Gravitas Spark CrowdFunding

Tag: fintech

  • Big Beautiful Bull Market Or Bust?

    Big Beautiful Bull Market Or Bust?

    It has been a very good week for the accused. Vlad Putin gets free war-crime shots at defence-stymied Ukraine courtesy of ‘Whiskey Pete’ in the Pentagon, P.Diddy is acquitted on the worst RICO charges, Bibi flies to Washington without fear of arrest and the US Supreme Court gives King Donald a July 4th gift of even more freedom to ignore other judges. Oh, and Trump’s “Big Beautiful Bill” was passed in the US Congress. Tempted to laugh, cry or rant? Don’t. Investors need to focus on the ‘cards’ dealt and be alert to an investment environment which is increasingly looking like a “Big Beautiful Bull Market”. Despite ongoing tariff tantrums and confusion (Japan and South Korea getting their letters as I write) we should be keeping a close eye on a number of market developments.

    The obvious pulse take on investment market health is the performance of stock markets. Irrespective of dollar weakness, the key US benchmark indices of the S&P 500 and Nasdaq hitting all-time-highs in recent days is a strong positive signal to investors. But it’s not just the headline numbers which are flashing green. There are additional promising signals in different parts of the capital markets. Many commentators believe the markets are entirely driven by AI optimism so it is no harm to see the AI chip poster child, Nvidia, regain its crown as most valuable company on the planet and gently ease its way to within 2% of a $4 trillion market value. The all-too-recent excitement about the first trillion dollar company (Apple in 2018) seems almost quaint amid such phenomenal acceleration in wealth creation. And, there’s more AI chip good news in Washington’s Big Beautiful Bill.

    There’s a quasi-arms race going on globally in AI chip manufacturing which the Biden administration spotted and supported with the CHIPS & Science Act. Trump might be happy to burn the planet (and Elon Musk!) by reversing the electrification revolution championed by Biden but…. he’s not reversing the CHIPS tax incentives. In fact, Trump’s bill has increased investment tax credits from 25% to 35% for any manufacturers building new facilities on US soil.  It’s not the only recent policy win for the industry. Last week, the US Commerce Department told leading semiconductor design software providers — including Synopsys and Siemens — that they are no longer required to obtain government licenses to conduct business in China. One can be sceptical about the true value being created by AI but there’s no doubt real money being spent by Big Tech companies like Microsoft, Amazon and Google has massive knock-on positive impacts in the global economy. Forget that old canard of “trickle down” tax reliefs for the wealthy benefitting the wider economy, but corporate incentives really do work. Indeed, if you want money to flow into the economy then it’s always good to see banks become more ambitious in their lending activities. Even better, if an entirely new bank comes along.

    Silicon Valley Bank may have failed the basics of asset-liability matching (term horizons) in 2023 but the venture funding world never really managed to fill that $218 billion gap left by the early-stage champion. Now, there are reports Musk billionaire buddy, Peter Thiel, and an investing team of tech titans have applied for a bank charter. The new bank will be called Erebor, another Tolkien reference like Anduril and Palantir, to assist the ‘innovation economy’ and companies engaged in developing cryptocurrencies, AI and next-generation defence technology. Banks don’t usually emerge in risk-off moments so there must be some confidence bubbling back into the private early-stage investing world. Of course, it’s great to see new money or new bank flows IN to riskier parts of the investment market but what about getting OUT the other side of the risk journey? More good news.

    IPO data compiled by Bloomberg shows that a slowish start to 2025 has delivered some very interesting performance figures. The weighted average performance of companies whose shares made their debut on US exchanges in 2025 was a punchy 53% compared to single digit returns year-to-date on the S&P 500. The highlights were stablecoin fintech Circle up a whopping 585% since its IPO in…. June. Not far behind, cloud computing player, Coreweave, has returned 300% since its March listing. Suddenly, but not surprisingly, it’s raining IPOs with another high profile fintech, Wealthfront, filing for IPO.  Crypto exchange, Gemini, has filed for a public listing too. Europe didn’t miss out on the IPO fun either in the first 6 months of 2025– a weighted average return of 38% for its newly listed companies is not too shabby. They are the public liquidity or exit events a market needs to see for confidence to flow into the early stage private markets and there’s early evidence of increasing optimism.

