Hedge funds spending billions on obscure data; Digital wealth M&A; CBD primed to explode
The $66 billion bank mega-merger wasn't the craziest piece of news this week, with Jeff Bezos accusing National Enquirer's publisher of blackmail (truly something you'd expect to see at the front of the National Enquirer). What a world.
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Putting aside a fight between the president and the world's richest man, I continue to be fascinated by SoftBank, the Japanese tech company buying stakes in Silicon Valley unicorns such as Uber and WeWork at eye-popping valuations. In a sign of just how quickly SoftBank is writing checks, the megafund disclosed this week it had spent half of its $100 billion Vision Fund in just two years. At its current rate of spending of about $7 billion per quarter, the remainder of the fund will last just a year and a half.
As we reported in January, the fund spent a staggering $894 million on investment-banking fees in 2018, securing financial advice on deals and procuring an array of bonds, loans, and equity investments.
That's not just the highest total for any company last year, but the highest in at least the past decade.
It doesn't seem like SoftBank is showing any signs of slowing down. This week, it led a $440 million round in the UK fintech OakNorth, making it one of Europe's most highly valued companies.
I've talked to several Silicon Valley lawyers and investors who are worried about a lack of discipline in SoftBank's spending spree, e.g. writing checks for hundreds of millions to companies that simply don't need the money (a commonly cited example is the dog walking app Wag, which raised $300 million from the fund last year). There's also concern about freewheeling spending from companies that receive SoftBank cash. One tech adviser pointed me to a client who he said had received an investment from SoftBank and then proceeded to spend a big chunk of it on a Super Bowl ad.
"SoftBank makes the cost of capital so low for entrepreneurs [that it] gives rise to bad habits like cash burn and just going for market share," a leading venture capitalist in India told Nikkei last year. "Capital efficiency goes out the window. Capital can crown the wrong winner."
There's already been some red flags. A month after the fund invested in Roviant Sciences, the drug failed in a late-stage Alzheimer's trial, and several executives left the company (it's since raised even more money). And, of course, SoftBank has received scrutiny for its ties to the Saudi government after the disappearance of a Saudi journalist.
As the Vision Fund continues to disrupt the venture landscape and shape the world's most valuable companies, I think it's going to be one of the most important business stories of the next five years. I'd love to hear your thoughts! Please reach out to me at email@example.com anytime.
Have a good weekend!
Hedge funds are spending billions to get an edge through access to satellite images and credit-card transactions. Now they fear a crackdown's coming.
One hedge-fund manager didn't invest much in oil, but a data company's unusual pitch caught his eye.
The firm said it could pinpoint which oil rigs in Texas were operating in real time, information that could be used, for a price, to make better bets on the commodity. How did the company acquire this type of potentially extremely lucrative data? It paid a guy $50 to drive around and stick sensors on oil rigs.
The hedge-fund manager, who declined to be named, said he immediately passed.
As hedge funds seek out new ways to beat the market, they're increasingly looking to "alternative" data providers that offer insights into companies not found in filings and earnings calls, such as satellite images and credit-card transactions. But while most data providers operate above board, the cautionary tale is an extreme example of how traders are trying to balance the promise of getting ahead with the need to avoid using illegal information.
The geniuses who helped design Apple's first mouse have been focusing on blockchain
The design firm that created Apple's first mouse has turned its considerable design prowess on the world of blockchain with a promise that the internet won't be the same again.
Ideo is investing in startups involved with what it calls the distributed web, which are projects like peer-to-peer digital-cash networks, permission-less services, marketplaces, and messaging platforms. Elements of access, ownership, and control can now be embedded into software applications, opening up a new world.
It also set up a venture-capital fund to take stakes, though the firm declined to provide more details. Already an investor in six companies, it plans to make as many as a dozen more investments this year.
"We're at that Cambrian moment," said Joe Gerber, one of two managing directors at Ideo's CoLab project. "The foundational elements of the internet are being rewritten."
