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$2.5 billion hedge fund Valinor Management, part of the sprawling web of Tiger Management cubs, is liquidating

Tue, 06/16/2020 - 7:17pm

  • Tiger Cub hedge fund Valinor Management is winding down its operations, Business Insider has learned. 
  • The fund, which is based in New York, notified vendors it was terminating relationships with them on Tuesday night via an email seen by Business Insider.
  • The email stated the hedge fund "has determined to begin the process of winding up its business operations and liquidating the funds' portfolios."
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Valinor Management, a New York-based hedge fund created by an alumnus of the prestigious Tiger Management, is winding down its fund, Business Insider has learned. 

The New York-based firm oversaw $2.5 billion in assets on behalf of six clients, according to its last regulatory filing at the end of March. 

Valinor sent an email to vendors on Tuesday evening notifying them it "has determined to begin the process of winding up its business operations and liquidating the funds' portfolios."

The firm declined to comment through a spokesperson.  

The hedge fund industry was slammed by never-before-seen market volatility in March, but hasn't seen many notable closures during the pandemic.

Credit Suisse earlier this year liquidated a $519 million quant hedge fund after a tough stretch for quant managers, and some credit funds halted redemptions after many faced margin calls from their lenders, but this is the first reported closure of a fund of Valinor's size and stature.  

See more: We mapped 4 generations of Tiger Management's hedge fund descendants: here's the quarter-trillion-dollar web of cubs

The email, which was seen by Business Insider, came from the address of Owen Schmidt. According to his LinkedIn, Schmidt is a partner, general counsel, and chief compliance officer at Valinor, and joined the fund in July 2018. David Angstreich, the chief operating office and chief financial officer at Valinor, according to his LinkedIn, was also CC'd on the note. 

The email indicated no specific timeline around when the fund would official close, beyond adding that "this process will take some time."

Valinor was founded in July 2007 by David Gallo, who ran a fund that focused on fundamental investing in equities. Gallo previously was a partner at Bridger Capital and worked at Francisco Partners after he spent four months as an analyst at Tiger, per his LinkedIn.  

Bridger Capital is run by Roberto Mignone, who previously worked at Blue Ridge Capital Management, founded by John Griffin, a disciple of billionaire and Tiger Management founder Julian Robertson.

Partner Seth Cohen, who joined the firm from Blackstone, oversaw another Valinor fund that invested in small private companies, with investments between $5 million and $20 million, per an annual filing with the SEC.

"We are of course disappointed to be sharing this news, but we are deeply appreciative of all of your help and support over the years," the email read.

Read more: 

SEE ALSO: Stock-picking hedge funds are suddenly back in vogue after years of getting battered. Here are the areas attracting the most investor interest.

SEE ALSO: We mapped 4 generations of Tiger Management's hedge fund descendants: here's the quarter-trillion-dollar web of cubs

SEE ALSO: Credit Suisse just shut down its $519 million computer-run QT Fund after a month from hell for quants

Join the conversation about this story »

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A record 78% of investors think the stock market is overvalued, Bank of America says

Tue, 06/16/2020 - 5:32pm

  • A record net 78% of investors said that the stock market is overvalued, according to Bank of America's June Fund Manager Survey, released Tuesday. 
  • It's the highest number of investors to say stocks are too expensive in the survey's history, from 1998. 
  • While Wall Street might be past "peak pessimism," June optimism remains "fragile, neurotic, nowhere near dangerously bullish," wrote BofA's Chief Investment Strategist Michael Hartnett and investment strategist Shirley Wu in the survey. 
  • Read more on Business Insider. 

A record number of investors think that the stock market is "overvalued," according to Bank of America's June Fund Manager survey. 

Net 78% of investors said that the stock market is too expensive, the most since the fund manager survey began in 1998, Bank of America said Tuesday. The firm surveyed 212 fund managers with $598 billion under management during the week ending June 11. 

While Wall Street might be past "peak pessimism," June optimism remains "fragile, neurotic, nowhere near dangerously bullish," wrote BofA's Chief Investment Strategist Michael Hartnett and investment strategist Shirley Wu in the survey. 

Read more: BANK OF AMERICA: Buy these 13 cheap stocks that have unexpectedly strong finances, making them great bets for the next phase of the rally

The June Fund Manager Survey comes just after US stocks whipsawed following a more than 40% rally from March lows. The last time that fund managers thought the market was overvalued was in 2018, just before the year-end pullback. Stocks did eventually recover from those losses and rallied to new highs before the coronavirus pandemic hit this year. 

The nature of stocks' surge from the coronavirus rout is in question — a majority 53% of fund managers surveyed say that the market rebound from March lows is a "bear market rally," while 37% believe it is a new bull market. 

Read more: Famed investor Jim Rogers earned a 4,200% return with George Soros. He explains why the US response to COVID-19 is 'embarrassing' — and breaks down 4 purchases he's made amid the fallout.

And going forward, a majority of investors are betting on a bumpy recovery. Only 18% of investors said that they expect the recovery from the shock of the coronavirus pandemic to be V-shaped, while 64% said that it will be U-shaped or W-shaped, down from 75% in the May survey. 

Still, investors are becoming less worried about a global recession over the next year — those expecting a recession slid to 46% in June from 77% in May and 93% in April. 

The biggest tail risk that investors see in markets is still a second wave of coronavirus cases —49% said that was their top concern, followed by permanently high unemployment and a Democratic sweep in the 2020 election. Investor cash levels dropped to 4.7% from 5.7% in May, the biggest slump since 2009. 

More than 70% identified US tech and growth stocks as the most crowded trade. 

Read more: 'There is no natural limit to the stupidity of Wall Street': A notorious market bear breaks down why we're not witnessing a recovery — and warns that extreme valuations suggest a 66% drop

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Millennial day-traders are putting Wall Street to shame as investors bank on a V-shaped recovery

Tue, 06/16/2020 - 4:39pm

Hello everyone! Welcome to this weekly roundup of Investing stories from deputy editor Joe Ciolli. Please subscribe here to get this newsletter in your inbox every Tuesday.

Dear Readers,

A strange dynamic is afoot in the stock market.

The institutional heavyweights on Wall Street are being beaten at their own game by upstart day-traders and retail investors — and it's not been particularly close. The latter group has reaped a massive 61% return since the market bottom on March 23, easily outpacing hedge funds (45%) and mutual funds (36%).

Goldman Sachs tracks these companies in a "Retail Trading Favorites" basket, which we unpacked here, including the stocks that have soared the most since late March.

Needless to say, this outperformance has not been an easy pill to swallow for the old guard. CNBC host Jim Cramer said last week that markets are in for a "real bruising" because "everyone thinks they're smarter than Warren Buffett."

He was referring to the spiking interest — and subsequent gains — in beaten-down airline stocks from millennial investors using platforms like Robinhood. Buffett, of course, famously dumped all his holdings in the Big 4 airlines at the peak of coronavirus. Cramer's argument matches that of many bewildered experts, who think this type of unabashed risk-taking can only end in disaster.

If you aren't yet a subscriber to Investing Insider, you can sign up here.

Peter Cecchini, the former global chief market strategist at Cantor Fitzgerald, also recently weighed in on the retail-investor phenomenon. He warned that the market could be approaching the self-coined "Portnoy top" — referring to the irreverent day-trading exploits of Barstool Sports' infamous founder Dave Portnoy.

"His attention-getting, wild style is emblematic of just how emotional and extreme equity markets are now," Cecchini said in a LinkedIn post on Friday. "It's both impulsive and compulsive. His behavior really just explains everything."

And then there's what many market watchers consider to be the foremost example of irresponsible speculation: the torrid gains seen in Hertz, a bankrupt company that's quickly skyrocketed to the top of Robinhood's most-traded charts.

What does it all mean, and what other market trends should you be watching? As always, the Investing team at Business Insider has you covered. See below for our best stories of the week, including a wide array of recommendations, strategies, and tips for navigating uncertainty.

Thanks for reading!

-- Joe

Exclusive video discussion with 3 top Wall Street stock strategists

Akin Oyedele, Business Insider's investing editor and correspondent, spoke to three titans of Wall Street strategy in a live discussion. Participants included:

  • Lori Calvasina, managing director and head of US Equity Strategy for RBC Capital Markets
  • Thomas Lee, managing partner and head of research for Fundstrat Global Advisors, LLC
  • Jeff Kleintop, chief global investment strategist for Charles Schwab. 

They touched upon the following topics, and much more:

  • Recent stock-market turbulence stirred up by the prospect of a second wave of coronavirus cases
  • Why last week's major sell-off was actually "healthy" for the market
  • The ongoing disconnect between a buoyant stock market and the rapid economic deterioration seen in the wake of coronavirus
  • The retail-investor revolution and what it means that so many inexperienced traders are trying their hands at the market
  • Specific outlooks and recommendations from each expert
Watch the full webinar here. The next page of the recession-investing playbook

Morgan Stanley has updated its recession-investing playbook to reflect the unfolding recovery in economic activity. According to Morgan Stanley's chief US equity strategist, so-called cyclical stocks that benefit during the early stages of recovery are poised to continue gaining ground.

He shared three sector recommendations and many more stock picks that would help investors position for this shift.

Read the full stories here:

MORGAN STANLEY: The stock market is entering a new phase of a playbook that's thrived in past recessions. Here's how to tweak your portfolio to take advantage. An interview with short-seller extraordinaire Andrew Left

Andrew Left is one of the many investing denizens troubled by the seemingly reckless behavior on display from retail investors. And he's someone worth paying attention to. Having made his name calling foul on Valeant Pharmaceuticals — which plunged 90% in the months following his first report — Left has shown the ability to move a stock with a single tweet or public mention.

If you know Left at all, you won't be surprised to learn that he's positioned himself to profit from a coming collapse in these stocks. That includes Hertz and Tesla competitor Nikola, both of which have captured the eyes of millennial traders.

Read the full stories here:

Famed short seller Andrew Left lays out his methodology for finding the stock market's weakest links — and says he's terrified of newbie day traders that think they can outsmart Carl Icahn and Warren Buffett Famed short-seller Andrew Left breaks down why he's betting against these 4 companies — including Hertz and Tesla competitor Nikola 4 themes to bet on, and 4 to short

Mitch Rubin runs a mutual fund that's used a combination of long and short positions to post a 26% gain so far this year.

Rubin told Business Insider about the key themes contributing to the gains in the long part of his portfolio and the kinds of stocks he's successfully bet against. Even though markets have staged a historic rally, Rubin said he was shorting fewer stocks than usual because there is still a lot of room for them to rise as the economy improves.