    Medtech VC funding activity had its best quarterly performance since 2022 with $4 billion invested globally in young companies (Source: Pitchbook). Meanwhile the value of VC exits hit a 3-year high in Q2 with almost $115 billion of deals completed and exits celebrated. It can be a little too easy to criticize the US these days at a political level but Europe needs to look in the mirror. This article mostly cites US capital market develoipments. For good reason. Mark Rubinstein in his excellent Net Interest newsletter titled “Ode to America” this week put it well:

     

    “European policymakers bemoan that while households in their part of the world save more than Americans, they keep a third of their assets in low-yielding deposits, compared with a tenth in the US. European pension funds allocate just 0.02% of assets to venture capital versus 2% for their US peers. And the median European venture-backed company receives around half as much funding as its US counterpart. European Central Bank president Christine Lagarde recently calculated that, if Europeans matched Americans’ appetite for capital markets, some €8 trillion currently trapped in bank deposits would be unleashed to finance transformation.”

     

    Wowzers. Eight trillion euro. Food for thought but we might need that eight trillion for other things. One can’t ignore that there is a critical part of financial markets which is not as cheery as a Republican pardon party. The half year reviews are in and the mighty US dollar is feeling the heat. A loss of purchasing power to the tune of 11% in just 6 months has not happened since Richard Nixon was President, and then he wasn’t. We might not want to draw a dreamy historical parallel but it is curious how quiet the bond market has been since the passing of the Big Beautiful Bill and its reckless debt implications. If the US dollar is pointing to a credibility issue and ultimately a US bond market BUST, it could be European savings pools which will be needed to stabilise things. The price will be a hell of a lot more than tariff tweaking and that’s not wishful thinking. Even if you’re on the beach, it’s worth following the money right now but do keep an eye on the bond market too.

     

  • Watch Out For The New Stable Empire Build

    Watch Out For The New Stable Empire Build

    Stability wouldn’t be the word of the week. Middle East war, Indian air crash tragedy, horrific school shooting in Graz, the US Marine Corp deployed in Los Angeles and the death of America’s Mozart, Brian Wilson. But… the ground-breaking Beach Boy might also SMILE**. Tortured by mental health challenges for most of his life, his genius is rightly being recognised at a rather weird moment. Thousands of miles away from the Californian beaches which inspired a true genius, a delusional “stable genius” is marking his birthday with a military parade in Washington. The irony indeed of a wannabe emperor, without clothes or genius. However, the sharper minds out there have been busy building another type of empire….Here’s a few timely illustrations.

    Stripe kicked off the week with the $1 billion acquisition of Privy. This is Stripe’s second billion dollar acquisition in less than six months (Bridge $1.1 billion in February) in the area of stablecoins. As a quick refresher, stablecoins are digital currencies (crypto) built on blockchain technology whose value are fixed to the value of a recognized liquid security or currency. In the vast majority of cases the “stable” part of a stablecoin is the world’s chosen reserve currency, the US dollar. This means that these stablecoins can be instantly exchanged for US dollars, in most cases, at a 1:1 ratio (FX rate). However, I only use the “FX rate” terminology to assist understanding because stablecoins operate differently, and have one massive potential advantage over typical foreign exchange (FX) rates. They cut out all the intermediaries’ costs and “toll takers” that drive us all to distraction at airports when it feels like a robbery rather than a financial service has taken place. This digital capacity to cut out costs and deliver ‘frictionless’ currency services has been identified by Stripe as an enormous opportunity to “grow the GDP of the internet”, namely e-commerce. Two deals in 6 months demonstrate that strategic appetite.

    Stripe, as a global leader payments platform, bought Bridge specifically as a platform for payments in stablecoins. Bridge provides the payments infrastructure for financial services companies to issue stablecoin-linked Visa cards. So, that covers the payments bit but Stripe has moved further into stablecoin infrastructure with its Privy acquisition. As Stripe CEO, Patrick Collison put it, “Money has to reside somewhere, and Privy builds the world’s best programmable vaults. Alongside our other stablecoin work, we’re looking forward to enabling a new generation of global, internet-native financial services.” In relatively simple terms, Stripe has acquired the ability to handle stablecoin payments AND the digital wallets (vaults) needed to store those digital currencies. Note, this is not some futuristic ‘bet’. This is a very current service. Indeed, Mastercard reckon one third of Latin American consumers have already used stablecoins for purchases. And, it’s not just “Main Street” embracing stablecoins. Wall Street is buzzing this week.

    The IPO of Circle on the NYSE was 25x over-subscribed before it even began trading last week. Circle is the issuer of probably the safest and most transparent stablecoins, USDC, which is pegged 1:1 with the US dollar. By the end of its first week of trading, Circle’s share price had rocketed 378% above the IPO price to reach a valuation of $32 billion. Clearly, Wall Street’s frenzied embrace of digital currencies, wallets, payments etc could spell trouble for the traditional custodians of currency storage and movement, the banks. They are moving too.

