Weekly Briefing No. 134 | A Cheesy Way to Fix Capitalism

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This week, we’re back and ready to bring you all of the best stuff that hit our plate. Our entrées include:

  • Saving capitalism, one slice at a time
  • A terrific “exit memo” from Core’s Schütte
  • Beware of the fintech petting zoo
  • Financings: Ayden, Quovo, Ethos to Strangerworks
  • A financial career funicular
  • Operational risk as a new ILS strategy
  • Pop-up hotels; Bangladeshi butter
  • A personal data market; Hacking AirBnb

OPINION

A cheesy move by Goldman Sachs and Paul Tudor Jones.

Unsurprisingly, the snark poured out this week following news that a rich hedgie (Paul Tudor Jones), a well-known spiritual guru (Deepak Chopra) and the world’s most prestigious investment bank (Goldman Sachs) have joined forces to launch an ETF based on promoting a more positive vision for capitalism’s future. We can understand the suspicion fueling the criticism, but that doesn’t mean the alarm ringers aren’t right in their underlying point. After all, it doesn’t take a genius to figure out that despite our “strong” economy and technology’s advancement, it’s a bad thing that 40% of American adults couldn’t come up with $400 in a pinch. It’s also bad that 45% of women have $10,000 or less of retirement savings and that our melting polar ice caps could “wake up” vector-borne diseases like the bubonic plague and smallpox.

When we say “bad,” we just don’t mean bad morally. We mean bad for capitalism — which brings us to the crucial topic of pizza. In a move that received widespread social media coverage, the Goldman Sachs of pizza (a.k.a. Domino’s) announced this week that it was going to be paving potholes on America’s pock-marked streets. Why? Because a pepperoni and onion takeout order that encounters turbulence on the way home can sustain irreversible, grisly damage. A ploy? Yes. But just like Goldman and Jones, Domino’s isn’t waiting for politicians to fix things. It’s acting creatively to make a point about our system, and, more importantly, to protect its own franchise. That’s called enlightened self-interest. And while it’s not driven by virtue, we’ll take it over scraping mozzarella off cardboard.

The best exit memo we’ve read in a long time.

Recently, CFPB interim head Mick Mulvaney dissolved the CFPB’s Consumer Advisory Board (and two other advisory boards) in one fell swoop. In defending his action, Mulvaney & Co. offered a smattering of rationales, including that the mandated in-person board meetings were “junkets,” which is notable considering the spending of his colleagues, including fancy-pen-loving Scott Pruitt. Usually, when such advisory boards are disbanded, the jettisoned members go away gently into that good night. But in this case, something else occured. The sole fintech VC on the advisory board, Arjan Schütte, made the notable decision to publish a raging exit memo of sorts on why he and his colleagues were canned. Even if you have issues with the CFPB, Schütte’s fiery analysis is worth a read.

Beware of the fintech petting zoo.

We’ve long believed that some of the busiest people we know are lazy. Indeed, random action for its own sake isn’t admirable, and it rarely leads to success. Our friend Jason Henrichs at Fintech Forge believes this as well. In a recent blog post, Henrichs uses metaphors that range from animals to the workbench in his garage to make the point that Demo Days, personalized tours of Silicon Valley, happy hours with start-ups and other busy bee activities are often activity traps that lead to suboptimal results.

FEATURED NEWS

Financings: Ayden, Quovo, Ethos and Strangerworks.

“Ayden is proof that even in a traditional and highly regulated industry, building a powerful, global business is possible. And there is still an astonishing amount of room for Adyen, and the fintech industry, to expand.” That’s the take of Index Ventures’ Jan Hammer in discussing the successful IPO of his portfolio company this week. Also this week, Quovo, which bridges consumer financial accounts and financial services providers, extended its previously announced Series B, and life insurance start-up Ethos has assembled the most talented cap table in history for its latest round. Finally, Austin-based Strangerworks announced a $4-million seed round this week to broaden access to quantum computing. The company, founded by accomplished technologist William Hurley (a.k.a. Whurley), is now backed by Lightspeed Ventures and other notable investors.

