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The shower head disrupters backed by Tim Cook and Eric Schmidt just launched a new water-saving nozzle on Kickstarter

Tue, 02/12/2019 - 10:10pm  |  Clusterstock

  • Nebia — which was initially backed by Apple CEO Tim Cook and former Google CEO Eric Schmidt — announced its new Nebia Spa Shower 2.0 on Tuesday. 
  • The latest version can create 29% warmer temperatures and comes at a more affordable price than the original.
  • Cook and Schmidt re-invested in the shower head disrupters, along with North America's largest shower head company Moen, Airbnb co-founder Joe Gebbia, Starwood Hotel founder Barry Sternlicht. 
  • Nebia CEO Phillip Winter tells us that the Apple chief exec has been "incredibly supportive" with their efforts, answering email questions when they "have something that's very strategic." 

Nebia, the water-saving shower head company that made a splash in its 2015 Kickstarted debut, is back with a new and improved nozzle. 

On Tuesday the company announced its new Nebia Spa Shower 2.0, which it says can create 29% warmer temperatures and comes at a more affordable price. The new $499 shower head (compared to the $649 predecessor), preserves the original elegant, halo-shaped style but is now available in a matte black color, along with the traditional matte silver finish.

Nebia — which counted Apple CEO Tim Cook and former Google CEO Eric Schmidt among its initial backers — launched pre-order sales for the new model on Kickstarter this week.  The company has already tripled its $100,000 goal within the first 24 hours, and offered early bird prices for the latest model are as low as $349. 

As with the first version, water conservation is the central principle behind the product. Nebia's process of atomization — which breaks up water into tiny droplets — is supposed to create a more enveloping shower experience, all while using 65% less water than standard shower heads. 

The company says since first launching in 2015, it has helped save 100 million gallons of water. 

Read more: Tim Cook and Eric Schmidt stripped down to try this new kind of shower head and wound up investing

Along with announcing the new product and Kickstarter campaign, Nebia also announced it has raised a Series A funding round for an undisclosed amount, led by North America's largest shower head company Moen. 

Phillip Winter, Nebia's co-founder and CEO, told Business Insider in an interview Tuesday that the partnership with Moen is a "three-part deal," that includes assistance with design, manufacturing, and distribution. 

"Moen enabled us to get there five times faster," Winter said of Moen's involvement with the 2.0 model. 

Other notable investors in the Series A include Airbnb co-founder Joe Gebbia, Starwood Hotel founder Barry Sternlicht, and the startup accelerator Y-Combinator. Eric Schmidt and Tim Cook also re-upped for second investments with the shower head disruptors. 

Cook, in particular, has been "incredibly supportive" according to Winter, as the Apple chief exec has particular expertise in the materials that Nebia works with (aluminum). 

"When we touch base, it's really when we have important decisions, and we have something that's very strategic," Winter said. "We don't just ping him unless it's something really important. He takes one or two days to respond to the email, and then he sends back six or seven paragraphs of a super thoughtful response." 

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Can the African continent be powered exclusively by renewable energy?

Tue, 02/12/2019 - 8:49pm  |  Timbuktu Chronicles
From CNN MarketplacePresident Josef Abramowitz of Gigawatt Global talks about why he thinks it's possible for the continent to be powered exclusively by renewable energy.

Here's why Angela Ahrendts' departure could be a good thing for Apple (AAPL)

Tue, 02/12/2019 - 7:00pm  |  Clusterstock

  • Angela Ahrendts' resignation could end up being a good thing for Apple.
  • Ahrendts, who headed up the company's retail operations, was charged with remaking Apple as a luxury brand.
  • That strategy has resulted in higher prices for Apple's products, which have depressed sales.
  • With Apple's revenue falling and its iPhone sales plunging, it could use a new approach.

Angela Ahrendts' departure from Apple may end up being a blessing in disguise for the iPhone maker.

A big part of Ahrendts job was to transform Apple into a luxury brand. But it's just that kind of thinking — and the nosebleed prices that go with it — that's gotten the company in trouble lately.

With revenue falling amid plunging sales of its all-important iPhone line, Apple could use a fresh perspective on its ritzy remake. Ahrendts' resignation gives it the opportunity to get just that.

Apple, of course, has always charged a premium for its products. The original Macintosh was expensive even in its day, compared with rival computers. Consumers had to pay more for the iPod when it launched than for comparable MP3 players.

But under former CEO Steve Jobs, Apple recognized that in order to attract a mass market, it needed to offer products at lower prices and it needed to try to keep its prices stable rather than continually ratcheting them up. To broaden the market for the iPod, the company introduced a lower-priced iPod mini and then the budget-priced iPod shuffle. To expand the market for the Mac, it launched the relatively inexpensive Mac mini.

Apple under Jobs also launched the iPad at $500, which was considered an surprisingly low price at the time. And when initial sales of the first iPhone were slower than expected, he worked with AT&T to subsidize the cost, slashing the upfront price and making the device a lot more appealing to many consumers.

Apple has been pushing up the price ladder

But in its drive to become a luxury brand, the company in recent years seems to have forgotten that history and the importance of price in attracting and retaining a mass market of customers. It also seems to have been oblivious to the  inherent problem of a company that depends on large and growing sales to mainstream consumers trying to upscale its offerings without losing much of its current customer base and stalling out its business.

One of Apple's first stabs at its upscale transformation came with the launch of Apple Watch, soon after Ahrendts joined the company. Although Apple offered versions of the device at relatively affordable prices, it gave particular attention to its gold-cased models that retailed for $10,000 on up.

There's been plenty of other examples since. Apple struck a deal with Hermès to create a version of the Apple Watch that carried the luxury goods purveyor's brand and used its straps. In its iPad line, Apple has put most of its energy lately into its Pro line, which retails for $800 on up, at a time when Amazon and others have been offering tablets for as little as $50. Apple offers a $150 version of Apple TV; but that's no bargain when compared with Roku's $25 streaming stick or even it's top-of-the-line model, which costs $100.

But it's in the iPhone line where Apple has really been pushing upward on pricing. It launched one of the first $1,000 phones in 2017 with the iPhone X then followed that up with an even pricier model last fall with the iPhone XS Max, which starts at $1,100. Even Apple's supposed mid-tier model — the iPhone XR — cost $750.

That was the starting price of the most expensive model just two years ago — the iPhone 7 Plus. By contrast, the original iPhone when it launched cost $500 — or about $602 in today's money.

Apple keeps learning tough lessons about high prices

The problem with Apple's premium push is that as prices go higher, the number of consumers who can afford or can be convinced to pay them gets smaller. That's particularly true when it comes to computer products; there just aren't that many consumers who will pay top dollar for a product that will become obsolete in a few short years.