    French banking giant, Societe Generale, announced this week plans to launch a publicly tradable dollar-backed stablecoin. Societe Generale is the first major bank to enter the stablecoin market and has named its new digital currency “USD CoinVertible”. Meanwhile, in the US, Congress is poised to pass legislation to create a regulatory framework for stablecoins. Bank of America could launch a stablecoin, its CEO said earlier this year, and some other large banks are also considering issuing a joint stablecoin. The banks won’t be alone.

    The world’s two biggest retailers, Amazon and Walmart, are looking into issuing their own stablecoins for US customers to use at checkout instead of credit or debit cards, the Wall Street Journal reported yesterday. The WSJ article suggested other big companies, including Expedia and some airlines, are also considering the move. The motive is simple and relates to my earlier explainer. Costs. Stablecoins are hugely attractive digital innovations to process payments quickly and potentially save corporations billions of dollars in swipe fees that they pay every year to credit card companies, banks, and fintech startups like Toast and Square. Businesses forked out over $172 billion in US transaction fees in 2023, a near 50% increase from before the pandemic, as more customers went contactless. Even Washington is taking notice, and is moving legislation with, again, a teeny weeny bit of irony….

    The US Congress is due to vote on a bill known as the GENIUS Act (the other crypto legislation due is the STABLE Act, I kid you not)  which would give private companies a blueprint for issuing their own stablecoins. That vote could be as soon as Monday, and rely on a body politic flushed with the narcissistic joy of watching a military parade on the streets of Washington DC – an exercise once the autocratic preserve of the Kremlin, Beijing or Pyongyang. It’s a strange new world, but there is still real genius and opportunity out there.  Watch that stablecoin empire build….

     

    **Brian Wilson and the Beach Boys began recording their album, Smile, in 1966. Brian was convinced it would be his masterpiece. Struggles with mental health intervened, and delayed the release of the album until almost 40 years later. TIME magazine described its ultimate arrival as “rapturously received” and ranked it as one of the ten best comeback albums of all time.

     

     

     

  • Three Winning Hidden Trends

    Three Winning Hidden Trends

    I was tempted. The “buddy breakup” in Washington between the Taco Toddler and the Ketamine Kid is fabulous writing material. But, no. The real risk these days is being distracted by America’s slide towards lawless autocracy and missing something bigger. Eighty one years ago on a June 5th morning President Roosevelt brought good news to the American people and its allies. Rome had been liberated by Allied troops – “The first of the Axis capitals is now in our hands.” Little did Roosevelt’s audience know that later that day paratroopers would be dropped into northern France ahead of 7,000 ships landing on the D-Day beaches of Normandy on June 6th. Fast forward to that anniversary today, and there are winning opportunities again being potentially obscured by Washington broadcasts. Indeed, it’s possible you may have missed some striking data updates to three huge investment trends this week. Let’s dive in.

    Last month at its annual Stripe Sessions conference, CEO Patrick Collison identified the “gale-force tailwinds” of AI and stablecoins. The first tailwind trend won’t be a surprise to any readers of our AI article last week but it was intriguing to hear Collison say, “Stablecoins are the underdog everyone’s sleeping on.”  He also had an interesting take on the macro “noise” and uncertainty prevalent in today’s business world – “when new technologies collide with a turbulent economy, the technology tends to win”. That seems a prescient call this week when we briefly touch on AI and reflect on its chip champion, Nvidia, revealing its latest quarterly results. Despite tariff disruption of its China business, Nvidia beat Wall Street analyst expectations and regained its status as the world’s most valuable company. Thanks to a 50% surge is its share price over the last 8 weeks, Jensen Huang’s chip behemoth is worth $3.4 trillion. The latest data point on stablecoins was also quite eye-catching.

    Not long ago Circle Internet Group was saved by the US government when Washington guaranteed deposits at the collapsing Silicon Valley Bank(SVB). Circle as an issuer of dollar-backed stablecoins was the top dollar depositor customer at SVB. However, this week the newsflow was way more optimistic as Circle waited to IPO on the New York Stock Exchange. Reports suggested investor interest was massive and the listing was 25x over-subscribed. Not surprisingly, with more buyers than sellers, Circle’s share price surged 168% on its first day of trading to a valuation just shy of $17 billion. It’s difficult not to conclude that stablecoins have “arrived” and investors are excited by Collison’s own description of stablecoins’ “real world utility in regular business”. In fact Stripe confirmed stablecoin issuance has increased by 39% year-on-year while “demand for borderless financial services go through the roof….at a growth rate which eclipses anything we’ve seen before in Stripe”. Ok, that’s two winning trends. The last one won’t surprise but the numbers might.