Read the full stories here:

A fund manager crushing 98% of his peers over the past half-decade told us 4 themes he's betting on and 4 he's betting against — and why the latest market rally still has room to run Strategy from a 21-year-old real estate investing phenom

Kyle Marcotte, an entrepreneur and successful real-estate investor, got started in the arena to free up his most valuable asset: time. After he came to a crossroads in his life, Marcotte dropped out of college to pursue his venture.

Marcotte employs an investment strategy that requires heavy lifting upfront and then a passive approach after the property is purchased. He now has 119 units under his belt and a contract with 90 more units.

Read the full story here:

College dropout Kyle Marcotte became financially free at 21 years old after making just 2 real-estate investments. Here's the strategy he used to accumulate 119 units. Stock pick central

Seeking experts who are willing to name names? Look no further:

Chart of the week

The light blue line above reflects the outright dominance of retail traders versus their institutional counterparts. Put simply, Main Street is putting Wall Street to shame since late March.

As confused market experts wring their hands over the millennial-driven rally off multiyear lows, Goldman Sachs pinpoints areas of the market poised for continued outperformance — and lists 12 stocks that have led the way higher.

Click here for more details — and specific recommendations. Quote of the week

"His attention-getting, wild style is emblematic of just how emotional and extreme equity markets are now. It's both impulsive and compulsive. His behavior really just explains everything."

— Peter Cecchini, former global chief market strategist at Cantor Fitzgerald, commenting on Barstool Sports founder Dave Portnoy's irreverent day-trading exploits

Join the conversation about this story »

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Dow gains 527 points as historic retail-sales rebound spurs economic optimism

Tue, 06/16/2020 - 4:02pm

  • US stocks surged Tuesday as investors cheered a record jump in monthly retail sales and reports the Trump administration is preparing a $1 trillion infrastructure proposal.
  • Domestic retail sales rebounded 17.7% in May, a record increase that more than doubled economist estimates.
  • Tuesday's climb extends gains from the final hours of trading on Monday that came after the Federal Reserve announced it would begin individual corporate bond purchases.
  • The so-called reopening trade also surged Tuesday, with airlines and cruise lines gaining. 
  • Read more on Business Insider.

US stocks rose Tuesday as investor optimism over the US economic recovery and potential infrastructure spending overshadowed worries about a second wave of coronavirus cases. 

Stocks traded  higher Tuesday on data showing US retail sales surged a record 17.7% in May. The figure was more than double what economists expected, and offers a positive sign that the US economy may be on pace for a strong rebound from coronavirus.

Investors were also encouraged by a Bloomberg report saying President Donald Trump's administration is readying a $1 trillion infrastructure proposal. Tuesday's climb extends gains from the final hours of trading on Monday that came after the Federal Reserve announced it would begin individual corporate bond purchases.

President Donald Trump cheered the results on Twitter, saying "looks like a big day for the stock market, and jobs!" 

Here's where US indexes stood at the 4 p.m. ET market close on Tuesday:

Read more: BANK OF AMERICA: Buy these 13 cheap stocks that have unexpectedly strong finances, making them great bets for the next phase of the rally

"This is another indicator that a V-shaped recovery could be more likely than we initially thought," said Mike Loewengart, managing director of investment strategy at E*Trade. "That said, there is a lot hinging on the hope that a second wave of infections stays at bay."

Later in the day, stocks pared some gains during Federal Reserve Chairman Jerome Powell's semiannual testimony before Congress. Powell said there's "significant uncertainty" about the economic recovery from the coronavirus pandemic shock, and said that small businesses, lower income, and minority Americans are at the most risk. 

Read more: Famed investor Jim Rogers earned a 4,200% return with George Soros. He explains why the US response to COVID-19 is 'embarrassing' — and breaks down 4 purchases he's made amid the fallout.

Reports that coronavirus cases are again on the rise in Beijing, leading the city to close its schools, also weighed on shares in the early afternoon. Cases have also increased in a number of US states, including Florida and Texas, adding to fears of a second wave. 

All 11 S&P 500 sectors moved higher Tuesday, led by energy, healthcare, and materials. Construction materials stocks gained Tuesday following reports of the Trump administration's infrastructure proposal. 

The so-called reopening trade surged Tuesday, with shares of American Airlines, Norwegian Cruise Line, and Carnival gaining early in the trading session. Retailers also gained, with shares of Gap, Macy's and Foot Locker surging. 

Oil futures followed equity markets higher. West Texas Intermediate crude jumped as much as 5.2%, to $39.06 per barrel. International standard Brent crude climbed 4.9%, to $41.65 per barrel, at intraday highs.

Read more: GOLDMAN SACHS: Buy these 9 dirt-cheap stocks now before their share prices catch up to their strong earnings upside

Join the conversation about this story »

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The single smartest thing you can do with your student loans, according to 3 loan experts

Tue, 06/16/2020 - 3:41pm

  • A group of personal finance experts sat down with Business Insider's Tanza Loudenback to discuss student loan debt as part of our year-long series on millennials and money: "Master Your Money." 
  • When asked for the smartest thing someone with student loans can do, the experts recommended facing your debt head-on, getting your finances organized, and finding someone who can hold you accountable to your progress.
  • This article is part of a series focused on millennial financial empowerment called Master your Money.

Like most things in the personal finance realm, there's no one-size-fits-all approach to dealing with your student loans. But, experts say there are small, smart steps you can take today.

For Business Insider's Master Your Money series, seven student loan experts and financial professionals sat down with personal finance correspondent and Certified Financial Planner candidate Tanza Loudenback to talk about dealing with student debt. Here are three of their suggestions on the smartest moves to make today to crush your student loan debt.  

1. Face your debt head-on

Alison Hutchinson, a vice president at financial services firm Brown Brothers Harriman, said that getting real about your debt is the smartest thing you can do for your student loans. 

"The mistake that many people make is feeling embarrassment, shame, and burying their head in the sand," Hutchinson said. "But you need to know exactly what you're facing, what your payments are, and have an idea of how you're going to approach it."

Her advice is to start with a list. "The best thing that anyone with any kind of debt can do is build a personal balance sheet," she said. "It doesn't have to be fancy. It can just be pencil to paper on a legal pad with your debts on one side, and your assets on another."

Include everything you know about your debts, including their interest rates, monthly payments, and balances. On the other side, note your salary and any other income. Then, you'll be able to better understand what you owe, and what resources you have available to pay. 

2. Get organized, and make a plan

Carmen Perez of Make Real Cents, who paid off $30,000 in student loans, finds that confusion can often stand in the way of paying off loans. 

"My biggest advice, and it's not glamorous by any means — and a lot of people are very averse to it — but get a budget," Perez said. She continued: "A lot of people run around like chickens with their heads cut off because they don't understand where their money is going and how much money they actually have coming in." 

People tend to think of a budget as restrictive, but really, it's just planning ahead to decide where your money will go. How much will go toward groceries? How much will go toward gas? How much will go into savings, and how much will go toward loans? Apps like Mint, Personal Capital, You Need a Budget, and Zeta (whose founder is also on the money council) make it easy to see how much you've been spending in different categories, decide on a realistic budget, and track your progress moving forward.

3. Find someone to be on your team

Aditi Shekar, founder and CEO of money management app Zeta, suggests finding someone who can hold you accountable to the plans you've made and can be a resource, whether it's a friend or a financial planner

"People are usually really afraid and get a lot of anxiety and stress when talking about money," she said. "I would encourage folks to just find a person who can help," she said. "That person could be your partner, an adviser, or a friend who's just really smart about how to manage student debt." 

She continued: "Find that person, put your trust in them, disclose the information to them, and then sit down and figure it out together, even if it's just one thing you have to do."

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Construction material stocks are surging on reports that President Trump's administration is preparing a $1 trillion infrastructure proposal

Tue, 06/16/2020 - 3:37pm

  • On Tuesday, Bloomberg reported that President Trump's administration is eyeing a $1 trillion infrastructure proposal. 
  • Shares of construction materials companies surged Tuesday, with some posting gains upward of 10%.
  • The iShares US Infrastructure ETF jumped as much as 15% in early trading Tuesday, before paring some gains. It traded up about 4% later in the day. 
  • Read more on Business Insider.

Shares of construction materials companies are surging Tuesday on reports that the Trump administration is readying a $1 trillion infrastructure proposal.

The proposal from President Donald Trump's administration is part of a push to provide stimulus to the US economy following the shock of the coronavirus pandemic, Bloomberg reported Tuesday. The Department of Transportation is preparing a preliminary version, according to the report. 

Most of the $1 trillion would be reserved for traditional infrastructure work including roads and bridges. The proposal would also include money for 5G wireless infrastructure and rural broadband, according to the report. 

Read more: Famed short-seller Andrew Left breaks down why he's betting against these 4 companies — including Hertz and Tesla competitor Nikola

At the start of trading Tuesday, the iShares US Infrastructure ETF popped as much as 15% to $27.46. Later in the day, the exchange-traded fund paired some gains, but remained more than 4% higher. 

A number of construction materials companies also posted big gains on Tuesday, including: 

  • Granite Construction (GVA) - +20% 
  • Vulcan (VMC) - +13% 
  • Summit Materials (SUM) - +13% 
  • Tutor Perini Corp (TPC) - +13%
  • Cleveland Cliffs (CLF) -  +12%
  • Martin Marietta Materials (MLM) - +11.3%
  • Fluor Corporation (FLR) - +11%
  • Eagle Materials (EXP) - +10% 

Even with today's gains, the iShares US Infrastructure ETF has shed roughly 14% year-to-date. 

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NOW WATCH: Here's what it's like to travel during the coronavirus outbreak

Bank profits slouched 70% in the first quarter as lenders set aside billions for default protection

Tue, 06/16/2020 - 3:22pm

  • Bank profits slid about 70% in the first quarter as banks diverted billions of dollars in profits to loan-loss reserves, the Federal Deposit Insurance Corporation said in a report released Tuesday.
  • Cash held to protect against soured loans jumped to $197 billion from $125 billion in the year-ago period as lenders braced for intense pandemic fallout.
  • While the profit shock contributed to bank stocks' plunge in March, "banks effectively supported individuals and businesses during this downturn through lending and other critical financial services," Jelena McWilliams, chairman of the FDIC, said in a statement.
  • Visit the Business Insider homepage for more stories.

Profits across 5,116 banks slid roughly 70% in the first quarter as the coronavirus halted economic activity and forced firms to boost loan-loss defenses, the Federal Deposit Insurance Corporation said in a Tuesday report.