Apple seems to have learned that the hard way with the gold version of the Apple Watch. Within a year of launching those models, the company discontinued them, replacing the gold-cased models with a much more affordable — but still pricey — ceramic encased version. Last fall, Apple dropped even that model. You can bet if either version had sold particularly well, Apple would still be offering it.

But the company seems to keep having to learn that same lesson over and over. Its iPad sales consistently shrank for years amid its premium push with the Pro and its resistance to introducing a truly low-cost model. Its share of the streaming media player market declined too. And in terms of the number of phones it sells in a given year, Apple peaked in 2015 and hasn't come close to reaching that level since.

Read this: Hey Tim Cook, there's a simple solution to your iPhone sales problem

Boosting prices can be beneficial. Even though the number of iPhones Apple sold in its last fiscal year was basically flat with the year before, its revenue from selling them jumped 18%, thanks to its new $1,000 phones.

But that kind of revenue surge tends to be fleeting, as Apple is starting to discover this year. Because the number of people able to pay higher prices is so much smaller, companies tend to reach saturation quicker and unit sales can quickly fall. That's precisely what's happening with the iPhone. Unit sales plunged in the holiday quarter, taking Apple's iPhone revenue down with it.

Worse, the decline iPhone sales imperils the company's move to remake itself as a services company. Much of its services revenue, including AppleCare warranties, commissions on App Store sales, and Apple Music subscriptions, is closely tied to purchases of new phones.

You can't blame all of Apple's premium push on Ahrendts. Tim Cook is the CEO, after all, and Ahrendts was just one of his top lieutenants.

Ahrendts was a key part of Apple's rebranding

But since she came aboard in 2014, she exemplified and personified the company's prioritizing of the premium over the plebeian. Indeed, Cook brought her in from fashion house Burberry specifically to remake Apple as a luxury brand.

Pushing the gold Apple Watches — and the new devices, generally, as exclusive products — was just the first step in that effort. Under her direction, Apple redesigned the interiors of its stores to make them more of a showcase for premium goods and the company made room on its shelves for super-pricey products, such as the $2,000 Phantom wireless speaker. The company also began opening up more stores in high-end locations and in historic buildings in city centers, attempting to cater to the affluent customers it was now targeting.

These moves sparked a backlash in some cases and ridicule in others, particularly when she attempted to rebrand the stores as Town Squares. Many found that move in poor taste, particularly when Apple was trying to convert formerly public areas in some cities into its private retail space.

But the biggest downfall of the Ahrendts era has been Apple becoming increasingly out of touch with its mainstream customer base. Those consumers have long been willing to pay a premium for the perceived quality of Apple's products. But now many have come to think of them as just to darn pricey.

SEE ALSO: Here's why Apple's iPhone sales won't get better anytime soon

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Human resources is the next battleground for Wall Street wealth advisers as Morgan Stanley and Goldman Sachs jockey over new turf (GS, MS)

Tue, 02/12/2019 - 6:06pm  |  Clusterstock

  • Wealth management firms are pitching corporate HR departments to provide financial wellness offerings to employees, hoping they can manage the wealth of employees as they grow older. 
  • The deal Morgan Stanley announced on Monday tries to tackle this trend, while competitor Goldman Sachs created a financial wellness offering last year and signed up Google as a client. 
  • The pitch won't be easy, analysts say, as it can be difficult to cross sell employees or keep the relationship when staff leave for other companies. 

When it comes to prospecting for new customers, Wall Street's wealth managers are turning to unfamiliar terrain: corporate HR departments. 

That's part of the rationale for Morgan Stanley's $900 million purchase of Solium Capital, according to CFO Jonathan Pruzan. The firm manages corporate stock plans in what Pruzan called the "workplace solution" industry and it gives Morgan Stanley an entree into corporate HR departments. From there, it can sell more holistic financial planning tools, including its wealth management platform, he said on Tuesday at an investor presentation in Miami.

"Employers today, not only do they want state-of-the-art technology when it comes to their stock plan administration, but they also want to offer their employees financial education, wellness and tools and advice around investing and savings," Pruzan said. "We think it's a growing space."

The funny thing is, Morgan Stanley isn't the first Wall Street firm to notice the opportunity. Goldman Sachs last year took the collective knowledge housed in Ayco, a 40-year old financial planning outfit serving C-suite executives, and distilled it into a technology platform that can be offered to every employee, regardless of rank or wealth status, Larry Restieri, the partner who runs the business said in an interview last year.

Read more: A Goldman Sachs unit hidden in an office park in Albany, New York holds clues to the future of wealth management

In the past, both banks focused their marketing efforts on senior executives, in part because those clients had more money to manage and in part because the banks didn't have the digital capabilities to profitably serve lower-level employees. Goldman's build out began to address that need, while Morgan Stanley believes it now has that offering in its Access Investing digital platform. The latter is also planning more technology too. 

"We're going to try to generate what we're calling the Morgan Stanley wealth portal," Pruzan said. "What we'll be able to do is provide corporates or employers with sort of a comprehensive suite of products. So you'll have a stock plan business, you'll have 401(k), financial wellness education, our goals-based planning technology. That will be all bundled in one web portal."

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Goldman's offering helped it lure Google as a client, which means that Goldman will be working with everyone from the tech giant's executive officers down to its first-year coders. While the business opportunity in the early years will be in managing the wealth of senior officers, the firm hopes that by serving more junior employees it can make an impression and put itself in the pole position to manage their wealth when they acquire it. 

Morgan Stanley sees the same, according to Pruzan. 

"There are obviously millions of employees and it's where a lot of wealth is going to get created over the next couple of generations," Pruzan said. "We think that's a very important space and this helps us attack that space."

While most wealth managers or startups must add a customer at a time, this approach offers the ability to onboard hundreds or thousands of customers with the signing of a single corporate agreement. 

Morgan Stanley will add Solium's 1 million employees with its purchase, and also give it a much more sophisticated solution for the 1.5 million additional employees already served by its in-house stock-plan administrator. As Goldman headed into year-end 2018, it was hoping to have its offering at companies with a combined 1 million employees.

Pruzan said one way Morgan Stanley will ensure success is by capitalizing on a Solium institutional sales force that sells direct to the corporations. 

The prospect won't be without difficulty. As anyone who works in an office can attest, it's not always easy for human resources departments to get in front of their employees and it can be difficulty for employees to know the full suite of HR perks they're entitled to. And for Morgan Stanley and its stock plan business, it can be tough to persuade employees to convert their vested shares into other assets and keep them with the plan operator or leave them there when they leave for another firm, analysts say.

