, which has long pioneered hybrid powertrains, projects it will sell 5.5 million electric cars by 2025—which would comprise nearly half of its global sales figures.

While California’s new executive order will hasten improvements in electric vehicle infrastructure and technology, it is also likely that the mandate will be met with resistance from the Trump administration, whose EPA recently blocked California from enforcing its own emissions requirements, which are more stringent than the federal standard. Ultimately, the fate of the executive order may rest with the upcoming general election. While a second term would embolden President Trump to continue to weaken the power of states like California to set separate emissions standards, a prospective Biden administration—with its own goals of making the country carbon-neutral by 2050—would likely give California the green light to continue on its aggressive push for zero-emission automobiles.

Only time will tell, but California’s action will likely reverberate across the global car market for years to come.

COVID-19 has drastically changed how people travel, shattering past travel trends and conceptions and leaving the travel industry scrambling to adjust. Yet, amidst the global shutdowns and travel restrictions, Airbnb has made a surprising comeback and announced its plans to go public last month.

Just a few months ago, however, things seemed bleak. In mid-March, Airbnb and other related industries experienced severe losses in revenue as travel came to a halt and people swarmed to cancel bookings. According to AirDNA LLC data, Airbnb lost nearly $1.5 billion in bookings. In May, Airbnb predicted its revenue for 2020 would be less than half of what it was the previous year, and the company laid off about a quarter of its workforce. Over the same time, according to the Wall Street Journal, Airbnb’s valuation fell from $31 billion to a recent $18 billion.

Yet, since the spring, things have been looking up for Airbnb. According to Edison Trends, Airbnb’s spending since early May has been consistently higher than that of Marriott, Hilton and InterContinental Hotels Group. While Airbnb has gained back and added an additional 41% over the week of March 2nd, each of the hotels only gained about 38% of what they had lost. Airbnb stated that on July 8, there were more than 1 million nights of future stays that guests booked around the world, which was the first time such a level was hit since March 3. But while people seem to be traveling again, they have adapted particular preferences that are notably different from before COVID.

The current appeal of homestay over hotel nights often relates to the travel location. People seem to prefer more remote and less populated destinations as they take advantage of remote work and go on Staycations. Airbnb reported that over 60% of the bookings made on July 8^th were located outside of cities. The future of Airbnb’s business, however, remains unclear, as people will physically return to work and school after travel restrictions ease. Airbnb’s preparation to go public is similarly shrouded in uncertainty, and is contingent on how the future of travel pans out. The impact of COVID is hard to predict and the outlook remains ambiguous and volatile.

Lyft and Uber have shown the potential failure to create profits after their IPOs, and WeWork has demonstrated that immense losses can incur when a business attempts to go public. Yet, in 2020, although many businesses are having difficulties, there have been more than $60 billion in U.S.-listed IPOs and IPO activity has not slowed down. According to the Wall Street Journal, IPOs for this year are already posting the biggest gains during trading debuts since 2000. Perhaps, then, this might be the right time for Airbnb to take the risk.

The Trump administration is attempting to curtail the U.S. use of Chinese communication apps, invoking national security concerns—namely, data sharing with the Chinese government. In recent weeks, two separate judges blocked the efforts targeted at TikTok and WeChat. Neither judge questioned the government’s substantial national security concerns in pursuing the bans. Both, however, were unconvinced that a complete ban was necessary, or constitutional. Judge Carl Nichols, responsible for granting TikTok’s reprieve, held that the government’s proposed ban “overstep[s] its authority” and “likely exceed[s]” the bounds of the law.

President Trump issued a pair of executive orders in early August, seeking to remove TikTok and WeChat from the U.S. app store; the apps were set to be removed last Sunday. The executive orders “shocked” both companies. To others, the executive orders fit squarely within the Trump administration’s expansive campaign against China in the face of the upcoming election.

After a California federal magistrate temporarily blocked the proposed ban of the WeChat app out of concern for First Amendment issues, Judge Nichols issued a preliminary injunction for TikTok, hours before the ban was to take effect. TikTok is currently still available on app stores. Judge Nichols, who was appointed to the bench by President Trump, was concerned that “this was a largely unilateral decision with very little opportunity for plaintiffs to be heard.”