Wall Street giants saw revenue and profits diverge through the period. Wild volatility in the stock and debt markets drove massive sales across trading desks. Yet firms were forced to divert much of the earnings to protections for newly risky loans as the coronavirus tanked credit health and plunged the US into a recession. Defensive reserves leaped to $197 billion from $125 billion in the year-ago period, according to the FDIC.

The profit shock contributed to bank stocks' sharp first-quarter declines, but the bolstering of loss protections shows firms doing their job to mitigate a wave of bankruptcies, Jelena McWilliams, chairman of the FDIC, said in a statement.

"Although bank earnings were negatively affected by increases in loan loss provisions, banks effectively supported individuals and businesses during this downturn through lending and other critical financial services," she said.

Read more: BANK OF AMERICA: Buy these 13 cheap stocks that have unexpectedly strong finances, making them great bets for the next phase of the rally

Just over half of FDIC-covered firms reported year-over-year net income declines, and the total share of unprofitable institutions jumped to 7.3%.

Despite the profit scare, the number of firms on the agency's "Problem Bank List" remained near historic lows, climbing to 54 from 51. Total assets held at such banks declined to $44.5 billion from $46.2 billion.

Community banks followed the broad industry trend with profits diving over the period, yet net operating revenue increased. The boost was largely overshadowed by provision expenses jumping to $1.8 billion, three times the level reported in 2019, the agency said. Overall net income for community banks sank 20.9% from the year-ago period.

Now read more markets coverage from Markets Insider and Business Insider:

Fed's Powell says US economy is entering bounce-back still clouded by 'significant uncertainty'

Investors sink a record $4.6 trillion into money-market funds to ride out pandemic uncertainty

Famed investor Jim Rogers earned a 4,200% return with George Soros. He explains why the US response to COVID-19 is 'embarrassing' — and breaks down 4 purchases he's made amid the fallout.

Join the conversation about this story »

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Two CFOs from Brex and Rippling advise these financial moves for startups reopening after a shutdown. One tip: Make the office desk a perk, and work-from-home the staffers' norm

Tue, 06/16/2020 - 2:30pm

  • On June 9, Brex and Rippling shared a broad financial checklist that startups can use when evaluating how to best reopen following statewide shelter-in-place orders and widespread remote work.
  • Some of the lessons of the last few months could be used in the long run, such as maintaining remote work, to help cut costs while balance sheets are tight, Rippling CFO Adil Syed said.
  • In the coming months, office space could be seen as a perk that startups offer employees as part of a comprehensive benefits package instead of traditional work conditions, Brex CFO Michael Tannenbaum said.
  • Another area that could be trimmed down is marketing costs, Syed explained. If startups are unable to renegotiate existing contracts on something like billboards, he suggested revamping the advertising message to make sure it is in line with public sentiment and avoid coming off as tone-deaf.
  • Click here for more BI Prime stories.

Startups about to reopen for business are grappling with inconsistent rules between California's phased reopening and the Bay Area's more stringent requirements, leaving young companies flying blind when it comes to longer-term planning.

Of particular concern to startup founders is runway, or how long they can keep going on the cash they have in the bank if they don't change their average cost to run the business. With many VCs pulling back from new investments given the uncertainty in the market, founders are coming to terms with what their runway has to be just to survive. Belt-tightening is the biggest Silicon Valley trend of 2020.

So on June 9, credit card startup Brex and HR startup Rippling unveiled a financial checklist they developed to help startups evaluate what's next, and modify their operating plans if necessary. In the absence of clear federal or state guidelines or best practices from investors, startups like Brex have sought to fulfill the role of educator for their peers. The CFOs for the two companies unveiled the checklist as part of an ongoing series of online presentations for founders.

"Today's conversation was really born out of me and Michael kind of having a chat about our own journeys and navigating financial planning during COVID," Rippling CFO Adil Syed told attendees. "There are a lot of things that we don't have obvious answers for, but we figured there are folks out there that are feeling the same and wanted to have this chat with everyone."

The checklist covers various items that could be dialed back or cut altogether, Syed and Brex CFO Michael Tannenbaum said during the presentation. Given the restrictions in Silicon Valley in particular, Tannenbaum recommended cutting back on pricey office leases, and even going forward, redefining an office-based workspace as more like a shiny perk instead of a standard expectation.

"It used to be sort of like, the 11th Commandment was 'thou shalt be in an office' and I think now, this idea is that office space and the ability to interact with people is more of a perk," Tannenbaum said. "It can be a great thing that a company can offer, but when you start to think about it in that way, particularly in the context of financial planning, I think that's a really valuable framework because you can start to say, 'are we getting this value out of this office relative to other things we could be offering?'"

Another expense that both Rippling and Brex have dialed back on themselves is advertising on billboards and bus stops around the Bay Area. With fewer people commuting to those office jobs, the return on those historically costly ads continued to shrink.

But when Syed attempted to get out of a previously agreed upon contract for a billboard in San Francisco, he realized that it was less flexible than he had hoped. Together with Rippling' CMO, the startup developed an alterative advertising campaign, one that celebrated healthcare and frontline workers. Syed explained that this was an instance where he and his team were able to work within the constraints of the contract that had been agreed upon pre-COVID.

"It was a series of billboards that we put up in San Francisco right as a city was going into shelter-in-place, and the reality is we did it because we had no choice," Syed said. "There was no way for us to get out of the out-of-home contracts that we'd signed up for, but we use that opportunity to sort of flip the narrative into less about Rippling and more about all the, you know, really hard workers out there that were allowing us to stay safe at home."

Here is the financial checklist that Rippling and Brex shared with other founders and CFOs.

SEE ALSO: Here's a survivor's guide for startups weathering their first major recession, according to an expert who's been counseling young companies since the COVID-19 crisis erupted in March























Dow jumps 600 points as investors weigh historic retail-sales rebound, Trump infrastructure plan

Tue, 06/16/2020 - 2:17pm

  • US stocks surged Tuesday as investors cheered a record jump in monthly retail sales and reports the Trump administration is preparing a $1 trillion infrastructure proposal.
  • Domestic retail sales rebounded 17.7% in May, a record increase that more than doubled economist estimates.
  • Tuesday's climb extends gains from the final hours of trading on Monday that came after the Federal Reserve announced it would begin individual corporate bond purchases.
  • The so-called reopening trade also surged Tuesday, with airlines and cruise lines gaining. 
  • Read more on Business Insider.

US stocks traded sharply higher Tuesday on data showing US retail sales surged a record 17.7% in May. The figure was more than double what economists expected, and offers a positive sign that the US economy may be on pace for a strong rebound from coronavirus.

Investors were also encouraged by a Bloomberg report saying President Donald Trump's administration is readying a $1 trillion infrastructure proposal. Tuesday's climb extends gains from the final hours of trading on Monday that came after the Federal Reserve announced it would begin individual corporate bond purchases.

President Donald Trump cheered the results on Twitter, saying "looks like a big day for the stock market, and jobs!" 

Here's where US indexes stood at 2:00 p.m. ET on Tuesday:

Read more: Famed investor Jim Rogers earned a 4,200% return with George Soros. He explains why the US response to COVID-19 is 'embarrassing' — and breaks down 4 purchases he's made amid the fallout.

"This is another indicator that a V-shaped recovery could be more likely than we initially thought," said Mike Loewengart, managing director of investment strategy at E*Trade. "That said, there is a lot hinging on the hope that a second wave of infections stays at bay."

Later in the day, stocks pared some of their early gains during Federal Reserve Chairman Jerome Powell's semiannual testimony before Congress. Powell said that the central bank would adjust its purchasing of corporate bonds based on market conditions, so as not to "run through the bond market like an elephant." 

He also said there's "significant uncertainty" about the economic recovery from the coronavirus pandemic shock, and said that small businesses, lower income, and minority Americans are at the most risk. 

Stocks also moved lower on reports that coronavirus cases are again on the rise in Beijing, leading the city to close its schools. Cases have also increased in a number of US states, including Florida and Texas, adding to fears of a second wave. 

The so-called reopening trade surged Tuesday, with shares of American Airlines, Norwegian Cruise Line, and Carnival gaining early in the trading session. Retailers also gained, with shares of Gap, Macy's and Foot Locker surging. 

Oil futures followed equity markets higher. West Texas Intermediate crude jumped as much as 4.3%, to $38.71 per barrel. International standard Brent crude climbed 3.9%, to $41.27 per barrel, at intraday highs.

Read more: GOLDMAN SACHS: Buy these 9 dirt-cheap stocks now before their share prices catch up to their strong earnings upside

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THE ONLINE MORTGAGE LENDING REPORT: How banks are striking back against Quicken Loans and other digital-first lenders in the $9 trillion US mortgage market

Tue, 06/16/2020 - 2:03pm

Despite the mortgage space representing the largest US lending market — with debt sitting at $9.2 trillion — it's been the slowest to digitize, and incumbents have had little incentive to remove friction from the customer application process.

The customer experience has been hampered by a time-consuming process that requires spending hours filling out an application and gathering documents, a lack of transparency about the status of the process, and uncertainty about what outstanding documentation could be requested later. And with no viable challengers to the status quo, incumbent lenders had little reason to overhaul this process.

But Quicken Loans turned the mortgage industry on its head with the introduction of Rocket Mortgage, an online mortgage application that takes less than 10 minutes to complete, in November 2015. Its product simplified the mortgage process by offering a clean and quick online application form, allowing online information verification, and providing conditional preapproval within minutes. And in Q4 2017, Quicken became the largest US residential mortgage originator by volume, surpassing Wells Fargo for the first time.

Rocket Mortgage helped validate the digital mortgage sector and bring a number of other alternative online mortgage lenders to the fore. We've seen players like Lenda (now Reali Loans) move into mortgage purchases around the time Rocket Mortgage was introduced and better.com launch its online mortgage offering early in 2016, for instance.

And while big banks have seen their share of the market shrink since the 2008 financial crisis, they can now unlock the potential of advanced mortgage tech to act against the threat of nonbanks and alt lenders and claw back some of that lost market share.

And some large FIs, including Wells Fargo, JPMorgan Chase, Bank of America (BofA), SunTrust, and TD Bank, have already unveiled their own digital mortgage lending platforms that help them enhance the customer experience, shave down costs — by cutting labor expenses or reducing the possibility of fraud, for example — and drive a more significant opportunity in residential mortgages.

In this report, Business Insider Intelligence will examine the current state of the mortgage lending landscape and how technology has enabled alt lenders to transform the home loan process from application to closing. We will then explore how legacy banks are responding to the threat of digitally advanced competitors by unveiling their own online mortgage solutions and offer recommendations for FIs looking to enhance their mortgage offerings.