See also: Morgan Stanley just made its biggest bet since the financial crisis in a bid to win the hearts and minds of unicorn startup employees

"The special sauce that most of the other plan administrators can’t do is deliver great wealth management advice," said Glenn Schorr, an analyst at Evercore ISI. "There isn’t execution risk from a perspective of something getting messed up, it’s just hard to do."

Getting it right will be an imperative, Pruzan said.

"This is critical," he said. "It's really going to allow us to get into what we think is an important phase which is, again, the employees of all of these employers." 

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A bank with one of the fastest growing stocks teams is looking to empower its traders by teaching them how to code in Python

Tue, 02/12/2019 - 5:44pm  |  Clusterstock

  • There has been a push within Barclays over the past few months for its equity traders to learn the coding language Python.
  • The goal is to empower traders to run post-trade analysis for their own clients, as opposed to asking Barclay's small team of quants, to do it.

It's time to go back to school for members of Barclays' equities trading desk.

The bank has been encouraging and enabling its traders to learn how to code in the programming language Python in recent months. Daniel Nehren, Barclays' head of statistical modeling and development for equities, told Business Insider the goal is to have traders develop and run their own post-trade analysis, as opposed to relying on Nehren's team of roughly 30 quants to do it for them. 

Doing so will free up Nehren's team to have more time to analyze post-trade reports and make adjustments to improve how the bank executes trades for clients. 

Read more: Barclays has the fastest growing stock trading team around — and it's posing a threat to some of the biggest players

It's a move that indicates a shift in how the bank services clients — gone are the days of on-size-fits-all. Clients of the British bank, which has one of the fastest growing stock trading teams in the industry, don't want to be overburdened with a 40-page document that covers more information than they need, Nehren said. Instead, they're interested in specific analysis geared exactly towards what they are looking for. 

The issue, however, is that Nehren's team only has so much time and resources. 

"You have to find a way to balance, essentially, that bespoke resource-intensive view with the reality of, we are not going to have 500 quants running post-trade analytics for everybody," Nehren said. 

Barclays is setting up traders with code, template examples and blogs and online training classes they can watch to teach themselves how to code. No formal classes are held, but Nehren said his team is happy to sit down with any of the traders to talk through issues they are having or to help them code.

One of Python's key benefits is its readability. Unlike other coding languages, Python can be more easily understood by those without a background in programming. Just because it is easily digestible doesn't mean it has sacrificed any power, though. Python can be used for machine learning and data analysis. 

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The language has become increasingly popular within the finance community. According to a recent GitHub report ranking the top technologies favored by its community, Python was the third most popular programming language

Nehren also said he believes traders will be able to offer suggestions for improvements to algos the bank is using as they gain better insight through their Python programs. 

"As we give them the depth of being able to look at what these algos do and how they behave, the innovation comes actually from this cross-pollination," Nehren said. "The depth of partnership that just this effort has brought between my team and the coverage team and sales team, I think that just could be a game changer on its own.

Barclays' equities business posted $614 million in 2018 third quarter revenue, an 33% increase from the year-ago period. It will report fourth quarter results later in February. 

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A record 7 million Americans have stopped paying their car loans, and even economists are surprised

Tue, 02/12/2019 - 5:37pm  |  Clusterstock

  • A new report from the Federal Reserve Bank of New York revealed 7 million Americans are behind on their auto payments by at least 90 days.
  • Most of the Americans who have recently fallen behind on their car payments have low credit scores or are younger than 30 years old.
  • Fed economists said the rise in the number of delinquent borrowers is "surprising" considering a strong labor market and economy.

Millions of Americans are struggling with their car payments, and even economists are surprised.

According to a new report from the Federal Reserve Bank of New York, more than 7 million Americans have reached serious delinquency status on their auto loans, meaning they're at least 90 days behind on payments.

Fed economists said this is "surprising" considering a strengthening labor market and economy.

People often prioritize car loans because many need to drive to get to work and earn a paycheck, The Washington Post's Heather Long reported. The fact that a record number of Americans aren't making those payments is "usually a sign of significant duress among low-income and working-class Americans," Long wrote.

"The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector," Fed economists wrote in a blog post dissecting the report.

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The data show that most of the borrowers whose auto loans have recently moved into delinquency are people younger than 30 years old and people with low credit scores. Eight percent of borrowers with credit scores below 620 — otherwise known as subprime — went from good standing to delinquent on their auto loans in the fourth quarter of 2018.

And the data show that most delinquencies come from auto-finance lenders, rather than banks and credit unions.

The Fed found that half of outstanding loans from auto-finance companies are made to subprime borrowers, and 6.5% of those loans are more than 90 days overdue. That's compared with just 14% of outstanding loans from credit unions made to subprime borrowers, 0.7% of which are delinquent.

The delinquency figure represents a new high in the auto-loan market — more than 1 million more people are behind on auto-loan payments now than at the end of 2010. More people have auto loans now than in 2010, so while the overall rate of delinquency is down, the total number of people who have fallen at least 90 days behind their payments is higher.

Read more: American household debt just hit a new record high

The Fed has been tracking the auto-loan industry for more than five years, the economists said in the blog post, and it's not the first time the group has sounded the alarm. In 2017, a quarterly report from the Fed highlighted the near doubling of the rate of delinquencies in subprime auto loans originated by auto-finance companies since 2011, Business Insider's Matt Turner reported

Turner also reported at the time that Wall Street was expressing concern over the subprime-auto-loan market as well. Meanwhile, Business Insider's Lauren Lyons Cole reported that Americans borrowed more money to buy cars than to attend college between 2016 and 2017.

SEE ALSO: Student debt has prevented hundreds of thousands of millennials from buying homes, Fed says

DON'T MISS: Financial experts say there's no reason to panic if your tax refund is smaller this year

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Apple's rumored subscription news service will reportedly be announced at a March 25 event

Tue, 02/12/2019 - 5:19pm  |  Clusterstock

  • Apple will reportedly host a March 25th event at The Steve Jobs Theater in its Apple Park campus where it's expected to unveil its rumored subscription news service.
  • Apple has previously hinted that it will launch new services this year, but hasn't revealed any details yet or confirmed the March 25th event.
  • The news comes shortly after The Wall Street Journal reported that Apple has run into resistance from news publishers over a proposed revenue split that would see Apple pocket 50%.

Apple is planning to hold a special event on March 25 during which it's expected to share details on its rumored subscription news service, according to a new report from BuzzFeed.

The event would mark Apple's first major product announcement for 2019. Although the company has unveiled new iPads during events held in March in years past, the report indicates a subscription news service will be the focus of the event. Other rumored products like a new iPad mini and second generation Air Pods are not expected to make an appearance at this event.

