Weekly Briefing No. 136 | Deep Learning, Amazon HQ2, Middle Age is the New Black

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Welcome to the last Saturday of June, also known as Social Media Day. Here’s what’s in our feed this week:

  • Deep learning, Virginia & middle age are in
  • Company of Note: Caspian
  • News: a16z; Anti-steering; Financings; Finn
  • Trove: Private polls; Element AI; World Cup econ

Note: We will be taking a hiatus after our July 28th issue. If you’d like to connect with us beforehand, please contact Gregg Schoenberg here.

OPINION

Financial services firms should get long deep learning now.

“At first glance, deep learning has the hallmark hype of a technology trend that prudent institutions would do well to avoid. But beyond their celebrated successes in image recognition and translation, there are subtle and persuasive reasons for financial services organizations to deploy deep learning models.” That’s the verdict rendered by our friend and noted data science expert Jeremy Stanley. In a new opinion piece written for The FR, Stanley acknowledges that financial organizations new to AI may have some trepidation about leapfrogging over “simpler machine learning methods” and jumping straight into deep learning. However, he makes a compelling case that the time to embrace deep learning is now, as over the next ten years “the most successful algorithms will be based in deep learning.”

Amazon’s HQ2 is headed to Northern Virginia.

At least it should be, if you believe the analysis of Steve Morton, CIO of Inyo Capital Management and renaissance fellow. As a global macro manager, Morton concedes that he isn’t an expert on Amazon’s financials: “I honestly have no credentials to offer up an opinion about how the HQ2 decision will impact Amazon financially.” But he applies his dot connecting skills to assert that “all that messy bottom-up stuff just isn’t necessary.” In fact, Morton asserts that the core factor driving Amazon’s choice isn’t based on Amazon’s stated criteria: “The bottom line is this: Amazon doesn’t have a logistics problem, or a labor problem, or a tax problem. Amazon has an existential problem.”

Middle age is the new black.

Last week was historic for avocado devotees. That’s because the well-named Apeel Sciences revealed that it found a way to double the shelf life of avocados. But to us, it’s symbolic of a larger trend that’s taking hold within start-up circles: age is in. And now, thanks to a recent study published by the Census Bureau and two MIT professors, there’s data to back the assertion that America’s successful start-up execs typically don’t look like they just went to prom. Instead, most big-time entrepreneurs are ripened forty and fifty somethings. Why this is the case is no mystery, particularly if these founders have complemented their experience by doing things to enhance their shelf life (i.e., continuously learning, eating well, exercising, getting a tattoo, etc...). But we’d argue that the value of grey hair (or in our case, no hair) within the fintech sector is even greater. Let’s not forget that many of today’s fintechs have been built by people who have no direct experience in staring down a bear market, or a violent turn in the credit cycle, or the knock-on effects of a trade war, or rising inflation, or a recession, or the unwinding of a speculative bubble. Of course, many of today’s young leaders will rise to the occasion, but as the feathery conditions of the last several years vanish, we think the relative benefits of grizzled wisdom and experience will rise faster than the popularity of avocado ice cream. Indeed, middle age never looked so sexy.

COMPANY OF NOTE

Caspian: A crypto company for grown-ups.

We typically don’t chase the shiniest new thing in crypto because a) many crypto-based companies/projects are flimsy, to put it kindly, and b) even legitimate initiatives are unlikely to survive a long-term shakeout. But after The FR’s Gregg Schoenberg had the chance to connect with Caspian CEO Robert Dykes, we’re taking note of this joint venture between TORA Trading and Kinetic Capital, as it possesses the hallmarks of a winning formula. Folks in the trading world are likely to know TORA as a leading provider of trade execution solutions to hedge funds and other asset managers, with an especially important role within Japan’s institutional trading community. Hong Kong-based Kenetic, meanwhile, is an active blockchain and cryptocurrency firm comprised of seasoned pros. Together, these two firms have been able to create an end-to-end trading platform that is currently in beta testing by many of the world’s largest crypto asset managers. Given the fact that many crypto exchanges are still working out their kinks, an institutional-grade system is especially well timed to address the current volatility in the crypto markets. Plus, as Dykes pointed out, many of the buzziest projects are years away from having a prime time offering. “We’re a 2018 story,” he said.