Importantly, Judge Nichols expressed skepticism surrounding the authority that the government cited in justifying the ban: the 1970s International Emergency Economic Powers Act. In his opinion, the judge held that the law does not allow the prohibition of certain personal communications, including art and photographs, which the proposed ban would prevent. He opines that the proposed ban, as justified, is thus an overstep of government authority, warranting a preliminary injunction.

While the judge’s order only grants temporary reprieve, it does afford TikTok more time in its pursuit of a deal with Oracle to create TikTok Global. The data management of the new entity would be based in the U.S.; in distancing itself from its Chinese parent company, TikTok hopes to alleviate regulators’ national security concerns.

The road ahead is not easy for TikTok. The company must continue working out the details of its Oracle deal, and if a deal is closed, convince the government that it sufficiently reduces national security concerns to remain in U.S. app stores. At the very least, the injunction grants TikTok more time to save itself, but the clock is ticking.

In October 2019, former Facebook executive, and current CEO of Social Capital, Chamath Palihapitiya announced that his Special Purpose Acquisition Company (SPAC) was acquiring Virgin Galactic. The deal –  a “reverse merger” – involved Palihapitiya’s publicly traded corporate entity acquiring Virgin Galactic in order to take it public. On the floor of the New York Stock Exchange (NYSE) Palihapitiya declared: “these kinds of transactions and processes are the future. A lot of that traditional oligopoly and monopoly run by Goldman [Sachs] and Morgan [Stanley], those days are numbered.”

With that proclamation Palihapitiya was predicting the decline of the traditional Initial Public Offering (IPO), which is historically the most common way for a private company to raise capital while achieving liquidity through the public markets. Since then, SPACs have become increasingly common vehicles used to take companies public. In 2020 over $36 billion was raised via SPAC, which is more than double the previous record set in 2019. Further, almost half of the public listings in 2020 have been SPACs. It appears these previously obscure investment vehicles are here to stay.

Generally, this is how SPACs work: a SPAC sponsor raises money in the IPO process and uses that capital to search for a private company to acquire and take public. The Wall Street Journal referred to SPACs as “big pools of cash, listed on an exchange, whose sole purpose is to do an acquisition.” That is why SPACs are often called “blank check companies.” Palihapitiya originally raised $600 million in 2017 for the SPAC that ultimately acquired Virgin Galactic in 2019.

SPACs offer several advantages over traditional IPOs, which involve hiring investment banks that spend months raising capital from institutional investors. Alternatively, SPACs provide a quicker and simpler route. According to Bloomberg Law, “the appeal of SPACs lies in their combination of the benefits of an IPO and the flexibility of M&A, all at a reduced cost and in a faster timeframe.” Amid recent volatility and uncertainty, this option has been particularly appealing for many companies.

Palihapitiya isn’t the first investor to seek out alternatives to the traditional IPO process. Benchmark Partner Bill Gurley, one of the best known venture capitalists in Silicon Valley, has called for early stage companies to look for new paths to the public market. “In the past three years it’s gotten worse and I think that’s because the IPO process has devolved,” said Gurley on CNBC in 2019.

Jay Ritter, a professor at the University of Florida, published a paper that Gurley frequently cites. Ritter found that investment banks have “less focus on maximizing IPO proceeds due to an increased emphasis on research coverage.” Ritter also claims that “allocations of hot IPOs to the personal brokerage accounts of issuing firm executives created an incentive to seek rather than avoid underwriters with a reputation of severe underpricing.” In other words, the traditional IPO contains an array of conflicts of interest. As a result, investment banks have often mispriced companies to the benefit of underwriters and to the detriment of the issuers’ long-term shareholders.