The report comes hours after The Wall Street Journal reported that Apple has run into resistance during negotiations with top news publishers over the terms of its subscription news service. Apple is looking to partner with publishers on a subscription news service that would allow readers to pay around $10 per month to read content that is usually paywalled, but Apple's proposed 50% revenue split with publishers has not gone over well, according to the Journal.

Apple CEO Tim Cook recently teased that "new services" from Apple are coming in 2019 during an interview with CNBC's Jim Cramer. "On services, you will see us announce new services this year," Cook said. "There will be more things coming, I don't want to tell you what they are."

The launch would be Apple's latest push to grow its services revenue with a goal of hitting $50 billion by 2020. Services revenue will be an important metric for Apple moving forward as it grapples with slowing iPhone sales in China. Since Apple announced in November that it would no longer break out iPhone sales in its quarterly earnings reports, investors will likely be looking to the growth of its services business moving forward, which reached an all-time high of $10 billion during the holiday quarter.

Apple declined to comment on or confirm a March 25 event.


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American household debt just hit a new record high

Tue, 02/12/2019 - 5:19pm  |  Clusterstock

  • Household debt rose to $13.5 trillion in the fourth quarter, the New York Fed said Tuesday.
  • Mortgage balance growth flattened, but credit in other areas grew.
  • One of the most troubling trends, according to economists, was the number of Americans seriously delinquent on auto and student loans.

Americans faced record levels of debt at the end of 2018, with the amount owed by households rising for an eighteenth consecutive quarter.

Overall debt rose by $32 billion to $13.5 trillion in the fourth quarter, the Federal Reserve Bank of New York said in a report out Tuesday, bringing it to a fresh high.

Total household debt was nearly 7% higher than a previous peak of $12.68 trillion seen in the third quarter of 2008, underscoring potentially vulnerable spots in an otherwise humming economy.

"We are not in the 'red' zone of danger yet, but these measures are trending in the wrong direction, so it’s something to keep an eye on," said Josh Wright, chief economist at iCIMS. "There’s a risk there to the U.S. consumer engine."

Mortgage balance growth flattened in the fourth quarter to the lowest level in nearly four years, remaining essentially unchanged at around $9.1 trillion, but household credit mounted in other areas.

Perhaps most troubling for economists, a record number of Americans were three months or more late on making car payments. At the end of 2018, auto loans facing serious delinquency rose 2.4% to more than 7 million.

“The overall performance of auto loans has been slowly worsening, despite an increasing share of prime loans in the stock,” New York Fed economists wrote in a subsequent report. “The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector.”

Student loan balances also ticked higher, rising $15 billion to $1.46 trillion in the fourth quarter, and serious delinquency rates remained elevated. The report found more than a tenth of student debt was seriously delinquent in the fourth quarter, though the actual rate is likely higher due to situations involving deferment and forbearance.

Credit card balances climbed by $26 billion. The number of credit inquiries within the past six months, meanwhile, declined to the lowest level on record. That could signal trouble for demand and consumer spending, which accounts for more than two-thirds of economic activity.

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The US national debt just topped $22 trillion for the first time in history

Tue, 02/12/2019 - 5:15pm  |  Clusterstock

  • The US national debt topped $22 trillion on Monday, and it's the first time the debt has ever hit that threshold.
  • The record follows a year in which the budget deficit was $779 billion, the highest since 2012, and the amount of debt issued topped $1.3 trillion, the most since 2010.
  • A debate is growing around how much the nominal amount of government debt really matters to the economy.

The US national-debt load surpassed $22 trillion on Monday, according to the Treasury Department. It's the first time that the total outstanding public debt has topped that threshold.

A little less than $16.2 trillion of that debt was held by the public in the form of Treasurys, while the other $5.8 trillion was intragovernmental holdings.

The amount of debt being accumulated is also accelerating because of recent changes. The budget deficit in fiscal year 2018 (October 2017 to September 2018) hit $779 billion. The deficit measures the amount of revenue the government pulls in minus the government's expenditures.

Additionally, a Treasury report estimated the total amount of debt issued during 2018 topped $1.3 trillion: the largest issuance of new debt since 2010.

Read more: The US budget deficit ballooned to $779 billion this year, the highest since 2012, driven by Trump's tax law and the massive budget deal

The recent acceleration in outstanding debt was driven by two recent legislative changes. The first was the tax-reform law pushed by President Donald Trump and passed by the GOP. The law is projected to add about $1.5 trillion to the debt over the first 10 years it is in effect.

The second was the large, bipartisan budget deal that passed Congress. The combination of slashed tax rates, lowering government revenue, and increased spending adds up to a higher debt load.

Traditionally, economists have warned that the high levels of government debt would cause problems for the US economy as private investment is crowded out by public debt.

But recently, progressive lawmakers, such as Rep. Alexandria Ocasio-Cortez, and some economists have started to latch on to modern monetary theory (MMT), an idea that posits the nominal amount of debt the US holds is not in and of itself an issue.

Read more: Alexandria Ocasio-Cortez says the theory that deficit spending is good for the economy should 'absolutely' be part of the conversation

Rather, MMT adherents say that government spending and debt accumulation is constrained by tangible assets. So if public indebtedness climbs with no effect on inflation, which seems to be the current case given the tame inflation levels in the US, the debt load is not posing a substantial threat to the economy.

SEE ALSO: Democrats claim the decline in Americans' tax refunds is proof the GOP tax law screwed over the middle class — but the truth is more complex

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12 AI startups that will boom in 2019, according to VCs

Tue, 02/12/2019 - 5:14pm  |  Clusterstock

  • Artificial intelligence is the next big technological wave, bringing new technologies, businesses and opportunities.
  • While the big tech corporations are all betting on AI, a number of startups are quietly pushing the AI boundaries AI to create smarter, faster apps and products.
  • Here's a list of AI startups that are on track to boom in 2019, according to the people closest to the startup world — the venture capitalists that watch, advise and invest in them.

As part of our comprehensive coverage of the startups that will boom in 2019, we asked the startup experts – venture capitalists – to name the startups they think are are going to be hot this year.

We asked them to tell us about companies within their portfolio as well as ones they haven't invested in but are hearing good things about.

One group of startups came up over and over again: those that specialize in artificial intelligence tech.

From AI robots to software that uses machine learning to automate tasks, here are Silicon Valley insiders' top AI picks, with funding information taken from Pitchbook, the deal-tracking database.

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Appzen: automatically audit expense reports

Startup:  AppZen

Total raised: $51 million

What it does: AppZen uses AI to automatically audit 100% of a company's expense reports, invoices and contracts in real time.