    Private equity (PE) and its billionaire leaders could be doubting their love-in with the Taco Toddler but they are not the only PE-related cohort in doubting mode. PE investors are quietly wondering how private equity houses are going to deploy the $1.2 trillion of ‘dry powder’ which is currently sitting on the side-lines and hurting overall return on investment (ROI) figures. A quarter of that massive total has been available for the last 4 years (Source: Bain &Co). However, there is no doubting our mantra “the future is private” when you consider private equity now controls a record 29,000 companies worth more than $3.6 trillion.  But, there are cyclical challenges. Higher interest rates, reduced IPO activity and M&A paralysis (execs can’t Taco trade those deals) don’t help valuations or exits so it’s worth noting global PE fundraising has declined for 5 straight quarters. Global PE raises in Q1 were down 33% per Pitchbook/Bloomberg reports but that cycle might be about to shift. The Wall Street Journal this week reported that the software-focused PE giant, Thoma Bravo, has just raised a staggering $34.4 billion which is the biggest funding round since the start of 2024.

    As a final thought, one must be mindful that as investment funds become bigger and bigger their opportunity pool shrinks due to size and liquidity constraints. On the other hand, as the ECB cuts interest rates, Ireland GDP growth hits almost 10%, German equities touch all-time highs and Trumpolini begs President Xi for a trade détente, it is arguably a particularly good time for investors to think small, and think private. So, if you want to build a private asset portfolio quickly, Spark Private can certainly help with a very exciting summer EIIS** pipeline of PhD-packed medtech innovations, real-time AI applications, 3-year infrastructure exits and super-growth software stories. Do not be distracted. Check out www.sparkprivate.com  and, as my old boss used to say, “They ain’t door numbers, they move !!”.

    ** EIIS tax rebates of 35-50% on your 2025 personal income tax.

     

  • Truly A Moron

    Truly A Moron

    We are into the name-calling phase of global trade policy. The “Stable Genius” Party told us to “reject the evidence of your eyes or ears” or even the ten trillion dollars of capital destruction. But, enough is enough. Or, so thinks DOGE-whisperer Elon Musk. The focus of his ire is the White House driver of Donald Trump’s trade tariff policies, Peter Navarro. Now, Peter is an interesting chap. He first came to my attention with a series of books featuring hard line views on China and US trade deficits generally.  He then served in the Trump 1.0 administration of 2016-2020 when his “fringe” economist status acquired an unusual qualification. Well, weird. It turns out the globally reputed economist, Ron Vara, quoted in many of Peter’s books was a fictional figure. Indeed, Ron Vara was not just supportive of Peter’s bonkers economics but also an anagram of his own name. No, seriously.

    So, who’s surprised to read the Navarro tariff calculations are the work of a ChatGPT output which the right-leaning American Enterprise Institute (AEI) think could be out by a factor of four times(400%)? It’s a bit late now but Musk has just described Navarro as “dumber than a sack of bricks” and “truly a moron”.  You’ll note my view that Musk is too late to undo the damage of the Mad Orange King and the Ron Vara school of economics. In fact, it’s not actually my view.  Policy uncertainty paralyses business activity and the scores are coming in fast….

     

    *Larry Fink, CEO of the largest asset manager on the planet, BlackRock Inc, with $10 trillion reasons to care says “Most CEOs I talk to would say we are probably in a recession right now.”

    *Jamie Dimon, CEO of the most valuable bank on the planet, JP Morgan, in his annual letter to shareholders delivered a blunt warning – “The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession.”

    *Airline share prices are traditionally viewed as early warning signals of trouble ahead. So, when you see Delta, American and United stocks drop 35-45% this year we should pay attention. Larry Fink is anyway – “Airlines and air traffic are a canary in the coal mine. Right now the canary is sick”

     

    Cheery stuff. However, these are US-focused observations. We have been here before and we should remind ourselves that capital markets can be quite effective in taming policy tyranny. Ask Liz Truss. Then check bond markets. Interestingly, if bond markets “believed” recession was imminent then bond yields(rates) would not be rising like they are right now. US 10 year Treasury yields have jumped from 3.87% to 4.52% in the past two trading sessions. This is highly unusual bond behaviour when equity markets are so volatile or declining. In fact, it’s the all-powerful bond market questioning the credibility of US institutions. Hence, you’ll soon be hearing Trump whining about the Fed lowering interest rates but, again, not quite understanding bond markets. Other markets are behaving in a more orthodox manner but could also upset the tariff toddler.