Wanted: A financial career funicular.

In a story that should surprise nobody, Citigroup’s Jamie Forese was quoted in The Financial Times on Monday saying the following: “We’ve got 20,000 operational roles. Over the next five years could you make it 10,000?” This not-so-subtle warning about future tech-induced job cuts at the bank comes on the back of recent revelations that Goldman will soon unveil Jupiter, which will enable its corporate clients to assess their vulnerability to takeovers via a simple app. It’s tough to know how many underperforming financial pros will be algorithmed in the coming years, but a career plan involving hanging on with your fingernails isn’t a winning strategy, it’s career malpractice. Instead, sign up for a smart course like this one from Huy Nguyen Trieu or pay your own way to attend a fintech conference. Just don’t rely on the stars. Big companies sometimes get bailed out. Individuals don’t.

Operational risk as a new asset class.

We’ve waxed lyrical on the potential of the insurance-linked securities (ILS) market to embrace cyber risk. Now, we’ve come across a new investment strategy to note. As Artemis points out (See below), an issuer (Operational Re) backed by Zurich Insurance Group has successfully transferred about $150 million of operational risk (purportedly covering Credit Suisse) to the capital markets. This transaction is a follow-up to a similar cat bond deal that occured in 2016 and, given Credit Suisse’s involvement in ILS strategies, makes logical sense to us. Why aren’t others using this innovative approach to protection?

Insurance and autonomous vehicles: perfect together?

“We expect a gradual shift in the type of auto insurance products as well as new revenue sources for insurance companies.” That’s a quote offered by Bloomberg’s Alejandro Zamorano, in a new study issued this week expressing a rosier outlook for insurance in the autonomous era vs. Morgan Stanley’s famed dire prediction. To this point, this week, future autonomous rideshare companies Uber and Lyft announced a deal with insurtech SURE and Chubb to offer episodic accidental coverage for passengers.

THE TROVE

Pop-up hotels are now a thing: We’ve been very bullish on the pop-up store trend as a way for retailers to reinvent their model in the Age of Amazon. But until we came across the PYMNTS article below, we hadn’t thought about using the pop-up concept to provide luxury apartment developers with interim cash flow.

The investment lessons of butter production in Bangladesh: Two decades ago, mathematician David Leinweber and PM Dave Krider made a shocking, absolutely shocking, discovery: the total amount of butter produced in Bangladesh “explained” 99% of the S&P 500’s movements (See below). Several years later, in 2007, Ivan Kitov of the Russian Academy of Sciences and Oleg Kitov of the University of Warwick published a study revealing that the number of nine-year-old children in the US was an incredibly accurate predictor of future equity returns. So what do these two studies teach us about investing?

The market for selling personal data is coming: It’s increasingly clear that a rising portion of the population wants to bust the well-worn trade of their data for some “free” service provided by a tech giant. That’s why we’re highlighting a recent, terrific a16z podcast, featuring Andreessen Horowitz partner Peter Levine and GitHub co-founder and CEO Chris Wanstrath. In it, they speculate on how in the future, people could turn their data into their own individual oil wells (13:50).

The pre-IPO ruggedizing of bellwether unicorns: What can high-profile private companies like Uber, WeWork and AirBnb do today to ruggedize themselves ahead of (possibly) going public? That’s the question we asked ourselves upon listening to a new episode of Software Engineering Daily, the geeky but good podcast hosted by Jeff Meyerson. In the episode, which features Atlassian’s Jeremy Galloway, we learn that a disgruntled teenager with hacking skills and a paper clip could potentially disrupt a core aspect of the AirBnb experience. If we were current or prospective AirBnb investors, we’d take a look into this issue before the S-1 is filed.

QUOTE OF THE WEEK

“Picasso once remarked I do not care who it is that has or does influence me as long as it is not myself.”

~ Gertrude Stein