VC who selected it: Arif Janmohamed, Lightspeed

Relationship to the startup: Investor

Why it's hot in 2019: "Every company has employees who expense things that are out of compliance, out of policy or are just fraudulent. Similarly, every company has suppliers that game the system and push the envelope," says Janmohamed.

Atrium: using AI on legal documents

Startup: Atrium

Total raised: $75 million

What it does: Atrium is like the offspring of a law firm and a tech startup. It uses machine learning AI software to deal with ordinary legal documents and has lawyers who work on the complex legal issues.

VC who selected it: Nakul Mandan, Lightspeed

Relationship to the startup: No relation. Just thinks it's cool.

Why it's hot in 2019: "Legal advisory is a huge, huge industry that still operates pretty much the same way it operated two decades ago. Atrium is bringing together all the advancements in AI, workflow automation and collaboration to build a next-gen more scalable law firm," says Mandan.

Farmwise: self-driving, robot tractors

Startup: Farmwise

Total raised: $7.5 million

What it does: Farmwise has built an autonomous tractor that uses computer vision to cut weeds without the use of herbicides. 

VC who selected it: Niki Pezeshki, Felicis Ventures

Relationship to the startup: Investor

Why it's hot in 2019: The tractor could help farmers save money and overcome labor shortages. "The autonomous tractor that drives over rows of crops and uses computer vision to determine if what it’s looking at is a plant or a weed. If it’s a weed, it uses scissors to chop it, and if it’s a plant, it doesn’t do anything," says Pezeshki.

"With only a seed round raised, they already have multiple tractors operating on farms in California and are generating significant revenue," he says.

See the rest of the story at Business Insider

MoviePass' parent company has been kicked off the Nasdaq, but claims it 'has no effect on the day-to-day business' (HMNY)

Tue, 02/12/2019 - 5:05pm  |  Clusterstock

  • Helios and Matheson Analytics (HMNY), the parent company of MoviePass, has been kicked off the Nasdaq, according to a filing with the Securities and Exchange Commission on Tuesday.
  • The company had failed to meet the Nasdaq's listing standards by trading below $1 per share since July.
  • "HMNY’s delisting has no effect on the day-to-day business operations of HMNY or its subsidiaries, including MoviePass and MoviePass Films," the company said in a statement to Business Insider.


Helios and Matheson Analytics, the parent company of movie-ticket subscription service MoviePass, has been kicked off the Nasdaq, it disclosed in a filing with the Securities and Exchange Commission on Tuesday. It will now trade over the counter under the same ticker, HMNY.

Helios had failed to meet the Nasdaq's listing standards by trading under $1 per share since July. In December, the Nasdaq sent Helios a warning that the company would delisted, but Helios appealed the decision. The effort failed.

"The Company timely appealed the delisting notice and appeared in front of the Panel on January 31, 2019," Helios wrote in the filing. "The Panel issued a decision on February 11, 2019, and determined to delist the Company’s common stock from The Nasdaq Capital Market. The suspension of trading in the Company’s common stock on the Nasdaq Capital Market will be effective at the open of business on February 13, 2019."

Helios raised its profile in the summer of 2017 when it acquired MoviePass and lowered the service's monthly subscription price to $9.95 a month to see one movie in theaters per day. The move led to millions of new subscribers, but also hundreds of millions of dollars in losses. Helios has primarily used the selling of billions of new shares to cover its losses, and has seen its stock lose over 99% of its value.

Despite this, the company said in a statement to Business Insider that "HMNY’s delisting has no effect on the day-to-day business operations of HMNY or its subsidiaries, including MoviePass and MoviePass Films."

Read more: A MoviePass product manager resigned and blasted its leadership in a scathing letter to all staff

In January, Helios announced that it had sent a registration statement to the SEC to make MoviePass a separate public company. In a statement Tuesday to Business Insider, Helios said that effort would continue.

"HMNY will consider applying to be listed on an exchange again should it meet the applicable listing criteria in the future," the company also noted.

Helios had a complicated history as a Nasdaq-listed company before getting kicked off.

Before the MoviePass era, the New York outpost of Helios and Matheson was controlled by an Indian company (Helios and Matheson Information Technology), which stands accused of defrauding at least 5,000 creditors in India, including banks and senior citizens.

Here is Helios' full statement on its delisting:

"HMNY’s delisting has no effect on the day-to-day business operations of HMNY or its subsidiaries, including MoviePass and MoviePass Films. HMNY expects that its common stock will begin trading on the over-the-counter market on Wednesday, February 13, 2019. HMNY will consider applying to be listed on an exchange again should it meet the applicable listing criteria in the future. In the meantime, HMNY is proceeding with its planning efforts to effectuate a partial spin-off of MoviePass Entertainment Holdings Inc. (“MoviePass Entertainment”), which would take ownership of HMNY’s film industry related assets, including its shares of MoviePass Inc., membership interest in MoviePass Films and MoviePass Ventures and the Moviefone entertainment information service. The spin-off remains subject to numerous conditions, as previously described in HMNY’s SEC filings."

SEE ALSO: Netflix and HBO are fighting over the original TV crown, but the nunbers of hours Netflix is putting out is overwhelming

Join the conversation about this story »

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Apple is reportedly facing resistance from publishers over its plans to keep 50% of the revenue from its rumored subscription news service

Tue, 02/12/2019 - 4:56pm  |  Clusterstock

  • Apple is facing pushback from publishers over its planned subscription service, The Wall Street Journal reported.
  • The phone giant plans to keep half the subscription revenue it makes from the so-called "Netflix for news" service, which will cost about $10 a month.
  • Some publishers also are concerned that Apple won't share customer data with them.

Apple is trying to line up big publishers to participate in its planned subscription service, but it's facing pushback from outlets that are balking at the terms, The Wall Street Journal reported.

The phone giant reportedly plans to keep half the subscription revenue it makes from the so-called "Netflix for news" service, which could cost about $10 a month, and share the rest of the revenue with publishers.

Apple sees the service as a way to help shore up sales of its iPhones.

The report lists The New York Times and Washington Post as major outlets that haven't agreed to be part of the service, while talks between Apple and The Journal are ongoing.

Those publications all get substantial revenue from selling subscriptions directly to consumers, and risk giving up revenue and a direct relationship with readers by being part of a subscription bundle. On the other hand, the subscription service represents a potentially huge audience of Apple device owners to be put in front of subscription publishers.

The strained relationship speaks to an ongoing tension between tech giants and publishers that depend on these tech companies for distribution but are wary of their control of the revenue, data, and publishers' brand.