The companies mentioned in this report are: Ally, Bank of America, Chase, better.com, Black Knight, blend, eOriginal, Loan Depot, Quicken Loans, Reali Loans, Roostify, SoFi, SunTrust, TD Bank, US Bank, Wells Fargo

Here are some of the key takeaways from the report:

  • Technology has enabled digitally advanced nonbanks and alt lenders to disrupt the mortgage process, transforming the application process and, to an extent, digitizing and automating underwriting and closing.
  • Banks are responding to the threat of fintechs by launching their own digital solutions, often in partnership with mortgage software and service providers.
  • Other FIs looking to enhance their mortgage offerings could leverage technology and partner with providers to tap into consumers' growing appetite for digital mortgage solutions and avoid ceding market share to the competition.  

In full, the report:

  • Examines the current state of the mortgage lending landscape.
  • Details how fintechs have transformed the home loan market.
  • Highlights technology's impact across the various stages of the mortgage lending process, including application, underwriting, and closing.
  • Examines how legacy players are responding to the threat of digitally advanced nonbanks and alt lenders.
  • Outlines what banks should do to enhance their mortgage offerings and look for new revenue growth opportunities in the space. 

Interested in getting the full report? Here are three ways to access it:

  1. Purchase & download the full report from our research store. >> Purchase & Download Now
  2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to this report and more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
  3. Current subscribers can read the report here.

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Mortgage rates plunge below 3%, setting a new record low amid growing fears of a 2nd coronavirus wave

Tue, 06/16/2020 - 1:42pm

  • The average rate on the 30-year fixed mortgage fell to a record low of 2.94% Thursday, according to Mortgage News Daily.  
  • It's the first time that the rate has ever fallen below 3%. 
  • The rate, which had recently edged higher, fell amid a broader market sell-off as fears of a second wave of coronavirus cases mount. 
  • Read more on Business insider. 

Mortgage rates, which just last week were edging higher, hit a fresh low amid a broad market sell-off on fears that a second wave of coronavirus cases is growing in the US. 

The average rate on the 30-year fixed mortgage fell to 2.94% on Thursday, according to Mortgage News Daily. It's the first time the rate has ever fallen below 3%. The rate — which loosely takes its cues from the 10 year US Treasury — was weighed down Thursday when investors sold stocks in favor of bonds, considered safer assets. 

Stocks tumbled Thursday following Federal Reserve Chair Jerome Powell's cautious tone about the US economic recovery following coronavirus lockdowns. The Fed expects that unemployment will remain elevated for years, and that the road to recovery will be a long one. 

Read more: We spoke to 3 financial experts, who broke down why you should buy these 13 ETFs to maximize stock-market returns right now

In addition, as states across the country reopen, new coronavirus cases have been increasing, sparking fears of a second wave that could further devastate the economy. Cases have jumped in Texas, Florida, Arizona, and Californiapushing the US total above 2 million.

Mortgage rates held around 3% for most of May but ticked higher when the jobs report was much better than expected.

Low rates have helped fuel a swift rebound in the housing market. Last week, mortgage applications to purchase a home jumped 13% on the year, according to the Mortgage Bankers Association. 

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Royalty Pharma skyrockets 65% in its trading debut as investors flock to the largest US IPO of the year

Tue, 06/16/2020 - 1:36pm

  • Royalty Pharma surged as much as 65% in its first day of trading Tuesday. 
  • The $2.18 billion initial public offering is the largest US IPO of the year, slightly exceeding Warner Music Group's recent $1.9 billion offering. 
  • It's also the second-largest pharmaceutical IPO ever, coming in just below Zoetis Inc's 2013 $2.2 billion IPO. 
  • Read more on Business Insider. 

Shares of Royalty Pharma surged as much as 65% on Tuesday in its first day of public trading after completing the largest US IPO of the year. The company priced its IPO at $28 a share, and climbed to $46.27 at intraday highs. 

The pharmaceutical company priced its IPO late Monday at the top end of its range, selling 77.7 million shares to raise $2.18 billion. The size of Royalty Pharma's IPO surpassed Warner Music Group's $1.9 billion recent deal, making it the largest US IPO so far this year. 

In addition, Royalty Pharma's IPO is the second-largest pharmaceutical public listing ever, just behind Zoetis Inc's $2.2 billion IPO in 2013.

The IPO market has come roaring back in recent weeks after being hit hard by the coronavirus pandemic. Since the market bottom on March 23, the Renaissance IPO ETF — which provides exposure to recently public companies — has skyrocketed 69%. That's nearly 29 percentage points better than the benchmark S&P 500 over the same period.

Read more: BANK OF AMERICA: Buy these 13 cheap stocks that have unexpectedly strong finances, making them great bets for the next phase of the rally

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Leaked financials from WeWork rival Knotel show huge pre-pandemic losses and a shrinking cash pile. It's a grim sign for the flex-office space.

Tue, 06/16/2020 - 1:17pm

  • Knotel's finances were stretched even before the pandemic, with a $223 million net loss in 2019, per financial statements seen by Business Insider. 
  • The flexible-office company lost $49 million in the first quarter of 2020. 
  • Knotel also owed vendors and other groups more than $80 million at the end of March. Meanwhile, it had a little less than $36 million in the bank at the end of the first quarter. 
  • Its total liabilities, both short term and long term, were more than its total assets at the end of the first quarter. 
  • For more stories like this, sign up here for our Wall Street Insider newsletter.

Knotel's finances were in a tough position well before the pandemic hit, and now, the flexible-office company is stretched even thinner. 

Until recently, New York-based Knotel was one of the fastest-growing brands in the booming coworking and flexible-space field, emerging as a chief competitor to WeWork. 

Knotel said it raised $400 million last August at a $1 billion valuation. The company, which has locations in 16 cities across the US, Europe, Asia, and South America, oversaw 5 million square feet of space in January, CEO Amol Sarva told Quartz.

The coronavirus pandemic upended the sector as small businesses, startups, and entrepreneurs that flooded into flexible workspaces in recent years have shed those locations or stopped paying rent, leaving companies such as Knotel with less cash flow to pay landlords.

The company's first-quarter 2020 and full-year 2019 financial statements, seen by Business Insider, revealed net losses as well as less cash compared to the end of 2019. 

  • Knotel lost $49 million in the first quarter of 2020, according to an income statement seen by Business Insider. And its net loss was nearly $223 million for 2019, according to a full-year, unaudited income statement.
  • The company had slightly less than $36 million in the bank at the end of the first quarter. That was down from $51 million in the bank that Knotel reported at the end of 2019, according to an unaudited balance sheet. 
  • It reported total current assets, which include cash, accounts receivable, and other items, at $110 million at the end of the first quarter of 2020.
  • Its total current liabilities, meanwhile, were $238 million. That includes nearly $84 million in accounts payable at the end of the first quarter. 
  • Its total liabilities, both short term and long term, were nearly $23 million more than its total assets at the end of the first quarter. 

The company also breaks out credit-card liabilities on its balance sheet. That was $314,401 at the end of 2019, though $99,843 of that was credited back to the balance sheet by the end of the first quarter. 

Knotel's executives have still been projecting optimism inside the company. One current employee, who is not authorized to speak to the media, said the company's 2020 target for annualized recurring revenue is $360 million. 

Knotel has said publicly that it had $350 million in annual revenue lined up at the start of 2020. According to internal documents reported on in April by Business Insider, the company had $335 million in annual revenue signed on near the end of the fourth quarter of 2019, $80 million short of its $422 million internal forecast.

Last quarter, Knotel recorded a $6.6 million gross profit on $74 million of revenue. In 2019, the company's cost of sales dwarfed the $159 million of income it brought in, leaving a $24 million loss on a gross basis. 

In a statement, Knotel spokesman Mousa Ackall disputed the numbers, but did not specify which were inaccurate:

"We share a lot about our performance and will share more after Q2. The numbers in your email partly match what we have publicly shared, but the rest are not correct. We did have a solid Q1, and Q2 so far still has us tracking to be profitable around year-end." 

Knotel had shared selected financial information in a "2019 Year in Review" blog post

The company has said publicly that it has raised $550 million in total investor equity since its inception, with $80 million in debt financing.

In May, Business Insider reported that Knotel had sourced surety bonds from insurance startup Rhino that cover the hefty security deposits due for two of its office leases if Knotel abandons the commitments. But Rhino did not disclose to reinsurer Knight Re that its cofounder and CEO is the younger brother of Amol Sarva, the CEO of Knotel, raising a potential conflict of interest. 

Read more: Knotel and insurance startup Rhino didn't disclose its CEOs were brothers when it struck a complex financial deal. Now a key partner could be on the hook as Knotel scrambles to pay bills, slashes staff, and plans to shed portions of its portfolio.

Vendor bills adding up

Knotel's bills had been stacking up months before the pandemic, including to key brokerages like CBRE and Cushman & Wakefield, Business Insider reported in April .

At the end of the first quarter, Knotel owed $84 million to vendors, compared with $57 million at the end of 2019, according to the documents seen by Business Insider. 

The company's cost-cutting measures include a major workforce reduction in March — laying off 30% of workers and furloughing 20% – and it had been working with landlords to give back 20% of its portfolio. 

A Knotel source had told Business Insider that the company's legal and finance teams were "combing through the leases to see where we can stop paying rent" so that the company could fund its payroll. 

The source, who spoke on condition of anonymity because they were not authorized to speak with the media, said Knotel considered payments to vendors, general contractors, and brokers its last priority, with those payments likely to be deferred for three to six months or longer. 

Knotel's peers, including WeWork, are also negotiating with landlords and other groups as they face a cash crunch from members who can't or choose not to pay monthly bills for spaces they can't use. WeWork has laid off hundreds of staff, and Industrious and Convene likewise furloughed or laid off employees in April. 

In April, 10 real estate experts told Business Insider that in the short term, flex-space operators will feel a pinch as employees stay home, and some companies will likely go out of business or consolidate.

In the long term, though, the flex-space industry may see an uptick from employers who don't want to commit to traditional, long-term leases and who want more outsourced office management. 

Read more: 

Have a tip? Contact this reporter via encrypted messaging app Signal at +1 (646) 768-1627 using a non-work phone, email at mmorris@businessinsider.com, or Twitter DM at @MeghanEMorris. (PR pitches by email only, please.) You can also contact Business Insider securely via SecureDrop.

DON'T MISS: Leaked memo reveals Knotel CEO's playbook for burying news about jobs cuts at the flex-office startup

SEE ALSO: Leaked WeWork document reveals a huge reorg under way for people who manage its buildings. Here's how the new structure works — and the complex process for staff to save their jobs.