In addition to SPACs, companies are also going public via direct listings. Direct listings cut out the middlemen involved in a traditional IPO. They also don’t involve raising capital. In a blog post earlier this year, Gurley wrote that direct listings are “much simpler than a traditional IPO. You just remove the two steps where the shares are intentionally underpriced and then given to the investment bank’s best clients … then you jump straight to the market-based match.” Many prominent companies are choosing direct listings over IPOs, a trend that began with Spotify’s direct listing in 2018. This September the data-mining company Palantir completed a direct listing on the NYSE.

For the first time in decades the traditional IPO has serious competition. There is no longer only one path to the public markets. While the traditional IPO won’t go away overnight, the rise of SPACs and direct listings is creating a new landscape in the capital markets.

On September 13, 2020, Nvidia announced its intention to purchase Arm Holdings from Japan’s SoftBank for up to $40 billion. It will be the largest purchase in the global semiconductor industry if the deal goes through. The purchase will potentially bring Nvidia a competitive advantage over a technology that powers everything from mobile devices to data centers.

Nvidia and Arm have very different expertise and business models although they share an industry. Nvidia makes graphics processing units (GPUs), expensive and specialized accelerator chips that are originally developed to handle video streams. Nowadays, GPUs have become the main computing engines used to train artificial intelligence systems, making them a key technology in data centers. In contrast, Arm licenses blueprints for general-purpose chips that support a variety of devices ranging from smartphones to cars. Arm’s customers ship more than 20 billion Arm designed chips every year.

One motive for Nvidia’s purchase is to use Arm’s expertise and build its own version of the general-purpose processors that power the data-center computers. Jensen Huang, Chief Executive of Nvidia, commented that Arm’s technology was “quite extraordinary” because it is very energy efficient. Data-intensive tasks like artificial intelligence can cause massive increase in energy demand. Therefore, Arm’s low-power design fits well for data centers and can be a key weapon in the competition with Intel in the lucrative data center market.

Before announcing the deal with Arm, Nvidia had already reported strong demand from data center customers during the pandemic and had seen a 50% increase in revenue in the latest quarter. Its shares had risen by about 56% in the three months since its earnings report in April, propelling it past Intel to become the world’s most valuable chipmaker.

However, the deal has caused concerns. Major customers of Arm including Apple, Samsung, and Qualcomm have not shown any sign of supporting the deal. Arm’s business model relies on licensing designs for a variety of chips, not on competing with its customers by selling chips directly. Customers worry that once the deal is done, Arm will lose this neutrality and give Nvidia, a major rival for Arm’s customers, preferential access to its designs.

As a response, Nvidia has expressed the intention to keep Arm’s business model intact. As Nvidia strives to supply a complete data center computing platform, it would sell parts of the technology separately, Mr. Huang said. Other companies would still be able to license its intellectual property for use in their own chips.

Most of Arm’s customers choose to wait and see whether Mr. Huang will live up to his promise. Nevertheless, if the two sides push through the deal, this transaction will have the potential to change the landscape of the semiconductor industry in the near future.

While “it’s tough to make predictions, especially about the future,” hindsight from the past financial crises can enlighten the path ahead. The International Monetary Fund recently labeled the current “Great Lockdown” the worst economic downturn since the Great Depression of 1930, the reason being the cumulative output loss to global GDP over 2020/2021 of around $9 trillion – assuming the pandemic fades in the second half of 2020. Under this hypothesis, advanced economies are expected to shrink -6,1%, whereas emerging markets and developing economies should expect a negative growth rate of -1% and -2,2%, excluding China.

When it comes to the venture industry, the most accurate comparison to the current crisis is the financial crisis of 2008. Back then, aside from the presentation named “R.I.P. Good Times” given by Sequoia Capital as a warning for their portfolio companies, some believed that “50-80% of the venture-backed startups currently operating will shut down or go on life-support within the next 18 months.”

Analyzing the numbers from 2008, the seed-stage financing was the least impacted of the early-stage rounds, given seed dollars grew in 2008, 2009, and 2010. Seed volume counts grew globally 29% year over year in 2009 and more than 50% in 2010, 2011, and 2012. Thus, the earlier stage the company, the less impacted it was. On the other hand, the investing environment for Series A, B, and C shifted gravely, decreasing more than 40% in dollar volume in 2009 and around 28% in funding counts in the same year. Series A counts rose above the 2007 numbers in 2011, while Series B did so in 2013 and Series C only in 2014.