After being burned by Facebook, which has cut the amount of traffic it's sending publishers, many publishers have found a welcome traffic source in Apple News, the news aggregation app that's baked into Apple's mobile products.

Apple News also represents a safe, hand-picked environment for quality news publishers. 

Publishers also have groused that despite helping send readers to their stories, Apple News doesn't do much to help them sell advertising on those pageviews because of Apple's historic anti-advertising stance.

Join the conversation about this story »

NOW WATCH: Roger Stone explains what Trump has in common with Richard Nixon

Here's the most affordable town for renters in every US state

Tue, 02/12/2019 - 4:54pm  |  Clusterstock

  • Housing affordability varies widely across the United States.
  • Using data from the Census Bureau, we found the town in each state with the lowest median gross rent for apartments and other rented housing.

How much it costs to rent an apartment varies widely across the United States.

The American Community Survey is an annual survey run by the Census Bureau to allow the government, corporate and academic researchers, and anyone who is curious about demographics to better understand the US population. Among many other subjects, the ACS includes questions about how much people who rent their homes pay each month.

A bonus just for you: Click here to claim 30 days of access to Business Insider PRIME

Using the ACS estimates from 2013 to 2017 for places with at least 500 renter-occupied housing units, Business Insider made a map showing the town in each state with the lowest median gross rent.

Gross rent measures how much renters pay for their housing in total each month, including base rent itself along with utilities and other costs. Since the median gross rent for a place is measured across all rented housing units, places where renting larger properties like detached single-family houses is common may tend to have higher medians than places with smaller units.

Read more: It's more affordable to rent than buy in most US cities

Here's a table showing each of the towns, along with their median gross rent:

Join the conversation about this story »

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Cushy hotel rooms and fussy amenities in luxury hotels are the latest casualty of Instagram

Tue, 02/12/2019 - 4:30pm  |  Clusterstock

  • Some high-end hotels are making a move towards "lean luxury" with smaller room sizes and fewer amenities, Quartzy reported.
  • While the change is driven in part by cost-consciousness, another factor propelling the change is Instagram: Simple designs photograph well.
  • The trend is complemented by other luxury hotels — such as the $1 billion Burj Al Arab in Dubai — that are still offering expansive rooms and lavish amenities to their wealthy guests.

There's a new look among some luxury hotels, and it's a whole lot smaller — and barer — than it used to be.

It's part of a move towards "lean luxury," Quartzy's Rosie Spinks wrote, and while the pared-down room sizes and simplified amenities are cost-conscious decisions, there's also another factor at play in the change.

"By cutting back on both the size of the rooms ... and some of the more costly amenities of a traditional luxury hotel, hospitality companies can offer better locations, a design-led sensibility with higher quality materials, and an altogether elevated experience — for a pretty damn reasonable price," Spinks reported. "They also tend to look way better on Instagram."

Read more: Luxury hotels around the world have private rooms that are so elite they're not even listed online — and some are available only via email booking

The goal with lean luxury hotels, Spinks continued, is to be "far more functional and user-experience-oriented than a standard grand hotel room."

Instagram is changing the look of luxury

The effect Instagram is having on luxury hotels isn't all that surprising when you consider the way it's changed the way people, many of them millennials, travel at large. As Robb Report previously reported, people are planning trips around the world specifically for Instagram photos; similarly, some previously under-the-radar destinations — like the now-famous blue city in Morocco — are suddenly seeing upticks in tourism because they are so Instagram-friendly.

Spinks writes that "clean lines, minimal fussiness, and functional design lead the ethos" when it comes to the look of lean luxury hotels. Much like the NYC penthouse that was designed specifically as a backdrop for Instagram influencers, hotels are being designed with photography at top of mind.

And in an era where Instagram exposure can bring in enough traction that a luxe hotel in Switzerland was able to entirely eliminate its marketing budget, it's a logical point for hotels to turn their focus towards.

One such hotel featuring pared-down room aesthetics is Arlo Hotel, a microhotel in SoHo, NYC. Business Insider's Katie Warren visited the hotel in 2018 and found that the careful design of the 150-square-foot rooms kept them from feeling cramped.

"The rooms were definitely small, but for someone who doesn't plan to spend much time in their hotel room and isn't traveling with multiple large pieces of luggage, I think it would be a fun and memorable place to stay," she wrote. Despite its diminutive room sizes, though, the hotel is still on the expensive side: Room rates start around $330, compared to the NYC average of $216.

The other end of the luxury hotel spectrum

That's not to say that over-the-top amenities are disappearing from hotels at large. Lean luxury hotels aren't necessarily replacing the traditional luxury hotel — instead, they're opening up a new type of aesthetic on the other end of the spectrum.

Some hotels are pivoting towards customized amenities that personalize a guest's stay, primarily in the form of hotel staff remembering guests' food, drink, and product preferences, and delivering those upon the guest's arrival.

Read more: I stayed at 'the most luxurious hotel in the world,' and the most luxurious thing about it leaves the walls of gold and 'pillow menu' in the dust

Others are still leaning into the traditional vision of luxury and all its over-the-top trappings. In December, Business Insider's Harrison Jacobs visited the Burj Al Arab in Dubai, a $1 billion hotel that's been described as the best hotel in the world and "the world's first seven-star hotel." Every room in the hotel, he wrote, is a duplex suite that comes with a butler, an extensive mini bar, fresh fruit upon arrival, and a luxe mattress that can cost up to $15,000.

"I've stayed at many five-star hotels at this point," Jacobs wrote. "The Burj is undoubtedly a class above them all."

SEE ALSO: I stayed at New York’s most iconic luxury hotel that charges up to $50,000 a night and was once owned by Donald Trump

NOW READ: These are the most extravagant hotel amenities money can buy

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Africa's 1st dedicated hardware fund? SA SME Fund commits $7.9 million to hardware tech incubator Savant

Tue, 02/12/2019 - 11:06am  |  Timbuktu Chronicles
From VentureBurn:
The R1.4-billion SA SME Fund has committed R110-million to Cape Town based hardware tech incubator Savant, with 50% of this amount earmarked for black African owned firms, the fund’s CEO Ketso Gordhan revealed today.

The idea is that R100-million of the R110-million from SA SME Fund, will be committed towards the first close of a R100-million Savant venture fund that will invest in hardware tech businesses with products that are ready for market, Savant CEO Nick Allen told Ventureburn...[more]

Sweet Art Chocolate Company #Ghana from Bean to Bar

Tue, 02/12/2019 - 6:00am  |  Timbuktu Chronicles
The Joy Business Van highlights the Sweet Art Chocolate Company founded by Ruth Nana Ama Amoah:

Facebook and Twitter are following in Apple’s footsteps by hiding some of their most important numbers. Here’s why investors should be concerned (AAPL, TWTR, FB)

Mon, 02/11/2019 - 9:38pm  |  Clusterstock

  • Apple, Facebook, and Twitter each announced recently that they would stop disclosing some important data to investors.
  • Each said other figures better depict the health of their business.
  • But when companies cease reporting certain figures, it's often a sign those particular results are starting to deteriorate.
  • Apple is a case in point; immediately after it announced it would no longer report the number of iPhones it sells, its smartphone sales started to drop.

