Welcome to our 126th edition. Here’s what caught our eye this week:
- Facebook needs to make some crazy good structural moves
- Messing with Bezos is bad, messing with China is worse
- Deals: Spotify, Greensky, Drivewealth, Chainalysis & Coinbase
- Jamie Dimon’s war on bureaucracy; Fin7’s terror; Telegram
- Outvest Capital’s novel investing strategy; SoCal’s fixed income revolutionists; Techdirt on APIs as protectable code
- App of Note: WeCroak
A crazy governance innovation idea for the Kingdom of Facebook.
"Everything for the people, nothing by the people.” That was the motto of Emperor Joseph II of Austria, a so-called “enlightened despot.” In reviewing Mark Zuckerberg’s recent interview with Vox’s Ezra Klein and Zuckerberg’s Q&A on Wednesday (See below), we thought about that moniker as we evaluated the man who sits on personal data for a quarter of the world’s population. In the Q&A, his royal hoodieness conceded five times that Facebook should have done a “better job.” And in the Vox interview, he reiterated his view that a) Facebook is more like a government than a company and b) Facebook is freer to spread “good” because it’s a “controlled company.” Add it up and this says to us that Facebook is a “controlled government” ruled by a ruler. So even if investors complain and Congress creates a GDPR-esque law after Zuckerberg’s congressional grilling, it won’t impede his ability to remain CEO. However, Facebook is wounded — badly — and contrition isn’t going to restore faith in Facebook’s judgement. For that, governance innovation beyond “independent councils” is needed. One crazy idea would be for Facebook to convert to a B-Corp (See our friend Kyle Westaway’s B-Corp explainer here). Would it be hard for Facebook to moor itself to unwavering rules? Yes. But unlike the more North American-centric Kingdom of Amazon, Facebook is far-flung (like B-Corps). And it needs to do something big to show that its lofty mission isn’t just PR. It needs to prove that its leader, who controls almost 60% of Facebook’s shares, isn’t the sole arbiter over a massive data trove. So we appreciate that Zuckerberg accepts his mistakes and that his #2 is taking some blame. But these actions don’t make him enlightened, and they don’t make him fit to rule like an emperor.
Xi Jinping is not Rosie O’Donnell.
This week, Peter Thiel and Oracle’s Safra Catz had dinner with Donald Trump. Although the meeting appears not to have had a moderating impact on the president’s use of his Twitter bully pulpit, we hope that with reasonable counsel from Larry Kudlow and others, the president eventually cuts out his postal nonsense with Jeff Bezos and focuses on the China situation. Xi Jinping is not Rosie O’Donnell, nor the cast of Morning Joe nor James Comey nor LaVar Ball. He’s the leader of a nation that sits on $1.2 trillion of US debt. If China were to begin unloading that debt, it would undoubtedly have a negative impact both on the US and China. But unlike Trump, Xi has the ability to impose a tolerance for economic pain on his country that Trump doesn’t. Indeed, every American business tied to interest rates, the financial markets, soybeans, generic drugs, pork products, crude and LNG will feel the impact of a trade war. Or to put it another way, hello Speaker Pelosi.
Are you looking to turn on your blockchain light bulb?
Powered by Fordham University
When Thomas Edison created his direct current system, he wasn’t the first person to experiment with electric currents. But what Edison did was take those pieces and assemble them into a system that could be commercialized. The most famous alumnus of that effort is the light bulb. Similarly, the pioneers of Bitcoin incorporated several innovations to create the first coherent blockchain system. Today, the blockchain innovations sparked by the Bitcoin protocol have the potential to reimagine industries ranging from healthcare to energy to financial services. However, as Edison would tell you, commercialization isn’t easy. That’s why our Fordham friends are hosting a two-day Blockchain Disruptor Conference at Lincoln Center. If you need to understand how things like hashing, consensus and smart contracts work, we urge you to go back to school on April 28th and 29th with the experts Fordham has assembled. After all, when it comes to teaching concepts that can lead to opportunity, Fordham is in the light bulb business.
Readers of The FR get 50% off conference registration with the code FINREV50.
A direct and diverse set of deals took place.