SEE ALSO: Knotel and insurance startup Rhino didn't disclose its CEOs were brothers when it struck a complex financial deal. Now a key partner could be on the hook as Knotel scrambles to pay bills, slashes staff, and plans to shed portions of its portfolio.

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Eli Lilly soars 15% after its breast cancer drug shows efficacy where a treatment from Pfizer failed (LLY, PFE)

Tue, 06/16/2020 - 12:50pm

  • Eli Lilly soared 14% on Tuesday after it announced that its breast cancer drug Verzenio was successful in meeting its primary endpoint in a Phase 3 trial.
  • Verzenio was successful in preventing the recurrence of breast cancer for patients.
  • Pfizer announced in late May that its competing drug Ibrance failed a similar trial in preventing the recurrence of breast cancer among patients, potentially boosting doctors' favorability of Verzenio over Ibrance.
  • Visit Business Insider's homepage for more stories.

Eli Lilly soared as much as 14% on Tuesday after it announced that its breast cancer drug Verzenio in combination with endocrine therapy was successful in preventing the recurrence of breast cancer for patients in an open-label Phase 3 trial.

Verzenio was originally approved in 2017 for treating certain forms of advanced breast cancer, and its revenue more than doubled to $579 million in 2019. 

Verzenio achieved its primary endpoint of invasive disease-free survival, and also demonstrated a significant decrease in the risk of breast cancer recurrence or death compared to the standard therapy alone. 

In a similar trial that was halted by Pfizer in late May, Pfizer's competing drug Ibrance failed to meet its endpoint of improving survival rates for breast cancer patients. The win by Eli Lilly, and the miss by Pfizer, may boost doctors' favorability of Verzenio over Ibrance, which could potentially boost sales of Verzenio and elongate its trajectory of growth.

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Anne White, president of Lilly Oncology, said, "[Verzenio trial results represent] a major milestone with the potential to change the paradigm of how early breast cancer is treated ... The fact that these results were achieved early, at the interim analysis, is also exciting because it will help us speed this innovation to the people who need it."

The company plans to submit the data to regulatory authorities before the end of 2020.

After the news was announced, Goldman Sachs reiterated its buy rating with a $186 price target on Eli Lilly, representing potential upside of 15% from current levels.

The bank commented, "with positive monarchE Ph3 data in hand for Verzenio we see upside risk to our LLY estimates ... we reiterate our Buy rating on LLY as the company has a favorable growth profile relative to peers, has limited exposure to near-term loss of exclusivity, significant pipeline optionality, and a 2% dividend yield, which is deserving of a premium multiple."

Shares of Eli Lilly traded up as much as 15.4% to $163.40, while shares of Pfizer traded down as much as 1.9% to $32.72 in Tuesday trades.

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AI IN BANKING: Artificial intelligence could be a near $450 billion opportunity for banks — here are the strategies the winners are using

Mon, 06/15/2020 - 10:00pm

Discussions, articles, and reports about the AI opportunity across the financial services industry continue to proliferate amid considerable hype around the technology, and for good reason: The aggregate potential cost savings for banks from AI applications is estimated at $447 billion by 2023, with the front and middle office accounting for $416 billion of that total, per Autonomous Next research seen by Business Insider Intelligence.

Most banks (80%) are highly aware of the potential benefits presented by AI, per an OpenText survey of financial services professionals. In fact, many banks are planning to deploy solutions enabled by AI: 75% of respondents at banks with over $100 billion in assets say they're currently implementing AI strategies, compared with 46% at banks with less than $100 billion in assets, per a UBS Evidence Lab report seen by Business Insider Intelligence. Certain AI use cases have already gained prominence across banks' operations, with chatbots in the front office and anti-payments fraud in the middle office the most mature. 

In this report, Business Insider Intelligence identifies the most meaningful AI applications across banks' front and middle offices. We also discuss the winning AI strategies used by financial institutions so far, and provide recommendations for how banks can best approach an AI-enabled digital transformation.

The companies mentioned in this report are: Capital One, Citi, HSBC, JPMorgan Chase, Personetics, Quantexa, and U.S. Bank

Here are some of the key takeaways from the report:

  • Front- and middle-office AI applications offer the greatest cost savings opportunity across banks. 
  • Banks are leveraging AI on the front end to smooth customer identification and authentication, mimic live employees through chatbots and voice assistants, deepen customer relationships, and provide personalized insights and recommendations. 
  • AI is also being implemented by banks within middle-office functions to detect and prevent payments fraud and to improve processes for anti-money laundering (AML) and know-your-customer (KYC) regulatory checks. 
  • The winning strategies employed by banks that are undergoing an AI-enabled transformation reveal how to best capture the opportunity. These strategies highlight the need for a holistic AI strategy that extends across banks' business lines, usable data, partnerships with external partners, and qualified employees.

In full, the report:

  • Outlines the benefits of using AI in the banking industry.
  • Details the key use cases for transforming the front and middle office using the technology.
  • Highlights players that have successfully implemented AI solutions.
  • Examines winning strategies used by financial institutions that are leveraging AI to transform their entire organizations. 
  • Discusses how banks can best capture the AI opportunity, including considerations on internal culture, staffing, operations, and data.

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  1. Purchase & download the full report from our research store. >> Purchase & Download Now
  2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to this report and more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
  3. Current subscribers can log in and read the report here. >>Read the Report

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Inside Ellevest: How a female-focused wealth firm founded by one of the most powerful women on Wall Street with $80 million in funding faces an uphill battle standing out in the crowded world of wealth

Mon, 06/15/2020 - 8:40pm

  • Four years after its public launch and nearly $80 million in outside funding later, women-focused digital wealth manager Ellevest's $635 million in assets trails rival robo-advisers.
  • That Ellevest, co-founded by wealth management industry veteran Sallie Krawcheck, hasn't had more traction highlights the ultra-competitive nature of managing money.
  • Its growth is further complicated by marketing to women whose tastes vary wildly between generations. 
  • For more stories like this, sign up here for our Wall Street Insider newsletter.

Ellevest, the women-focused digital wealth manager, launched one day before the 2016 US presidential election in anticipation of what pollsters thought would yield the first woman president.

At the time, the dialogue on gender playing out across the country was impossible to ignore. Sallie Krawcheck, the chief executive of Ellevest and once one of the most senior women on Wall Street, and Charlie Kroll, Ellevest's co-founder and chief operating officer, were working to unveil a startup they hoped would close the gender wealth gap.

That May, Krawcheck appeared on stage at TechCrunch Disrupt NY to discuss her new investing startup.

"This isn't 'for women,' 'pink it and shrink it,' 'make it smaller,'" Krawcheck said. "We're going to forecast out your life so that you can achieve your goals. And then we'll put a bespoke investment portfolio against each goal to help her achieve them."

Four years later, Krawcheck is promoting the same message that helped lift Ellevest off the ground: women in the US earn less than men and have different trajectories, and should have tailored financial services.

Now, mission-driven VC investing has gained renewed attention amid a national outcry over systemic racism and pledges by venture-capital firms to earmark funding to back firms led by Black Americans and people of color. Some women-focused startups have also been called on to do more to promote intersectional feminism and broaden their notion of diversity beyond gender.

With backing from some of the biggest names in Corporate America, Ellevest has grown its assets under management to more than $600 million. It's a sum far smaller than rivals catering to a broader audience.

Business Insider spoke with a dozen people including former Ellevest employees, analysts, VC investors, and other fintech and wealth insiders about the rise and positioning of Ellevest in the ultra-competitive business of managing money — and whether or not a startup targeting a smaller subset of users, women versus everyone, can compete long term.

Read more: Robo-advisers like Wealthfront and Betterment are in a tricky spot — here's why one fintech banker thinks buyers and public investors will be hard to win over

Ellevest drew big-name backers

Investors have come out in droves to back Ellevest, which now offers both automated investing and premium advisory offerings. From Melinda Gates and Valerie Jarrett to tennis star Venus Williams, Ellevest has raised nearly $80 million from notable women investors and philanthropists. 

Ellevest oversees some $635 million in assets across digital, premium, and private wealth management as of June 7, a spokesperson said. That's up from the $580 million disclosed in a February SEC filing. 

That pales in comparison to other older fintech firms in the wealth space who cater to customers of all kinds. Some of the largest robo-advisers, like Wealthfront and Betterment (launched in 2011 and 2010, respectively), and hybrid firms like Personal Capital, launched in 2011, each manage billions. Wealthfront has a war chest of venture capital dollars that's more than double what Ellevest has raised. Traditional wealth giants like UBS and Morgan Stanley oversee trillions. 

In an interview with Business Insider, Krawcheck said Ellevest's uniqueness as the only wealth offering specifically geared towards women make it difficult to compare to others, and that pay gaps make AUM an imperfect measuring stick for Ellevest. With women making less than men, the amount of wealth they generally have for Ellevest to manage is lower too.

"There have been so many people who went after the target market and failed," Krawcheck told Business Insider. "If you'd woken me up in the middle of the night three years ago and asked if we'd be at $640 million in assets under management, I'd have said, 'We'll be lucky to be at one.'"

Read more: Inside the quest to reboot Personal Capital, the wealth manager grappling with its identity in the cutthroat robo-advisory age

A career in wealth

Krawcheck led some of the largest wealth-management businesses on Wall Street years before rallying cries for a more inclusive financial services industry.

She began her career as an analyst at Sanford C. Bernstein, today AllianceBernstein, and rose to become the firm's chief executive. Krawcheck later served as CEO of Smith Barney (what is today Morgan Stanley Wealth Management), Citi's finance chief and head of strategy, chairman and chief executive of Citi's Global Wealth Management, and head of global wealth and investment management at Bank of America. 

Her last job in traditional wealth management was heading up Merrill Lynch until 2011.

She and Kroll — the founder of financial-technology firm Andera, which was acquired for roughly $47.6 million  — founded Ellevest in November 2014. 

Kroll, who is still president at the company, is far less visible than Krawcheck, who regularly discusses Ellevest, investing, and the gender wealth gap in the press.

A clear mission from the start

Ellevest, headquartered in New York City's Flatiron neighborhood, started with a core team focused on investments, engineering, product, design, and marketing, with some still there today. Prior to the coronavirus pandemic, around 75% of Ellevest's 92 employees worked out of that office, a spokesperson said.

Sylvia Kwan, the chief investment officer, and Melissa Cullens, chief experience officer overseeing design efforts, both joined in 2015.

Alexandria Stried, the chief product officer, also joined that year from Weight Watchers, where she was the director of product management. 