It's usually not a good sign when someone stops talking about a bit of information that they frequently bragged about in the past.

If your friends stop bragging about their dating lives, or how great things are going at work, you can probably bet that things have taken a turn for the worse.

So much more is the case when it comes to companies. When they stop disclosing certain numbers they were all too happy to share in the past, there's a good chance it's because those figures no longer put them in the best light and may actually highlight the fact that something is going seriously wrong with their business.

The tech industry of late has provided three high-profile examples of this truism.

In recent months, Apple, Facebook, and Twitter each announced that they would no longer be reporting a key figure analysts and investors have used to track their businesses. In each case, the change not only threatens to make the company's results more opaque, but it also seems to be an attempt to hide something unflattering about the firm's underlying performance.

Apple stopped reporting iPhone unit sales just before they plunged

Apple, of course, is the most notorious case of the three. In November, it alerted investors and analysts that it would no longer report the number of iPhones or other devices it sold each quarter.

Company-watchers had long scrutinized the figures, particularly for iPhone sales, seeing them as an important indicator of demand for Apple's products, their share of their markets, and the relative success of the company's business. But Luca Maestri, the company's chief financial officer, said Apple's competitors don't disclose their unit sales figures, and he argued that the numbers aren't "necessarily representative" of the health of its business.

Apple is in new lines of business, such as its collection of services, that don't depend directly on the number of devices it sells, he said. It also now offers devices at a wide range of price points, he said; the sale of a $1,000 iPhone X is obviously much more meaningful to its revenue than a $450 iPhone 7, but both would could as one unit sold.

Investors and even some analysts immediately saw through that line of reasoning. The number of iPhones Apple sold barely grew in its 2018 fiscal year, and Apple watchers worried that the company’s real reason for ceasing its unit-sales reports was because it figured its iPhone sales were about to start to decline. Apple's stock dropped 7% on the news.

Those fears were soon validated. Within a couple weeks of Apple’s announcement, the first reports started trickling out that it was seeing weak demand for its latest phones and was already starting to cut production. Although company officials initially tried to reassure nervous investors that sales were doing just fine, CEO Tim Cook eventually had to bow to reality, publicly acknowledge that sales were poor, and warn that that would translate into disappointing financial results.

Read this: Hey Tim Cook, there's a simple solution to your iPhone sales problem

Now analysts — working, admittedly, with much less data than they used to have — are forecasting a big drop in iPhone sales this year, and potentially further declines on into the future.

They’re also refuting the notion that unit sales are no longer important to Apple’s business, arguing convincingly that even the revenue the company gets from its services is closely tied to the number of iPhones it sells, given that so many of those services are exclusive to Apple devices. With iPhone sales expected to decline, many are now reducing their expectations for Apple’s service business.

Facebook and Twitter investors should be concerned

The Apple experience is instructive for investors and analysts hoping to make sense of similar moves by Twitter and Facebook. Both companies announced they would no longer disclose certain numbers about their respective user bases. Each attempted to justify the move by saying other numbers were more relevant to its business now. And in each case, there’s good reason for investors to worry about what they’re hiding.

Take Twitter. That company announced that it will no longer be reporting its number of monthly active users. Instead, it will disclose its number of monetizable daily active users; i.e. the average number to which it can show ads each day. Company officials didn't offer much of an explanation for the dropping the monthly number; Ned Segal, Twitter's chief financial officer, said merely that the daily number and its growth were "the best ways to measure our success."

But like Apple with the iPhone sales figure, Twitter had good reason to mask the monthly user number — it's been falling. After declining for three straight quarters, the company had 321 million monthly users in the holiday period. That was the least number of monthly users it had had since the end of 2016 and was down 4% since the first quarter.

Not to worry, Twitter officials essentially said. Its daily user count has been growing consistently for years now.

That may be the case, but the daily usage figure is problematic for multiple reasons. One of them is that the number is relatively small — just 126 million. At least nominally, that's 48% fewer than the number who use Snapchat on a daily basis. And it's less than 10% of Facebook's daily user base.

A second shortcoming is that Twitter says the number isn't necessarily comparable to other companies' daily usage figures and isn't determined by "any standardized industry methodology." That makes it kind of a black box — who knows how Twitter is actually calculating it? It also means that investors can't directly compare Twitter's performance with those of its social-networking peers.

Another problem with the figure is that it gives a very narrow window to view Twitter's usage. It would be best to be able to use it in tandem with the monthly figure to get a sense of how well Twitter is doing growing its overall user base and convincing them to use the site more regularly.

Like Apple shareholders, Twitter investors didn't seem thrilled with the change. The company's stock dropped nearly 10% on the day of its report, even though its results beat Wall Street's expectations.

Facebook is still reporting its usage numbers — for now

But even Facebook plans to get into the hidden figures game. In recent quarters, company officials have been touting usage of its family of services, including not just its core Facebook app, but also Instagram, Messenger and WhatsApp. The point officials have been trying to make is that the number of people who interact with at least one of its services daily is significantly higher than the number that just use Facebook. Additionally, the wider number has helped illustrate the growth of Instagram in particular.

Soon, though, company officials plan to only release the combined usage number and to cease reporting the Facebook-only figures. Again, the reason they gave was that the wider figure is a better indication of the health of the overall company.

"We believe these numbers better reflect the size of our community and the fact that many people are using more than one of our services," Dave Wehner, Facebook's chief financial officer, said on a conference call with investors.

As with Twitter and Apple, though, Facebook has an incentive to stop reporting usage of its main app — user growth on that service has slowed markedly. In the fourth quarter, daily and monthly usage of Facebook each grew by less than 9% from the same period a year earlier. As recently as the fourth quarter of 2016, monthly usage was growing at nearly a 17% annual clip and daily usage was growing by more 18%.

The broader figure will likely obscure that flagging performance. That's a problem because even though Instagram in particular has been growing rapidly, the core Facebook service still caters to the vast majority of users and brings in the bulk of the company's revenue and profit.

So keep a close eye on companies that stop reporting certain data. What they're hiding almost certainly isn't good news.

SEE ALSO: Apple needs to get serious about video. Here are 3 Hollywood studios it could buy to boost its new streaming service.