    You might have noticed that Trump has refused the pre-‘Liberation Day’ EU offer of zero tariffs on industrial goods. Trump and his team are now switching focus to “non-tariff trade barriers” and demanding the EU buy $350 billion of energy to balance out trade deficits. The White House is rapidly losing the faith of its fossil-fuel friends who are staring down the barrel of $50 spot prices for oil. Ahead of inauguration, the reversal of Biden’s signature IRA act and decarbonisation/cleantech investment incentives sounded good to the oil barons but they didn’t plan on Trumpolini playing Texas Hold ‘Em with every trading partner in the world …..at the same time. And, don’t forget the Kremlin and its war economy is acutely oil price sensitive too.

    Cryptocurrencies and their broligarch fan boys are also going to be a bit tetchy apart from “car assembler” Musk. Bitcoin is down 17% year-to-date with cryptocurrency ETFs (funds) suffering their third consecutive month of outflows. In fact, the big picture worry for all cryptocurrency evangelists is that on current pricing history evidence Bitcoin appears to have morphed into a tracking instrument for the tech-heavy Nasdaq equity index. It’s supposed to be a currency, as a quick reminder.  Go check the charts and then wonder how long before the broligarchs put pressure on Trump to move the markets into risk-on crypto-friendly mode. We will wait but private markets won’t stand still. In fact, big global structural themes (outside trade) will continue to play out in private. Just this week we spotted these three deals amid all the screaming red ticker-chyrons and panic headlines:

     

    • Faster research: San Francisco-based Rescale provides AI-powered R&D simulation software and has raised $115m from investors including Nvidia.
    • Content generation: Another Californian start-up with Spanish founders, Krea, uses generative AI for image content generation and design. They have just raised $83m from investors including Bain Capital.
    • Payment infrastructure: Juspay, an Indian payment infrastructure start-up has raised $60m from institutions including Kedaara Capital.

     

    Humanity and innovation will keep moving forward irrespective of the headlines. Public markets gyrating violently are the real-time expression of capital flows, fears and policy paralysis but, in private, both in Washington and in private markets we can be far more optimistic. Nothing crystal clear right now but the waters will still be blue ahead…

  • Ten MEGA Signs Of Not So Much Winning…

    Ten MEGA Signs Of Not So Much Winning…

    Never thought I’d say this. I think I need those Freezbrury cold water challenge days to extend into March. Well, I need some shock therapy to dull the senses and distract from a rules-based world order which is crumbling by the hour. Should I care that a former Fox & Friends host has just instructed the US military to cease all operations against Russian cyber threats? Probably, but I’m not sure it’s helpful to follow the dizzying pace of breaking news and broken alliances. We have previously written about how the financial markets can rein in autocratic megalomania both East and West. In that instance we flagged the power of bond (debt) markets. Now, it looks like a regime which promised “so much winning” is losing the confidence of more than the bond market. Here’s a list of losers….

     

    US Business Confidence: The silence or craven submission of US business leaders to the erratic ‘shake down’ of US allies and the established world order has been stunning to observe. However, as we often write, corporate actions can be more informative. Quietly removing DEI policies requires minimal leadership courage (I’m being very generous with that word). Dealmaking (M&A) on the other hand is way up there in terms of career risk for senior executives. Guess what? US M&A deal activity in January slumped to a decade low with a 30% drop year-on-year.  Uncertainty is a strategic decision killer.

    US Capital Markets: The US financial markets have dominated the world since the 2008-2009 financial crisis. US stock markets now account for more than 50% of the value of global equities after outperforming international stocks for more than 16 years. However, this year it’s a different or shifting story. At the end of February, international stocks had gained 7.3% in 2025 vs a 1.4% gain for the S&P 500.

    US Growth: Investors in US stocks appear to be concerned. They are not alone. The much-watched GDPNow forecast of the Atlanta Fed is currently projecting US GDP will CONTRACT by 1.5% in the first quarter compared to the forecast of healthy 2.3% growth a week earlier. Also, US consumer spending has just fallen for the first time in two years.