Overall, VCs investment dollars dropped 40% and bounced back by the second quarter in 2010 to reach similar levels as before the crisis. However, aggregated deal count was steady and increasing from 2006 to 2012, aside from the third quarter of 2008, which means that VCs were maintaining investment rounds, but valuations and deal sizes were responsible for the decline in the number of dollars invested.

A few theories can be used to interpret those numbers. Some may believe that startups are prone to burn less cash during a challenging financial environment, which drives less growth and, therefore, lowers companies’ valuations, shrinking deals closer to seed-stage parameters. Also, some may guess that at that time seed investment was growing as a new institutional founding class due to innovation in cloud and mobile: it became cheaper to start a company and new business opportunities arose from the wave of technology, hence the scenario favorable to seed investment.

Even in 2008, some advocated the belief that startups could be created during a recession – despite the resistance of investors – as the main element inherent to successful startups is the quality of their founders. Nowadays, it is clear that a few successful companies were started amid the financial crisis, such as Airbnb, Stripe, Mixpanel and PagerDuty – all software companies built with small teams. Following their track, similar companies should be ready for the economic rebound by building its software, getting initial users, and showing their product to the world.

Lessons From 2008- How the Downturn Impacted Venture Funding

The coronavirus has hit our communities and our healthcare systems hard, and it has served staggering blows to the global economy. As of Tuesday, the total number of unemployment claims in the U.S. surpassed 20 million in just four weeks, an occurrence which the New York Times and others are saying has not happened since the Great Depression. Just as Silicon Valley companies benefited from bullish economic confidence reflected in outsized rounds in recent years, companies and their employees are now feeling the reverberations of an economy in crisis.

According to Layoffs.fyi, a publicly accessible database compiled through public reports, more than 8,000 individuals have been laid off by companies in the San Francisco Bay Area alone as of April 17. Not surprisingly, consumer facing platforms like Yelp were hit hard, with that company making the biggest cut recorded in the Bay Area: 1000 people. Yelp announced that it had furloughed an additional 1,100 workers, according to the San Francisco Chronicle. Other sensitive sectors, like real estate, are suffering due to the crisis as well. Notably, Softbank-backed Opendoor, a company which aims to streamline the home-buying process, let 600 people go last week–a full 35 percent of its workforce. The company, which has temporarily suspended homebuying, raised a known total of $1.5 billion in debt and equity during its lifetime. Other popularly recognized companies like Bird, Everlane, ZipRecruiter and many others have also cut staff. According to TechCrunch, rough data may suggest that companies are targeting layoffs in secondary satellite offices, where business development-focused teams are often concentrated.

Beyond layoffs, companies are making other strategic financial decisions to lengthen their runways should the virus continue to wreak havoc in the U.S. for the foreseeable future. Airbnb has yet to announce massive layoffs, but has frozen hiring, halted its marketing efforts, and raised a $1 billion debt round, with another reportedly to come. Most recently, People.ai, a sales and marketing startup which had raised $60 million in May 2019 at a post-money valuation of $500 million, raised tens of millions in debt in addition to layoffs. Other companies, like ClassPass, which reportedly lost over 95 percent of its revenue in 10 days, have pivoted their platforms online to weather the storm.

Interestingly, while shelter-in-place orders are significantly affecting many sectors, according to TechCrunch, it appears that some lending-focused fintech companies are finding opportunities to carve out their own spots in the market of debt financing for small businesses. Companies like Kabbage, which furloughed a significant portion of its staff, may be able to facilitate the disbursement of much needed small business loans.

With all of these developments and in these unprecedented times, it’s unfortunate that thousands of workers will likely now face even more difficult financial challenges. Whether companies that do end up making it through this crisis will maintain future investor confidence remains to be seen. It seems unlikely that the state of affairs will shift back to that bullish market anytime soon.

