A stock exchange designed for long-term investors may be great for the nation but not for Silicon Valley, where short-termism has been a friend. That’s why we are pointing out the irony in one tech leader’s proposal for a different kind of equity market. We also feature a one-on-one interview with United Capital’s Joe Duran, the current bad times for tech ECM bankers, a look at Ethereum’s founder in the wake of a major hack, institutional homebrewing of digital currencies and Kyriba, a quiet fintech powerhouse.
Silicon Valley’s long-term exchange is long on irony.
Yesterday marked the 437th anniversary of Sir Francis Drake’s landing near present-day San Francisco and claiming California for Spain. Since that day, California (or at least the Bay Area) has done a pretty good job of laying claim to the rest of the world instead. We were, therefore, not surprised to read that Eric Ries — father of the Lean Start-up — has hatched a self-described “audacious” plan to disrupt today’s public equity marketplaces, which many see as encouraging a short-termism that is sapping our economic vitality. Ries’ plan calls for: 1) tenured shareholder voting power; 2) mandating ties between long-term pay and performance; and 3) additional disclosure requirements that will promote more transparency around investment decisions. The irony of the proposal is that if the Long-Term Stock Exchange (LTSX) launches successfully, it could erode one of Silicon Valley’s core edges. Sure, VCs would welcome a rejuvenated IPO pathway. But imagine if most US corporations opted for listing on the LTSX over the NYSE or Nasdaq. Over time, if Corporate America collectively became less concerned about making quarterly numbers and more focused on building for the future, who would be left to disrupt? Would such a shift be good for the nation? Probably, but Silicon Valley’s ability to exploit the weaknesses of quarterly capitalism is one of its enduring advantages. We suspect that many current institutional investors won’t go along with the LTSX (which is too bad), but if it fails, the Silicon Valley elite who are backing Ries can at least take heart in knowing that they tried to do something about public equity myopia — in between laughing on trips to the bank.
The rise of the bionic RIA.
Joe Duran, United Capital CEO and founder, has a bold vision for the future of fintech. Rather than viewing technology as a replacement for labor, he sees it as a critical component to making humans — RIAs in particular — better at doing their jobs. Unsurprisingly, Duran’s scorn for a technology-only approach to wealth management centers on roboadvisors: “I look at the models of firms like Betterment and I thank God for that model. All of these robos that do not use human advisors today are going to be forced to bring on human advisors at some point to survive. I’m absolutely convinced of it.” One could scoff at Duran’s worldview, but that would be unmerited given his exemplary track record as an entrepreneur who knows how to fuse innovation with a human touch. His current company, which raised a whopping $38 million round from heavyweights including Sageview Capital, Bessemer Venture Partners and Grail Partners, appears to have the wind at its back after securing a new partnership with Fidelity. The FR’s Gregg Schoenberg spoke with Duran in a wide-ranging interview that led us to conclude that he is one of the most no-nonsense, truth tellers in fintech today.
Issuing equity is so 2015.
When Microsoft announced that it was buying Linkedin for $26.2 billion, the financing aspect of the transaction — the third largest tech deal in history — was overshadowed by other aspects of the deal. However, it is interesting to note that Microsoft is levering-up via a debt issuance to finance the deal and to accept negative rating agency consequences. Also this week, word leaked that Uber was planning to tap the leveraged loan market to the tune of $2 billion via an offering that could price at 4 to 4.5%. Not wanting to be left out, Airbnb, which loses much less money than Uber, secured a $1 billion credit facility. We get it, the Fed is getting nervous after May’s horrible jobs report and DCM bankers think that they can find demand for tech/unicorn paper. But using debt like a water fountain is definitely a notable tech trend. Add that to the lack of tech IPOs and fairly high buyback activity this year and it leads us to conclude that it’s no fun being a tech ECM banker these days.
The most important person in blockchain tech is feeling the heat. In the wake of yesterday’s hack on Ethereum (a developing story), eyes are turned to Vitalik Buterin, the Russian-born, Canadian-bred 22-year-old who is the co-creator and inventor of Ethereum. Buterin, who is also a Thiel fellow, is portrayed in Backchannel as an oddity who learned to speak fluent Mandarin in just a few months. He has virtually no worldly possessions, wears mismatched Hello Kitty socks and can eat a whole lemon. But his eccentricity also gives insight into Buterin’s genius and ability to infuse abstract ideas into a successful protocol. Now, as developers seek to block the attack through a soft fork, we’ll see if he has the mettle to match his brilliance.
Adventures in institutional cryptocurrency homebrewing. Japanese banking giant Mitsubishi confirmed this week that it is developing its own digital currency, the MUFG coin. But it’s not just big banks who want a native digital currency, as the Bank of Canada also revealed plans to hatch a digital currency named the CAD-coin. Will we someday hear people talk about the MUFG-CAD crypto-cross? Can these entities please hire branding experts before they go live with their new digital currencies?
Sheila Bair talks fintech investing. How will fintech start-ups perform in a downturn, not just now when things are relatively good? That’s the question Bair explores in this Inc. article. Bair, who is an advisor to blooom and on the board of Avant, is the president of Washington College. From her perch, she seems well qualified to assess current fintech opportunities within the context of broader macroeconomic issues facing young Americans.
Singapore fintech on the rise. Using its regional positioning and a friendly approach to regulation, Singapore is doing its level best to become the dominant fintech center of Southeast Asia. In this interview with Caroline Bowlah, a former prime brokerage exec turned fintech PR entrepreneur in Singapore, it’s clear that fintech activity is booming in the city-state. Bowlah’s #1 sector pick for the Lion City: Regtech.
Company of note: Kyriba.
Creating tools to help CFOs and treasurers manage their liquidity isn’t the sexiest of fintech subsectors, but the folks behind Kyriba don’t seem to mind. The San Diego-based company bills itself as the global leader in cloud treasury solutions, and while it doesn’t attract much attention in the fintech media, it has built an impressive franchise spanning 1,300 clients worldwide. Check out the company’s site here.
Comings and goings.
Robert W. Cook has been named CEO and president of the Financial Industry Regulatory Authority. Now a partner at Cleary Gottlieb Steen & Hamilton, Cook previously served as director of the SEC’s division of trading and markets. During his SEC tenure, he was best known as the SEC’s lead on its investigation of the May 6, 2010 “Flash Crash.”
Quote of the week.
“I don’t remember a world in which a third of government debt was trading at negative nominal interest rates. I don’t remember a world in which anti-establishment parties were gaining such traction on both sides of the Atlantic. I don’t remember a world in which we relied on one partisan instrument, which is central banks.”'
~ Mohamed El-Erian