Without the benefit of a greenshoe or underwriters, Spotify managed to become public this week in an UnIPO that broke all the rules. It’s too soon to tell if the company’s direct listing will lead to a successful journey as a public company, but so far, we feel like all the smack leading up to the IPO is akin to a weatherman warning of a snowstorm that turns out to be flurries. Also, point of sale lending enabler Greensky confidentially filed to go public, and Drivewealth, a next-generation clearing firm for brokers and wealth managers, raised a $21-million Series B. In cryptoland, Chainalysis, a provider of fraud detection tools, raised a $16-million Series A, and Coinbase introduced its own VC arm. As part of this effort, Coinbase indicated a willingness to back potential competitors.
Dimon declares war on bureaucracy.
Jamie Dimon’s annual missive should be required reading for anyone entering a fintech accelerator program. Period. We’d contend that no other US financial services executive has a better view on the challenges and opportunities facing the buy side, the sell side and the consumer side. So what’s getting his goat these days? Good old fashioned bureaucracy and its evil hircine spawn, meetings.
Fin7’s shopping spree.
This week, the Hudson Bay Company acknowledged that several of its chains suffered a data breach involving over five million credit and debit card numbers. The culprit is believed to be Fin7, a sophisticated and successful criminal enterprise that sells its information on a dark web marketplace named JokerStash. Fin7 has also recently been linked to attempts to compromise people who handle SEC filings.
Telegram’s abundant resources cause a stir.
Last week, Telegram, a cloud-based instant messaging service that does not operate for profit but is not a non-profit (got that?) disclosed that it raised $1.7 billion in two ICO pre-sales. Now, flush with all of that cash, Telegram is giving the willies to the Russian and Iranian regimes. In Iran’s case, President Hassan Rouhani has purportedly moved to ban Telegram for economic safety reasons. If you believe that, we’ve got a bridge in Khorramabad we’d like to sell you.
Excluding innovation laggards in a portfolio: Outvest Capital, which was co-founded by David Barse (former CEO of Third Avenue Management) and Alec Ellison (Jefferies’ former technology banking chief), takes a novel approach to portfolio construction. As Outvest explains in a new white paper, the firm doesn’t try to pick stock “winners.” Instead, it looks to deselect stocks (from a base index) that are in secular decline and unlikely to cope with technological disruption. Identifying “losers” is not easy, but the firm contends that doing so takes far less effort than identifying the next Google, Amazon or Salesforce.
Very few women have made money in crypto: For the time being, it looks as though the easy breezy money in crypto has been made. Opportunities remain (and new entrants like George Soros are showing up), but stories like this one in Maxim about post-pubescent Bitcoin millionaires buying Lamborghinis feel dated in a global climate of rising regulatory scrutiny. However, as a recent Atlantic piece points out, the paper wealth created by crypto is largely in the hands of men.
Why do so many fixed income revolutionists call Southern California home? From Bill Gross to Jeff Gundlach to Michael Milken to Howard Marks, there’s something about the Pacific’s warm waters that inspires creative credit analysis.
What’s fair use? Techdirt’s Mike Masnick interviewed digital law professor Pamela Samuelson to discuss the legal saga between Oracle and Google. In short, a federal judge recently ruled that Google’s use of Java naming protocols for Android app developers violated copyright law, paving the way for Oracle to (possibly) seek reparations. More broadly, Masnick and others are concerned over the possible chilling effect this case could have on software development.
APP OF NOTE:
We share Jamie Dimon’s distaste for meetings. Sure, in the abstract, several standing weekly confabs sound like a nice way to keep the lines of communication open. But in reality, we’ve found that beaucoup meetings infuse a company — even a small one — with a culture that tolerates wasted time. And time, as Leda Glyptis discusses here, is an undervalued asset in banking (and everywhere else). One way to guard against stolen minutes is to continually self-reinforce that your time is a crucial asset. That’s where WeCroak comes in. Founded by PR executive Hansa Bergwall and developer Ian Thomas, the app costs 99 cents and was modeled on the Bhutanese ritual of contemplating death five times per day. The reminders, sent at randomized times, are accompanied by a thoughtful quote reinforcing this happiness quest. For us, those gentle taps helped us to tweak our priorities, think differently about innovations that reduce daily frictions and be more grateful for those who enrich the minutes we have remaining.
QUOTE OF THE WEEK
“The price of anything is the amount of life you exchange for it.”
~ Henry David Thoreau