COVID-19 Leaves Its Mark In Silicon Valley As Layoffs Take Over

Once known for its unorthodox style and on-the-spot deal making, Japan’s SoftBank Group Corp. is significantly changing its outlook to stop the plunging of its stock price and shore up its debt-laden balance sheet. After a very damaging 2019, which saw Softbank-backed WeWork lose 80% of its valuation and Uber’s stock falling by 37%, Softbank’s CEO Masayoshi Son recently announced his plans to sell the firm’s assets and repurchase firm stock in a bid to stop the floodgates from opening, so to speak. It earmarks up to $18 billion for share buybacks and another $23 billion to redeem debt and build up cash reserves. The cash will come from the sale of as much as $41 billion of SoftBank’s assets, chief among them a stake in Chinese e-commerce giant Alibaba Group Holding Ltd. that is worth between $104 billion and $109 billion, and SoftBank’s majority stake in Japan’s third-largest cellphone carrier, called SoftBank Corp.

This marks a remarkable turnaround for Masayoshi Son and his company, which was until recently one of the boldest providers of capital to several billion-dollar unicorns around the world. Softbank’s First Vision Fund invested almost $80B out of $100B over the course of just two years after its |revealed that SoftBank was involved in over 10% of global venture flows in the first half of 2019, either via its Vision Fund or related entities. Buoyed by the performance of its first Vision Fund in Q2 2019, that showed a $15.9B gain in paper value of its investments, CEO Masayoshi Son also announced plans for a second $100B+ Vision Fund. But a disastrous WeWork IPO attempt, job losses at more than ten of its US-based investments, and further worsening of the market due to COVID-19 crisis, Softbank is now faced with disillusioned investors, and its grand plans have come to a grinding halt.

It is however not the first time that Mr. Son has seen a market crash pummel SoftBank’s fortunes. In the early 2000s, the Japanese entrepreneur briefly became one of the world’s richest men, before the subsequent tech crash wiped out 99% of SoftBank’s value along with the value of hundreds of tech investments the company had at the time. Mr. Son has said he learned from that experience to keep a reserve of cash and a healthy ratio of assets to debt, in case the market collapses again. The asset-sale plan, though potentially good for holders of SoftBank’s debt and shares, could end up robbing the company of some of the qualities that made it attractive for investors.

SoftBank’s record loss shows that throwing cash at startups isn’t much of a strategy. One thing stands out though – SoftBank made its most successful bet, a $20 million investment in Alibaba in 2000, during the dot-com bubble. Two decades later, it is still banking on the Chinese company to make up for its souring startup investments.

With the world’s attention intently focused on economic indicators in the fallout of the COVID-19 pandemic, new research highlights the key role that small online businesses play in the economic growth of local communities. In collaboration with GoDaddy, a new study authored by researchers from the University of Iowa and Arizona State analyzed measures of local prosperity and economic opportunity in relation to a county’s number of online ventures. Specifically, the study examined the density by zip code of over 20 million actively-registered domain names across the U.S. and compared the results to an Economic Prosperity Index (“EPI”) comprised of factors like a county’s housing vacancy rate, poverty rate, and percent change in the number of jobs.

The researchers used the online ventures as a proxy for entrepreneurialism. GoDaddy estimated that approximately three-quarters of these “ventures” are business-related, and although most small online ventures remain side hustles, about one-fifth of the entrepreneurs surveyed said their web businesses are their main source of income. More than half said their web ventures generated some household income. The study found that each highly active venture adds $331 of growth to county median household income over a two-year period. This trend holds even after standardizing certain factors like education level, ethnicity, and geography.

This study implies potential policy solutions for alleviating the economic disparities between select groups of coastal cities that have seen an explosion in economic activity and many rural areas that have lagged behind. According to Karen Mossberger, one of the study’s lead authors and a professor at Arizona State, trying to lure a big tech company into a city by using tax breaks or other incentives might be misguided. A better solution for many communities should be tailored around building programs geared towards helping these tiny digital businesses thrive.

Small Online Businesses Spur Economic Growth in Unexpected Places