    US Technology: The “broligarchs” might have taken over the White House but the “Magnificent 7” technology stocks are experiencing slippage in 2025. Only one of Meta(+11%), Apple (-4%), Amazon (-3%), Google (-10%), Microsoft (-6%), Nvidia (-10%) or Tesla has seen its share price in positive territory this year.

    Tesla: Tesla’s share price decline this year is a whopping 23%. Apparently, Elmo Musk’s fondness for autocrats and far-right parties in Europe has been a bit of a brand-killer. Sales in Europe for the first two months of 2025 are down 46% which can’t all be explained by consumers waiting for a Model Y refresh. Don’t expect any bravery from Tesla board directors either.

    US House Sales: US existing home sales have dropped to the lowest levels since…. 1995. Yes, that’s when there were 80 million fewer people living in the US and didn’t have a President threatening a tariff war with its neighbour and construction-critical timber supplier, Canada.

    US Dollar: As the world’s reserve currency the US Dollar (USD) is a long way away from any structural impact from the waning credibility of its sovereign’s political system. However, the USD is trading at an 11-week low against 6 major rival currencies. And….one of the better macro writers out there, Barry Ritholtz of The Big Picture blog, has flagged the dangers of policy error for the USD:

     

    “Since the end of World War Two, the USD has been America’s “exorbitant privilege” as the world’s reserve currency. However, several factors threaten this privilege: wide-scale tariffs, the embrace of alternative digital currencies, the breaking of long-standing alliances, and dallying with dictators.

    Since the end of World War II in 1945, the rise of the United States as the world’s dominant economic, military, and cultural power has led to a relatively peaceful 75 years in the Western Hemisphere, Pax Americana, has greatly benefited the U.S. and its allies. Putting that at risk would be one of history’s greatest unforced errors.”

     

    US Supply Chain: The just released ISM Manufacturing survey for the US reveals the “prices paid” index for companies surged to a 32-month high as suppliers adjusted prices upwards ahead of threatened Trump tariffs. Oh, and don’t mention egg prices to the ‘Build-that-Wall’ cult – egg shortages are pushing prices up by 53% vs 2024 prices. Yep, you might remember there was some bloviating chat about inflation being fixed ‘on day one’.

    US Jobs: There’s every chance Elmo Musk could end up being the DOGE that caught the car. Musk has been tasked/appointed himself to remove unnecessary spending by the US Federal government and its 3 million employees. But… the shock being applied to the US economy is possibly underestimated. The US government spent $6.8 trillion in 2024. For context, that’s more than 10x the size of the global semiconductor industry’s annual revenues ($628 billion 2024). Firing people in climate/weather forecasting roles and shutting down foreign aid (USAID) are just headlines. The bigger picture suggests one of the US economy’s most critical components (government spend) is in contractionary territory which will impact not just government jobs but the entire government supply chain in the private sector. Yep, a $7 trillion customer of the US economy is now being  run by Elmo and his “Muskrats” with cute names like “Big Balls” and “First Buddy”. No seriously.

    Brand America: As a symbol of American global reach and brand value it’s difficult to beat McDonald’s. Some of you may even recall the opening of its first Moscow restaurant with the famed “Golden Arches” in January 1990. You just knew the geopolitical sands were shifting. Less than two years later the Soviet Union collapsed. Now, check out the IPO of a company in Hong Kong this week. McDonalds is no longer the biggest food and beverage chain in the world. That title now goes to Mixue Ice Cream & Tea which has 45,000 branches in Asia and is opening approximately 21 stores……. every single day.

    It’s a bit early to be suggesting a shift in global leadership but perhaps the competition has just shot itself in the foot. I’m thinking of Europe now and how a geopolitical crisis might just prompt real thought about making Europe great again (MEGA). Three financial data points caught the eye this week and suggested investors might be warming up to real policy action in Europe:

     

    • The Swedish Krona is appreciating fast (2.4% today) as investors recognise Sweden has the highest military equipment production per GDP in Europe.

     

    • Europe’s benchmark stock index, the Stoxx 600, has risen every week for 10 straight weeks.

     

    • Germany’s Rheinmetal (+14%), Britain’s Bae Systems (+19%) and France’s Thales (+23%) have seen their share prices rise by double-digit percentages in a matter of days.

     

    The $2.5 trillion global defence industry won’t be the only area Europe should target to compete as a “trusted partner” . Presumably, many countries and organisations seeking commercial partners in healthcare (medicine/vaccines) and financial services will have noted the risks of deal exposure to a US political leadership who ultimately might want  a “piece” of a country in exchange for “peace”.  Europe, by standing with Ukraine, could send a very powerful message on dependability to future partners as its former Washington ally works furiously to keep the KGB lieutenant colonel in the Kremlin happy.