One former employee said the feeling and culture formed during earlier days of the company was very much mission-driven, and Krawcheck's reputation leading massive wealth units was core to getting it off the ground.

"The credibility Sallie has is what made Ellevest what it is" today, the person said.

In 2016, Ellevest hired the once-hot, now-shuttered home interior design startup Homepolish to design the glossy new offices, the website Officelovin' reported. 

There were some hallmarks of a fresh startup, with funky twists: pastel armchairs and modern lamps; a sunny, open-office concept; and a whiteboard with rows of Post-it notes scattered nearby. There were twin seats with white shag covering near the reception area, where a hardcover Coco Chanel biography was kept on a table.

In earlier days, Kroll's thinking around Ellevest's hires was that everyone "had to have a story," the former employee said. 

Stried, for instance, had experience at Weight Watchers creating a personalized coaching program for customers. Cullens, a creative and design strategist, had worked with clients like Vogue. 

"Incorporating someone's 'story' is one of many factors in our hiring process," a spokesperson said. "Ellevest was built on foundational belief in the power of diversity in building strong businesses, and we take that seriously." 

But in a message on Ellevest's website earlier this month, Krawcheck, like executives at many other firms, publicly addressed her failings and commitments around diversity and inclusion. She noted Ellevest doesn't have "a single Black person" on her leadership team. 

In the post, she included a breakdown of diversity across Ellevest: some 15% of all employees are Black, and 46% are people of color. At the leadership level, 30% of employees are people of color. 

"You also have my commitment that the amplification we've been doing of Black voices on our social channels, in our articles, and in our newsletters will continue," Krawcheck wrote as she vowed to add Black executives to her leadership team. 

Building Ellevest 

The early focus at Ellevest was on building up a team of engineers, creating infrastructure for the eventual platform, and cultivating research on women and investing. 

While the official launch came in November 2016, Ellevest ran a closed-beta version with a small number of users beginning earlier in the year, a spokesperson said.

At the time, there were only automated tools in mind. The financial-planner offering and private wealth management services would come later. 

The team worked to create tools with fees that could compete with existing robo-advisers. For the straightforward investing tool, clients pay an annual fee of 0.25% of assets under management, with no minimum balance.

For Ellevest's premium product, which requires a $50,000 minimum and comes with a fee of 0.50%, clients also have access to certified financial planners and executive coaching. 

Krawcheck said that the idea wasn't welcomed with open arms by all women, but it was able to win over skeptics. 

"We had a double-digit percent of women, essentially at the time, shoot us the bird," Krawcheck said. "They said, 'For women? That sounds sexist, how dare you. I don't need my own thing to manage money, you know, for women.'" 

Quest to add deluxe offerings

September 2017 marked another milestone for Ellevest:  a $34.6 million fundraise. Rethink Impact, a US-based venture firm investing in female tech entrepreneurs, led the round.

Ellevest had some $54 million under management at the time. 

PSP Growth, the growth-equity arm of PSP Partners — run by billionaire businesswoman and former US Secretary of Commerce Penny Pritzker — and Salesforce Ventures joined as first-time investors. 

Ellevest said it would use the funds to launch a financial-planning offering and a private-wealth service for clients with investable assets of at least $1 million.

Initially branded Ellevest Ascent, financial advisers would help customers strategize various areas of their personal finances. 

From a financial perspective, it was easy to see why the rollout was attractive: the margins on the business are traditionally much higher than robo-advisers, and bringing on bigger accounts would help offset customer acquisition costs.

Anisha Kothapa, an analyst at the market intelligence and research firm CB Insights, told Business Insider that Ellevest made a smart move shifting into more of a hybrid wealth-management product, rather than stick with an automated-only offering. 

Still, one way to propel asset growth would be to widen its approach and cater to different demographics, rather than focusing on women, she said. 

Heartstrings and purse strings

Three former employees, all of whom requested anonymity to speak candidly about their experience, noted there was never much talk of an end-game for Ellevest, and one said they never received a real straight answer about what any eventual exit might look like.

This isn't necessarily unusual for a startup. Founders focus on building big businesses rather than discussing ways to hand them off. However, many startups that have focused on niche audiences, such as women or college students, either find they later need to expand their userbases to stay competitive or wind up with disappointing outcomes. 

SheCapital, Swell, and WorthFM, all of which targeted either women or socially-responsible investing, have shuttered within the past few years. 

It's a delicate balance between deciding what "pulls at the heartstrings, as well as the purse strings," Genevieve O'Connor, an assistant professor of marketing at Fordham University's Gabelli School of Business, said in a recent phone interview. 

"Companies need to stay away from 'pink-washing,'" O'Connor said. The phrase has roots in labeling brands that critics say exploit rainbow color schemes and the color pink in marketing around breast cancer awareness and LGBTQ causes, but has widened to describe the notion that products for women should come with a lighter touch — a general practice Krawcheck has railed against.

Building the wealth-management side of the business could also help improve key metrics or statistics potential investors would look at. But according to one former employee, the announcement came before the actual tech platform needed to support the wealth-management offering was complete.

"They weren't really bridging the gap between the robo side and being tech-enabled on the wealth-management side," the source said. 

Reporting features and the actual client site lagged behind the robo offering.

"They just weren't applying the technology with the same, I would say, gusto, that they were with the other side because the other side was the tried and true proven business that really kept the funding going," the source added.

However, that lack of a wealth-management platform didn't stop the push to try and build the business up.

The directive from management was to continue to get assets in the door from high-net worth individuals with the caveat of, "we'll figure the rest out later," the source said.

The wealth-management platform was in a closed beta phase at the time of the announcement, a spokesperson said. 

As for the discrepancies between the robo and wealth-management side, the spokesperson said it's natural for products to mature over time.

"There are fundamental differences in the service models for our digital and private wealth management offerings," the spokesperson said. "Our digital investing offering relies almost exclusively on technology, whereas our private wealth offering is driven by financial advisers, who are tech-enabled. We continue to invest in all of our products."

Turnover had also become an issue for some teams, according to the source. In 2019, at least six software engineers left between February and August. 

A spokesperson confirmed that turnover and said Ellevest took actions to improve retention, and that since August 1, 2019, voluntary attrition among engineers has been less than 5%.

There was also a departure at the C-level as Lisa Stone, who joined in August 2017 as chief marketing officer before transitioning to chief strategy officer in April 2018 and leaving one year after, according to her LinkedIn. 

More big names get involved 

The company nabbed more funding in March 2019, raising $34.5 million in an extension of its Series A round.

Rethink Impact and PSP Growth led the extension, but a who's who of backers also joined. 

Among them were Melinda Gates' Pivotal Ventures; PayPal Ventures; Mastercard; Elaine Wynn, the cofounder of Wynn Resorts; Eric Schmidt, the former executive chairman of Google and Alphabet; and Valerie Jarrett, former senior adviser to President Barack Obama. Former Goldman Sachs tech banker Linnea Roberts, through her VC firm Gingerbread Capital, also participated.

"Unlike other fintech start-ups, Ellevest is changing women's behavior, changing the narrative around women and money, and in so doing, giving women the means to change their own lives," Jenny Abramson, founder and managing partner of Rethink Impact, said, adding Ellevest is "more than meeting its benchmarks for success." 

None of Ellevest's other investors returned Business Insider's requests for comment, while a representative for Elaine Wynn could not be reached.

The wealth-management business, re-branded Ellevest Private Wealth Management, had reached $100 million in assets under management, Krawcheck said in a statement at the time of the last fundraise. 

"After this round, I feel like I'm at the end of a marathon — one in which I threw up, hallucinated a giant rabbit running next to me for the final four miles, and broke my knee," she wrote in an annotated press release posted to Ellevest's website.

The road ahead for Ellevest

The March 2019 raise was the last big news the company reported.

A spokesperson declined to disclose how its assets are currently split across digital, premium, and private wealth beyond noting the latter has grown "in multiples" over the past year. 

Ellevest still lags behind both upstarts and traditional players. It's not profitable, a spokesperson said, declining to disclose burn rate or profitability figures. To be sure, many startups in the space have yet to turn a profit, as most tend to focus on growth. 

"At Ellevest, we don't see digital investment platforms as direct competitors because we have a different audience demographic," Krawcheck said in a statement, adding that "in comparing us to other companies in the category, you have to consider the fact that Ellevest's membership base doesn't have the same amount of money to invest as others' users."

So where does Ellevest go from here?

"This idea of you build a startup with an eye on the exit door, and who are you going to sell to, and who's it going to be — it hasn't entered the equation. We've never talked to our investors about it. We spend no time as a leadership team about it," Krawcheck said. 

"We can easily be a publicly traded company. We can easily be a profitable private company. Any of those things can be available to us as we're successful," she said. 

Business Insider spoke with five venture capitalists who have made investments in personal-finance startups. They were not authorized to speak publicly about Ellevest and requested anonymity to preserve relationships in the industry. 

While all spoke highly of Krawcheck and her vision for the platform, none had pursued making an investment beyond initial conversations.

Ellevest's relatively small total assets versus the amount of money it's raised was one red flag cited by a few of the VCs.

"They are way smaller than they should be," one venture investor said. "For the amount of money they have raised … It doesn't make sense."

Another venture investor highlighted the risks that come with focusing on a specific segment. That approach, some venture sources said, can sometimes limit scale.

In interviews, multiple sources pointed to another woman-focused financial planning startup, LearnVest, as one way they could see Ellevest's path playing out.

The personal-finance software startup was acquired by Northwestern Mutual Life Insurance for $250 million in 2015. Three years later, in May 2018, LearnVest's offering was discontinued. 

There are no shortage of onlookers rooting for what's been the most successful women-focused investing startup in the wave of digital wealth managers over the last decade. Still, not every woman has wanted an investing service with a gender lens.

"Many of women's money woes do originate in unequal pay and lopsided caretaking burdens, and it's nice to see that acknowledged — but financial advice can't fit it," personal finance writer Helaine Olen wrote for Slate in 2015. "Only social change can do that."

"Women are not monolithic, any more than men are," she wrote. 

A former employee said in an interview that Ellevest's stated goal was never unclear: get more women investing in the market, and close the gender wealth and income gap. 

"We were all, and many of us still are, true believers," they said. "There were a million things that went wrong, as with any new company. But one thing that was true was everyone believed in that mission, and the goals."