Investors are asking hedge funds to move to a '0-and-30' fee model, and it's putting pressure on a big chunk of the industry
Investors paid hedge-fund managers millions of dollars in 2018 - even though most funds posted dismal returns.
For years, most hedge funds charged investors a flat rate of 2%, known as a management fee, as well as a 20% performance fee - known as the "2-and-20 model." Hedge-fund fees are typically higher than those at other types of investment funds, based on the promise they'll make money even if the market is down.
But the emergence of public pressure from big investors, including pension plans, to lower costs - as well as several years of mediocre performance from hedge funds - has led to a rethinking of what investors should be paying for, BI's Bradley Saacks reported.
SoFi was in talks to acquire a fintech backing some of the hottest robo-advisers as it began to eye expansion beyond its lending roots
Lending startup SoFi was in late-stage talks to acquire a fintech backing some of the industry's top robo-advisers in an attempt to grow its digital-wealth platform, Business Insider has learned.
The $4 billion San Francisco-based fintech firm held discussions in recent months to buy Apex Clearing, a custody-and-clearing firm that services fintechs such as Betterment and Stash, but deal talks fell through. Acquiring Apex would have helped SoFi continue to grow beyond its lending roots to become a personal-finance hub for managing people's money across the board.
It's a billionaire bounce back as Einhorn, Ackman, and Edelman all post good January returns after a brutal 2018
For several well-known funds, the start of 2019 has helped wash off the stink of last year, as big-name managers such as David Einhorn, Bill Ackman, Joseph Edelman, and Dmitry Balyasny all finished January with positive returns.
The overall hedge-fund industry had one of the best months in its history, returning 4% on average after declining 2.2% in December, according to data tracker eVestment.
A top venture investor that backed companies such as Bird and TheRealReal explains why CBD is primed to explode
Venerable VC fund Greycroft is the latest big investor to push into the trendy CBD space.
The firm participated in a $3.3 million seed funding round for Prima, a CBD startup which is set to officially launch in March, along with New York-based venture firm Lerer Hippeau, BI's Jeremy Berke reported.
Greycroft, which was founded by VC pioneer Alan Patricof and has backed buzzy consumer startups such as Thrive Market, Bird, TheRealReal, and Venmo, is seeking exposure to what's set to be a huge market. The Brightfield Group, a cannabis-industry research firm, estimates the hemp-based CBD market will skyrocket to $22 billion by 2022 in the US alone.
While some mainstream VCs have invested in both CBD and cannabis-tech companies, Lerer Hippeau included, the Prima investment marks the first time Greycroft has actively put money into the sector.
Quote of the week: "I'm stranded in a different state with no way to get gas. I was put on hold for 40 minutes and all you have to say is check back???? I should have switched a long time ago" - Wells Fargo customer Haley Ledbetter voicing her frustration about an online systems outage at the bank that left many unable to pay their bills or purchase food.
Chart of the week: Yutong Yuan/Business Insider
Yutong Yuan/Business Insider
In tech news:
- Here's the investor deck that $800 million startup Carta used to raise $150 million in venture capital
- 'It changes everything': Facebook insiders are cautiously optimistic about changes to employee bonuses
- A fintech that helps the world's biggest banks chart data just raised $17.4 million
- 'The emerging opportunity of 2019': One expert says tech is passing the baton to an unloved area of the market that's set to explode higher
- The next recession could force the Fed to cut interest rates into negative territory. Here's what that means, and how it could affect you.
- Mega-deals like the latest bank merger might look good for business - but they're also flashing a major recessionary warning sign
Other good stories from around the newsroom:
- We got a look at the slide deck that buzzy startup Devoted Health used to hit a $1.8 billion valuation, before it signed up any customers
- Amazon is trying to lure retailers to its cloud platform with the promise of making them more like Amazon.com
- Kroger, the largest grocer in America, explains how it's turning to healthcare as it takes on Amazon and Whole Foods