     

  • Still Some Golden Theme Tickets Left…

    Still Some Golden Theme Tickets Left…

    I’m going to save you some time. Forget about calendar-driven commentariat reviews and 2025 forecasts for investment or geopolitical risk. Sorry to be the “Grinch of Guru”, but calendars and structural investment themes have zero correlation. Opinion is cheap and even the betting markets are displaying their patchy predictive powers in recent weeks. Yip, just a 6% chance of the Ba’athist beast, President Assad, being toppled in Syria. About as much chance as a Chinese spy in Buckingham Palace… oh wait. Sadly, Prince Andrew is a multi-year clown car journey in particularly poor company but there’s a lesson there too. Almost all significant investment themes – risks and opportunities – are multi-year stories whose plots twist and turn but keep a very clear direction of travel. So, let’s take a look at some of the major themes we have previously visited and a few more developing ones; all with interesting plot twists.

    Europe Crisis or Opportunity: Nothing good in the headlines…..German government falls, UK in second month of GDP contraction, France on its 4th premiership in a year. But, but here’s a few twists on the negatives. The lists of where Europe lags the US is a long one, from labour productivity, to AI and innovation, to stock market performance. And yet, if you strip out the performance of AI hardware star, Nvidia, from the S&P 500 then Europe’s stock market (MSCI EMU) has actually earned better returns for investors than the US benchmark since the most recent bull market started in October 2022. That suggests there are lots of European companies doing very well despite ‘core’ European economies struggling. Check out also in recent days Spotify becoming only the second European tech company since SAP to crack the $100 billion market cap mark. The headlines do not lie but the narrative on Europe is more nuanced than you think.

    Healthcare: Another structural theme from previous years’ writings, healthcare has actually been a winning area for Europe thanks to the miracle weight-loss drugs, Ozempic and Wegovy. Their Danish owner, Novo Nordisk, became Europe’s most valuable company in 2024. However, we might be about to enter an accelerated era of therapy/drug discovery for all types of medical illness. The clue is in the Nobel Prizes awarded in both Physics and Chemistry in 2024 to pioneers of AI usage in research. Now, for those already struggling with how AI large language models (LLM) work and the warp-speed calculations of the almost-monthly iterations of these technologies, get ready for the ultimate head wrecker. Google has just developed a quantum computing chip, “Willow”, which performed a computation in less than 5 minutes that would have taken today’s fastest computers 10 septillion years to complete. Yeah, that’s 25 zeros which exceeds known timescales in physics and vastly exceeds the age of the universe. Think about that. This chip created by quantum physics “used” time which theoretically can’t exist unless…… there are other parallel universes. Google Quantum AI founder, Hartman Neven, calmly wrote that the stunning performance of this chip indicates that “we live in a multiverse”.  Maybe Willy Wonka wasn’t so wrong to say “Come with me and you’ll be, In a world of pure imagination”.

    Artificial Intelligence (AI): Arguably, the world of AI has moved in a completely different direction. The shift of investment capital away from bits (software) to atoms (hardware) has been spectacular. Another company nobody ever heard of until recently, Broadcom, has become the latest technology hardware company to join the trillion dollar market capitalisation club. The US chip maker is now one of FOUR tech hardware companies in the list of the 10 most valuable companies on the planet. Clearly, investors see AI infrastructure as the early ‘win’ in the AI arms race. However, do NOT ignore software. Interestingly, the Clouded Judgment software newsletter has flagged a 20% expansion in median software valuation multiples since mid-November (from 5.6x to 6.7x revenues). Also, Nvidia has dropped in value by 11% in recent weeks. Yes, rotation from hardware to software and back again will be a feature of the multi-year AI revolution but the venture capital data from CB Insights confirms the direction of AI travel. Global venture capital (VC) deals in AI jumped 24% in Q3 to the highest levels seen since the Q1 2022 peak. In fact, one in every three dollars of VC investments went to AI start-ups.

    Banking and Fintechs: Closer to home, Revolut has just confirmed it has more than 3 million customers in Ireland. A staggering 75% of all Ireland-based adults now use the UK fintech platform for banking and payments. Meanwhile, the US bank sector has rocketed 30% higher this year, Europe is seeing Italian banking M&A deals and the largest asset manager in the world, Blackrock, has embarked on a private asset acquisition frenzy. We have written before that the future is private and I’m wondering are big corporates thinking the same? Sticking with the fintech sector, it was striking in the past week to see the shipping/logistics giant AP Moller lead an €80m investment round for UK fintech, Zopa Bank. In the same week, we note another globally significant name, Walmart, was the lead investor in a $300m round for fintech platform, One. Hmmm….Private banking/fintech, private opportunity.