Read more: 

SEE ALSO: Inside the quest to reboot Personal Capital, the wealth manager grappling with its identity in the cutthroat robo-advisory age

SEE ALSO: Robo-advisers like Wealthfront and Betterment are in a tricky spot — here's why one fintech banker thinks buyers and public investors will be hard to win over

SEE ALSO: SigFig raised $120 million on the promise of reinventing investing, but hasn't announced a big partnership in years. Here's how it went from inking deals with UBS and Wells Fargo to struggling to compete.

SEE ALSO: WEALTH MANAGEMENT 2030: Read the full responses to our survey about wealth management and the financial adviser of the future

Join the conversation about this story »

NOW WATCH: How waste is dealt with on the world's largest cruise ship

M&A fine print that prompted lawsuits after the financial crisis is back in the spotlight as mega-deals crumble

Mon, 06/15/2020 - 5:02pm

  • Some buyers have tried to walk away from deals that haven't yet closed, citing, among other issues, a contract clause called a material adverse change. 
  • Even though it's difficult to trigger, the clause is coming into play during the pandemic.
  • On Wednesday, Bloomberg reported that Simon Property Group was terminating its $3.6 billion bid for a rival mall operator, citing a material adverse change, among other issues.
  • A deal between Carlyle and a sovereign wealth fund to buy a stake in American Express Global Business Travel is currently winding through Delaware Chancery Court.
  • One top M&A attorney cautioned that when buyers and sellers spend too much time negotiating the clause, deals can fall apart.
  • Click here for more BI Prime stories. 

Editor's note: This June 9 story was updated with information about Simon Property Group on June 10.

In the aftermath of the financial crisis, buyers' remorse hit hard, leading to lawsuits about when, if at all, companies could back out of deals.

Courts, keeping with earlier cases, ruled against buyers who wanted to walk away from transactions because their acquisitions' financials worsened after a deal was agreed.

For example, after an Apollo-backed chemical company agreed to acquire Huntsman Corporation in 2007 and before the deal closed, Huntsman's earnings worsened.

Apollo and its portfolio company tried to invoke a material adverse change clause, which gives the buyer the right to end a deal if its acquisition's business experiences a significant change, but the Delaware Court of Chancery found that Huntsman's financials didn't represent a significant enough change, among other issues. 

Now, similar discussions are cropping up again for buyers who signed deals before the pandemic hit and who now look to get out of their purchases as revenue dries up and uncertainty sets in. On Wednesday, Simon Property Group said it was terminating its bid for mall operator Taubman Centers, Bloomberg reported

At the heart of these arguments is a common contract clause known as material adverse change or material adverse effect. Companies often stipulate what doesn't count as an MAC, including, for a number of deals in recent months, a pandemic. 

But even before deals are agreed, negotiations over this clause can derail things, said one top lawyer. And after the deals are signed, buyers' threat of expensive, long litigation over the clauses can lead buyers and sellers to rethink their original agreement and potentially prompt renegotiation.

Simon Property Group is asking a court to rule that Taubman suffered a material adverse effect and breached merger covenants, Bloomberg said. 

Other recent deals that have invoked the MAC clause, often alongside other issues, include Sycamore Partners' purchase of a majority stake in Victoria's Secret, which fell apart last month, and a deal between Carlyle and a sovereign wealth fund to buy a stake in American Express Global Business Travel, which is currently winding through Delaware Chancery Court.

Read more: Lease obligations are 'suffocating' retailers — and a potential court fight over a Victoria's Secret flagship NYC store highlights a wider battle between tenants and landlords

LVMH Moët Hennessy Louis Vuitton had discussed ways to lower the price it was paying for jeweler Tiffany & Co in a $16 billion deal announced in November that hasn't yet closed, according to media reports earlier this month

The coronavirus pandemic has slammed the global luxury goods market, and Tiffany on Tuesday reported that sales plunged for its fiscal first quarter. But the company said it had received some antitrust clearances needed to proceed with the deal, and CEO Alessandro Bogliolo said in the earnings release that "Tiffany's best days remain ahead of us and I am excited we will be taking that journey with LVMH by our side."

Kevin Lehpamer, an M&A-focused partner at Clifford Chance, told Business Insider that conversations around MACs are becoming more focused because of the pandemic.

"Clients want to understand if they could use that as a lever to get out of a deal. While you may have had that conversation on certain transactions before, now you'll have it on every transaction," he said. 

This all comes as the dollar volume of announced M&A deals has plunged in recent months.

Goldman Sachs research analysts wrote in a June 3 report that the year-to-date total of announced deal activity had tumbled 46% versus 2019, and that they expected full-year volumes to end up some 40% lower than the previous year. 

Read more: Equity is the new debt, with Corporate America selling record amounts of stock to stockpile cash. Here's what prompted the sudden shift.

Short-term hiccups don't count

Buyers who try to invoke a MAC condition in lawsuits to get out of a deal face an uphill battle, making some of the current debates around the clause "much ado about nothing," said Ben Sibbett, an M&A-focused partner at Clifford Chance. Courts have only ruled that a MAC occurred in a single case. 

"When you dig into what a material adverse change is, and what it isn't, you quickly realize that it's not as simple as people think," Sibbett said. "When you look at the case law around it, that law and related history make clear that buyers face an exceptionally high burden to demonstrate that a MAC has actually occurred." 

Any lawsuit citing a MAC because of the pandemic will likely be on shaky ground, because the adverse change must be significant to the company's long-term earnings power; last for years, not months; and affect the company more than its peers. In recent months, wide swaths of industries, from retail to entertainment to travel, have been hit by stay-at-home orders and uncertainty stemming from the pandemic. 

"The case law says that short-term hiccups in earnings don't count," Sibbett said. 

Tom Harris, a Dallas-based attorney who chairs Haynes and Boone's M&A practice, said that when he advises buyers, he asks them to think through what would cause cold feet. Often, arranging and closing the deal's financing is a top priority, which can be dealt with outside of the MAC clause. 

"If the market falls apart and nobody's lending money ... then the buyer doesn't have to close, but it's not based on a general MAC provision," Harris said. 

Read more: Elizabeth Warren and Alexandria Ocasio-Cortez want to halt big M&A during the pandemic. 4 dealmaking and antitrust experts explain why that's not necessary.

Constructive ambiguity

David Katz, a partner at Wachtell, Lipton, Rosen & Katz, said in a late May panel hosted online by Reuters that more parties will try to negotiate the MAC.

Buyers and sellers took similar steps in 2009, he said, when some deals fell apart because the parties couldn't agree on specific thresholds for what constituted a material change.

"When parties are forced to say '$75 million' or 'this decline in revenue' ... and they try to negotiate those, that's where the deals often fall apart because people aren't willing to be that finite, and they're also concerned about whether the deal will actually close," Katz said. 

The ambiguity of an MAC can be "constructive," he said.

"The buyers think of it one way, the seller may think of it a different way, but because you're not trying to specifically define it and narrow it to a very small band, the parties each have their own perspective and they can enter into the deal on that basis." 

Read more:  

SEE ALSO: Elizabeth Warren and Alexandria Ocasio-Cortez want to halt big M&A during the pandemic. 4 dealmaking and antitrust experts explain why that's not necessary.

SEE ALSO: For certain corners of Wall Street, dealmaking is happening faster than ever. That could mean a permanent lifestyle change for some investment bankers.

SEE ALSO: Equity is the new debt, with Corporate America selling record amounts of stock to stockpile cash. Here's what prompted the sudden shift.

SEE ALSO: Inside a 'big short' bet against malls: Investors are claiming wins, and a research analyst who said the wagers were misguided is out

Join the conversation about this story »

NOW WATCH: Pathologists debunk 13 coronavirus myths

Live commerce — think QVC meets TikTok — is booming in China as influencers drive billions in sales. An a16z partner thinks the US could be the next place the shopping craze explodes.

Mon, 06/15/2020 - 4:36pm

  • Live commerce is new kind of shopping, where brands and influencers stream videos to consumers.
  • From apparel to produce, live streaming has taken off in China on platforms like Alibaba's Taobao Live and Douyin, China's version of TikTok.
  • Live commerce offers a more streamlined experience than home shopping TV networks like QVC with check-outs embedded in the platforms and payment details stored.
  • In the US, platforms like Facebook and Instagram are making a push into e-commerce.
  • Live commerce could soon arrive in the US, where influencers are already monetizing their social media followings.
  • Click here to subscribe to Wall Street Insider.

It's no secret Gen Z loves video. From YouTube to Instagram, and, most recently, TikTok, social media platforms have amassed huge user bases. The more popular the app, the more brands and influencers will look for ways to monetize through advertising.

In China, a new wave of social media monetization is underway: live commerce.

Influencers and merchants alike are using interactive short-form video (both live-streamed and pre-recorded) to sell products to users on social media and e-commerce platforms. In China, leading live commerce platforms include e-commerce giant Alibaba's Taobao Live and Douyin, China's version of TikTok.

From apparel to cosmetics to tech, these live commerce videos give users an interactive and entertaining way to shop from their phones. Mimicking the experience of window shopping at a mall, live commerce videos often feature influencers trying on several outfits in a video stream, where users could interact with the hosts and ultimately purchase the clothes.

Even farmers have taken to live streaming to sell produce

"It's entertainment plus shopping," Connie Chan, general partner at Andreessen Horowitz, told Business Insider. 

And while it might sound like a new twist on QVC or HSN, live commerce offers a more streamlined experience, with check-outs embedded in the platforms and payment details stored. In some cases, users can check out in-app while the video keeps playing.

And in China, live commerce has grown amid the coronavirus pandemic.

"COVID brought it even more to the forefront now that the average person in China is shopping with live streaming," said Chan. "I think in the US, it will roll out and eventually have a lot of features that are largely inspired by Asia."

Live commerce presents an opportunity to further monetize social media

Before the coronavirus pandemic, live streaming was already growing in China. 

During e-commerce giant Alibaba's Singles Day in 2019, Taobao Live recorded $2.85 billion in sales generated from live commerce — about 7% of its total $38.3 billion in sales

A key selling point of live commerce is that it's easy to track the effectiveness of the videos in driving sales because users can make purchases directly from the stream.

"Rather than have the influencer hashtag #ad, you can credit to see which influencers are actually converting sales," said Chan.

The influencer marketing industry is on track to be worth up to $15 billion by 2022, with brands continuing to spend more year-over-year, according to Business Insider Intelligence.

Read more: SARS created the perfect storm that changed how China shopped forever. The coronavirus could do the same for the US.

Players like Facebook and Instagram are well-positioned to host live commerce

The US, like China, is awash with influencers who already have loyal social media followings. And Chan expects that the US will see live commerce start to roll out.

"It allows someone who already has an audience to now monetize that outside of traditional brand sponsorships or ads," Chan said. 