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Here's why investors are throwing money at startups that give away their software for free

Mon, 02/11/2019 - 7:59pm  |  Clusterstock

  • From mergers and acquisitions to massive amounts of funding, commercial open source software companies made a splash last year.
  • Confluent, Neo4j, HashiCorp and GitLab are just a few examples of commercial open source software startups that raised major rounds of funding.
  • Investors are excited about open source because it's what developers want, and it's what customers want.
  • Although these startups give away some of their software for free, their business model also makes marketing, sales, innovation and attracting attention from investors easier.
  • Still, some startups are wrestling with how to deal with cloud providers profiting from their work, and investors predict more changes to come in this space.

Last year was open source software's long-awaited spotlight moment, and the flash of excitement is now spreading to a broad group of startups betting that the business of giving software away is ready to explode.

A series of high-profile open source deals filled the calendar in 2018, as Salesforce acquired Mulesoft, Microsoft acquired GitHub, VMware acquired Heptio, IBM announced it would acquire Red Hat, Cloudera and Hortonworks merged and Elastic went public.

OSS Capital founder Joseph Jacks, whose venture capital firm focuses on open source startups, reckons that there was roughly $70 billion in mergers and acquisitions, private equity and IPOs involving open source last year. And he estimates that there's been another $2 billion in funding for commercial open source startups in the past year, as startups like Confluent, Neo4j, HashiCorp and GitLab raised money.

"That's an astronomically huge number," Jacks said. "We’ve never seen that much activity, commercially speaking, from a business perspective. We’ve never seen that much activity in open source."

Although open source software has been around for decades, the technology is suddenly hitting its stride as a business.

Despite creating software that they give away for free, these startups have a recipe for success that they're continuously improving and refining, along with a hungry clientele that's clamoring for more. The developers and engineers that open source software is aimed at now enjoy more influence and clout within their companies than ever before.

And many of the open source companies make bank. According to Jacks, who tracks these companies, there are now 40 commercial open source software companies that generate $100 million or more in annual revenue. Four years ago, only eight companies were in that club.

In the coming year, investors expect more growth in these types of startups, as well as more M&A, private equity, IPO's and funding in that space.

"We're as interested as ever in open source startups," Daniel Levine, partner at Accel, told Business Insider. "We keep seeing it as a viable business model. There have been great results in the open source world recently in terms of acquisitions and companies going public. I think for a long time, we were always surprised at how little interest there was."

Investors are excited because customers are excited

Levine says that many investors grew up during a time when Microsoft was spreading the word that open source is bad for business.  

Now Microsoft has completely converted, and with its acquisition of GitHub it's one of the companies that made a major play last year in the open source space. And there's an uptick in open source interest — a turnaround for many investors.

"Developers want to see how many developers trust this software," Dave Munichiello, general partner at GV, told Business Insider. "The open source software world is fantastic because you can quickly assess if software works for you."

Investors are excited about open source because customers are excited about it. A growing number of companies are using open source alternatives like Kubernetes for their workloads, rather than spending money to buy proprietary software. And more companies are discovering open source as they move their operations to the cloud.

Read more: Everything you need to know about Kubernetes, the Google-created open source software so popular even Microsoft and Amazon had to adopt it

In fact, Jacks, of OSS Capital, is so bullish on the trend that he started his firm specifically to invest in commercial open source software startups.

A counterintuitive business model

Giving away software for free is an inherently counterintuitive business model. And there's still plenty of hand-wringing and doubts about whether an open source company can really build a sustainable business around free software.

In the past year, MongoDB, Redis Labs and Confluent have changed their licenses in response to cloud giants like Amazon and Baidu taking their software to sell on their clouds — a practice that's completely legal.

Eric Anderson, principal of Scale Venture Partners, says that while he's seen investors more excited about open source than they used to be, he's also seen the opposite.

"Some investors have been wary for some time that it's hard to turn on the monetization engine for open source," Anderson said.

Read more: An influential group sponsored by the Silicon Valley tech titans warns that efforts are underway to 'undermine the integrity of open source'

But investors in open source startups counter that making software available as open source has advantages over proprietary software, and, they say, it's often easier to build open source companies.

"I think it’s actually just as hard if not harder for traditional legacy proprietary software companies to make money," Jacks said. "They’re arguably more capital intensive."

That's because the people behind the software don't need to raise money to create value. Since anyone can contribute code to an open source project, the software can evolve much faster without a company needing to hire a team of developers.

Nor does the company need to spend as much on resources like sales or marketing. Instead of paying salespeople to get customers, an open source company can acquire customers cheaply as the software itself is the sales tool. 

With open source software available for anyone to download for free, people don't need to be persuaded to use it. They just need to try it out. If the product is good, a community can quickly emerge around it, spreading the word and building user loyalty.

"If you build something that’s compelling to software developers and engineers, you benefit from a network effect," Jacks said. "If those projects were proprietary and you want to get a similar level of global adoption and level, it would cost hundreds of millions of dollars to get there."

This applies to getting VC money, too. When investors see thousands of people using the software, they can already get a sense how much traction and demand the product has. By the time VC's invest, the company has already found some success. And when they see all the exits that commercial open source startups have made in the past year, they get excited.

"We are excited about open source in general," Munichiello said. "It tends to be cutting edge. As a result of it being open, some of the best developers have tested it. We get a sense of how they are able to create value."

And sure, it can be hard to turn open source software into a business, but it's tough to turn any kind of software into a business, Munichiello adds.

"In general, both investing and entrepreneurship are challenging," Munichiello said. "There's more open source companies being created, and investors are willing to put their money at risk. When investors are writing their investment theses, they're thinking about the upside."

A cloudy landscape

In the coming year, investors expect more change and innovation around the way commercial open source companies license and monetize their software. This is a question that some companies are still wrestling with.

Right now there isn't one standard business license for these types of companies to use. One startup Tidelift was even built around finding an alternative way for open source developers to make money off of contributing to and supporting open source projects that enterprises rely on.

"I think we'll see continuing spectrum as the polarized worlds of proprietary and open continue to erode to a spectrum," Anderson said. "It will be interesting to see between all these new licenses, if one emerges as a standard."

Levine says he's not too worried about cloud providers becoming a threat to commercial open source startups. For the enterprise software that startups sell, they usually offer additional features that a company like Amazon can't take.

"You have to work a little harder and compete, but that's true of anything," Levine said. "The key is you want to make sure your community is happy and your customers are happy."

SEE ALSO: The CEO of App Annie, one of Silicon Valley's most popular app data platforms, explains how it revamped its culture while preparing to be IPO-ready

Join the conversation about this story »

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