Why should institutions get all the best investment opportunities?

Sponsored by Groundfloor

Let’s face it: when it comes to the marketplace lending space, institutional investors have been able to flex their muscles on most platforms to secure the best investment opportunities for themselves. That’s why we’re taking note of Groundfloor, a fast-growing platform that has been focused on democratizing real estate investing since the day it started. So how does Groundfloor offer attractive opportunities to accredited and non-accredited investors alike? Through a proprietary structure that enables individuals to invest in real estate projects that have already been vetted, allowing investors of all stripes to select a customized portfolio of high-yielding, short-term loans. Pretty clever, right? To find out more, checkout Groundfloor’s website.

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FEATURED NEWS

Andreessen launches a crypto fund.

This week, Andreessen Horowitz christened a $300-million crypto fund, which is actually structured as a registered investment advisor to maximize its flexibility. In announcing the fund, General Partner Chris Dixon wrote an excellent blog post explaining a16z’s bullish rationale: “We find ourselves consistently surprised and excited by the wide variety of creative crypto ideas we encounter. For those of us who have been involved in software for a long time, it feels like the early days of the internet, web 2.0, or smartphones all over again.”

Supremes hand Amex a big victory.

On Monday, the Supreme Court decided an important case involving American Express. In a 5-4 decision, the court ruled that Amex’s use of so-called anti-steering provisions did not constitute anti-competitive behavior. As a result, Amex, other credit card companies and tech platforms who field two-sided platforms can breathe easier. In trying to make sense of this ruling, we turned to Michele Tivey, CEO and co-founder of FinTech Payments Corp (and a former assistant D.A.). “Card processing is broken, and competition is fierce among the four major card associations to gain the market share of merchants,” she said. As such, it’s tough to buy the argument that Amex is a “big fish taking up all the space in the pond.” We take Tivey’s point, and while we think it’s very unfortunate that the current credit card system promotes a so-called reverse Robin Hood effect, it sounds to us like the case brought by Ohio and others didn’t make a strong enough argument that consumers were being harmed.

Apart from that, Mrs. Lincoln, how did the financing wind up?

At some point, the reality of America’s multi-pronged trade disputes, jumpy equity markets, pancake-flat yield curve and surging commodity prices could sap enthusiasm in the start-up financing market. But so far, investors are brushing aside concerns and doubling down. For example, this week, Lyft lifted out another $600 million at a post-money valuation that has doubled in 14 months. Also, tastytrade, a Chicago-based financial media company that caters to active investors (butterfly spread, anyone?), raised 20 million pork bellies. In the roaring PropTech market, SimpleNexus raised $20 million and Unison Home Ownership raised $40 million. Finally, biometric-fintech start-up Veridium raised a $16.5 million Series B.

JP Morgan rolls out digital bank offering for non-fickle people.

JP Morgan has announced that it will take Finn, its app-only bank account that’s been testing in St. Louis, national. We look forward to trying the app and expect that it will improve over time as competition from Citigroup and others increases. One musty aspect to Finn, though, is the interest rates it will offer. According to the article below, Finn’s Melissa Feldsher banksplained that it will offer the “same modest rates it pays on deposits to standard Chase accounts” (i.e., next to nothing) so as to avoid fickle “hot money.” Really, Finn? Have you heard of Marcus?

TROVE

Hedge fund use of private data: Bloomberg Businessweek is out with a fascinating article discussing how British pollsters sold hedge funds scrummy private polling data. As a result, a few jammy investors ended-up quids in from Brexit.

Slaying Big Tech?: In a new piece published in Fortune, Vauhini Vara provides an excellent overview of Element AI, a Montreal-based start-up building AI solutions that aim to compete with Big Tech, assist a “broader ecosystem” of participants and help, rather than hurt, society at large.

Economics lessons from the World Cup: We still haven’t gotten used to hearing the cheers emanating from bars that are open at 9am to broadcast the World Cup games. And although the USA (sadly) didn’t make the cut this year, the World Cup is definitely on our minds. Ditto for Planet Money, which sought to explain the modern economy through this year’s tournament.

QUOTE OF THE WEEK

“Imagination and fiction make up more than three quarters of our real life.”

~ Simone Weil