Facebook and Instagram are already eyeing e-commerce, with recent announcements around Facebook and Instagram Shops. Instagram also announced in May that influencers will be able to monetize their video content through IGTV, pursuing a similar advertising revenue-share model to YouTube.

And when it comes to live commerce, social media players have a strong advantage because they're already luring in users through entertainment, Chan said. Adding shopping could be a natural next step, as seen in China. 

But the key will be ensuring frictionless checkouts and payments — something Facebook and Instagram are already building by storing users' payment information in-app.

"The key is that live streaming shopping is a blend of e-commerce and entertainment, and that's why the entertainment social companies already have a lot of the DNA required to do it," Chan said. 

E-commerce platforms could tap into the market, but it'll require some reinvention

E-commerce platforms, too, could be well-positioned to host live commerce. Players like Amazon have already solved for the seamless, one-click checkout experience. However, they'll have to reinvent their place in the market. 

"It's not to say that someone like Amazon can't recreate it, but it's a completely different mindset of how to create a product and how to create engagement," Chan said.

In fact, Amazon launched a live streaming platform in February last year. The Amazon Live website features scheduled live content in categories like beauty, fitness, and food. Amazon declined to provide details on consumer and merchant adoption of the platform.

Read more: Amazon just entered the small business loan market with Goldman. Here's how the e-commerce giant is building a bank for itself.

Live commerce is not meant to replace consumers' shopping habits for everyday essentials. And it's not about searching for specific products — it's about entertainment and impulse buying.

"It's really product discovery and impulse purchases," said Chan.

And platforms like Taobao Live and Douyin are designed for just that. While users do have the ability to search, the user experience is designed to keep a never-ending stream of content flowing (similar to TikTok and Instagram). And the purchasing all happens seamlessly within the apps. 

"Even as you're checking out, that stream is still minimized and overlaid on your screen, so you never stop watching it, even as you complete the purchase," Chan said.

And while there are search functions, the videos themselves are the primary way that consumers discover products. It's like Amazon and Pinterest in one, Chan said.

Beyond seamless purchasing within the live streams, the experience has also been gamified in China. There may be coupons that fly across the screen, and users can grab them to gain points or a discount. And there are leaderboards tied to fan bases, where engaging with certain influencers can earn users points and badges.

China's mobile-first market was primed to adopt live commerce

China is a mobile-centric market, meaning much of consumers' shopping and payment behavior happens on their smartphones. Over 80% of smartphone users in China use mobile payments, largely concentrated with leaders like WeChat Pay and Alipay.

Almost 50% of consumers in China use mobile payments, and that number increases to 81% among smartphone users, according to a 2019 eMarketer report. And the mobile payment space is largely dominated by players like Alipay (owned by Taobao Live parent company Alibaba), and Tencent's WeChat Pay.

In the US, only 30% of consumers use their smartphones to pay.

"In the US, we often say we use the phone all day long, but we still are very much PC-centric," said Chan. 

To be sure, those norms could shift. 50% of Gen Z consumers (born between 1996 and 2010) use a mobile wallet on a monthly basis, according to Business Insider Intelligence. And as this social media-savvy generation comes of age, making purchases on their phones may come more naturally.

"Gen Z is video-native," said Chan. "They grew up with YouTube and are used to turning to video for all kinds of things outside of entertainment — education, product reviews, chat and so forth."

And live commerce isn't constrained to mobile, Chan said. There could be opportunities to integrate commerce into live events streamed on computers, too.

While timelines for adoption in the US are unknown, live commerce presents an opportunity for brands and influencers alike to further monetize their followings and reach consumers in new ways.

Read more:

SEE ALSO: SARS created the perfect storm that changed how China shopped forever. The coronavirus could do the same for the US.

SEE ALSO: One-click checkout startup Fast used this pitch deck to nab $20 million from investors like fintech giant Stripe. Here's a look at its vision for taking on Apple Pay.

Join the conversation about this story »

NOW WATCH: What makes 'Parasite' so shocking is the twist that happens in a 10-minute sequence

'Credit where credit is due': Robinhood investors called the market bottom, showing 'impeccable' timing, Societe Generale says

Mon, 06/15/2020 - 4:16pm

  • Robinhood traders displayed "impeccable" timing when they rushed into the market as it hit recent lows in mid-March, according to a Monday note from Societe Generale. 
  • Using data from Robintrack, the firm found that the March market bottom coincides with an overall step up in Robinhood positions in the Russell 2000, the small-cap benchmark index.
  • That was just before the index surged more than 40%. 
  • "For all the mocking of Robinhood investors, their timing back into the market looks impeccable, with a significant pick-up in holdings as equity markets bottomed in mid-March," wrote Andrew Lapthorne of SocGen. 
  • Read more on Business Insider.

Robinhood traders displayed top-notch timing when they rushed into the market as it hit recent lows in mid-March, according to a Monday note from Societe Generale. 

"For all the mocking of Robinhood investors, their timing back into the market looks impeccable, with a significant pick-up in holdings as equity markets bottomed in mid-March," wrote Andrew Lapthorne of SocGen. 

Using data from Robintrack, the firm found that the March market bottom amid the coronavirus-induced rout coincided with an overall step-up in Robinhood positions in the Russell 2000, the small-cap benchmark index. That was just before the index surged more than 40%.

Read more: Famed short-seller Andrew breaks down why he's betting against these 4 companies — including Hertz and Tesla competitor Nikola

"Credit where credit is due — as retail investors, based on the Robinhood dataset, have charged into the market at its very inflection point," Societe Generale wrote in the note, "Of course only time will tell if this has been profitable in the long run."

The analysis also found that Robinhood traders are buying both high- and low-quality stocks, but that investor money has a bigger impact on smaller, lower quality shares.

A similar pattern was seen when looking at stocks with the highest and lowest prices — Robinhood traders put more money into higher-priced stocks, but their investments into low-priced stocks were more meaningful. 

"Retail investors have long been associated with buying stocks that are largely off-limits to many institutional investors, either because they are too small or because they are just too speculative," said Lapthorne, adding, "this is not to say that all the retail money has solely been flowing in the direction of such speculative stocks."

In fact, the opposite has happened — in US dollar terms, Robinhood traders have favored momentum stocks over reversal stocks, according to the note. 

Robinhood traders have been in the spotlight in recent weeks in stories of "nonsensical trading" occurring on such platforms, including buying the stock of distressed or bankrupt companies such as Hertz or JCPenney.

"When it comes to bombed out distressed equity, retail investors have a bigger voice and therefore greater potential influence," said Societe Generale. "And when it comes to Hertz Group it now seems they can radically change how a company tries to finance itself out of Chapter XI!"

Join the conversation about this story »

NOW WATCH: A cleaning expert reveals her 3-step method for cleaning your entire home quickly

It took less than 10 minutes to open a high-yield cash account with Wealthfront and earn more on my savings. Here's exactly what it's like to sign up.

Mon, 06/15/2020 - 4:16pm

As someone who writes about personal finance every day, I'm somewhat embarrassed to admit that I've never had a high-yield cash or savings account. That's because I've been with the same monster mega bank since my teenage days.

For years, I had serious bank account inertia. I just couldn't bring myself to put in the effort that would be required to open up a new bank account. But I'd been told that the hassle factor really wasn't an excuse any longer and that I could open an account in minutes.

I finally decided that it was time to bite the bullet and find a cash account that would pay me more than 0.01%. And after taking a look at several great options, I decided to go with Wealthfront

Why I chose to open a high-yield cash account with Wealthfront Wealthfront Cash Account

If you're looking for a high-yield cash or savings account, there are several good choices available. But here is a quick list of the reasons that I chose Wealthfront:

  • FDIC insured up to $1 million
  • Fee-free
  • $1 minimum deposit
  • A higher interest rate than what brick-and-mortar banks offer

The interest rate was really the clincher for me, but the other points came into consideration as well.

It's also important to point out that I didn't need all the bells and whistles of an actual bank. I still have all my online bill pay and ACH debits set to pull from the checking account at the bank I've been with for years. I was just looking for a place to park my emergency fund money and hopefully outpace (or at least keep up with) inflation. 

If you're looking to open both a checking and savings, you may be better off choosing an online bank. But for my situation, Wealthfront seemed like the right fit.

I was relieved to find that the sign-up process with Wealthfront was a breeze. It took me less than 10 minutes from start to finish. Here's how it went.

Wealthfront gives two options for creating an account. You can start from scratch using your email address or you can import your personal information from Intuit.

Since, I’ve long used TurboTax (owned by Intuit) as my tax-filing software, I decided to choose the import option. Even so, I still had to give Wealthfront some information before they could begin the import.

The Intuit import only took a few seconds to complete. I verified my key information and then Wealthfront said they wanted to verify my mobile number for security purposes.

The text from Wealthfront came through promptly. I entered the code that I was sent and just like that I was on my way.



Wealthfront wanted to know my primary reason for opening an account.

After I selected "high-interest cash savings," they wanted to know if I planned to open an individual account, joint account, or a trust. Since I wanted my wife and I to both be on the account, I selected "Joint." At this point, the process had taken me a total of four minutes.

Next, Wealthfront wanted to know how I planned to fund my cash account. When I clicked on “Link an External Account” a dialog box popped up that showed several popular banks.

It also had a search box in case my bank wasn’t one of the ones listed. I selected my bank and then typed in my bank credentials.

In only took Wealthfront a few seconds to connect to my bank account. I was asked whether to pull the funds from checking or savings. After selecting my savings account, I was asked to type in the amount that I wanted to transfer over.

After typing in my transfer amount, Wealthfront said I'd been sent a confirmation email. I logged into my email account and, sure enough, the email was sitting in my inbox just as they said. I clicked on the confirmation link 

Then Wealthfront said that my work was done! Now I just had to wait on the transfer to go through. Most transfers go through within one business day, but I'd be notified when the transfer was complete. 

Total time spent creating my account and initiating the bank transfer: eight minutes.



The only thing that I had to do now was wait for confirmation from Wealthfront that my transfer had gone through. It was a short wait. When I checked my email the next morning I had this message waiting for me.

Just like that, my emergency fund money was earning me over 25 times what it had been earning me the day before.

That feels pretty awesome ... and also makes me feel a bit ashamed that I hadn't opened a high-yield savings account sooner.

Learn more about the Wealthfront Cash Account » Currently, Business Insider readers who sign up for a Wealthfront investment account will receive their first $5,000 managed for free in that account in perpetuity.

This post was updated on November 1 to reflect a change in the APY for Wealthfront's Cash Account. As of this time, the APY was 1.82%.





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