    Climate & Electrical Vehicles (EV): Apparently, 11 out of 16 EV battery manufacturing projects in Europe have been canned or delayed. Of course, the $15 billion investment in Northvolt was the highest profile casualty in 2024 but there will be other twists and turns in the electrification journey. And, possibly a lesson in long-term planning. China 20 years ago had almost zero car production capacity. Now, it is on track to manufacturing 30 million cars a year and has surpassed Japan as the biggest exporter in the world with 5.17m units sent overseas. In fact, Chinese built EVs now account for 76% of the global EV market. So, if one were to be thinking 20 years ahead again what is most likely to drive investment returns in the transport world? Well, how about not driving. More specifically, self-driving. So, I’m quietly stunned that Google’s Waymo self-driving cars are clocking up 175,000 rides per week compared to 50,000 rides 6 months ago. That’s actually more than 1 million miles of autonomous transport delivered with an almost flawless safety record. I sense 2025 could see self-driving transport go mainstream and, as I write, Waymo have announced they are about to trial robo-taxis in their first non-US city, Tokyo, next year.

    The list of themes above is not exhaustive but they are structural themes measured in decades rather than calendar years. These are the most likely golden tickets to deliver standout returns like Nvidia’s 27,000 % return over the last 10 years. But, as always, we should keep an eye out for reversals of long standing narratives too. Argentina might be the prompt for contrarian thought while on track to deliver the best stock market returns of 2024. Who knew! So here’s two thoughts to chew over for the festive season: i) A European refugee reversal as Syrian and Ukrainian citizens potentially return home in 2025 and ii) A renewed embrace of nuclear power/investment to drive the electrification of the global economy.

    “Oh you should never, never doubt what nobody is sure about”         –   Willy Wonka

     

  • Does Europe Have Whatever It Takes?

    Does Europe Have Whatever It Takes?

    This is tricky. Here goes… I’m going to sound like Boris Johnson for a moment. Relax. No Greg Wallace, Master Chef or “middle-class women of a certain age”. More like the Middle Ages, and a stunning personal discovery this week that, before counterparties sign off a private investment in Germany, a public notary must read every single word out loud. Yip, not a banana-straightener but for a venture capital investor this week that meant “12 hours and counting” for a Series A investment document to be read out loud in front of founders and investors. In person. It sort of feels like Germany has missed out on a few productivity hacks since the Gutenberg printing press arrived in 1439. Meanwhile, European leadership is in disarray as the French government collapses, Germany’s industrial base struggles and the UK paddles alone in its own faeces-filled waters. It is difficult to ignore the “Europe is Donald Ducked” chorus growing louder by the day. And yet, I believe Europe can change course for the better. First, let’s identify a few key problems…

    Actually, why don’t we turn to the man who rescued Europe once before. Back in 2012 Mario Draghi as President of the European Central Bank (ECB) declared that “the ECB is ready to do whatever it takes to preserve the euro”. Remember the “PIIGS” who struggled in the crosshairs of European debt crisis traders for weeks? Well, Portugal, Ireland, Italy, Greece and Spain have more than survived that credit (or credibility) crisis. In fact, this week Greece was able to borrow at cheaper rates than France. Stunning. And perhaps, that should be Europe’s inspiration. Greece was a mess. Not now. However, the same Mario Draghi in his 400 page EU Competitiveness report is telling us Europe is in a mess and that “without action, we will have to either compromise our welfare, our environment or our freedom”.  Draghi sees the following challenges:

     

    1. Productivity: European GDP growth has lagged the US by 0.5% every year since 2000. Interestingly, demographics (population growth) has played its part in that too. How about building that wall? Maybe not.
    2. Innovation: There are no leading technology companies in Europe. Draghi identifies a “middle tech” trap where Europe seems happy to be in “the peloton” rather than lead. Indeed, outside the information and communications technology sector, European productivity growth matches and often beats US competition.
    3. Finance: Draghi bemoans the lack of joined-up thinking and fragmentation in the area of debt financing and regulation. Think about those hoarse notaries and the 1,330 banks servicing Germany. Then know that Canada has just 93 banks.
    4. Security: Draghi deals with a number of distinct challenges in his report but I have lumped them together as almost existential threats: defence(war), climate crisis (decarbonisation) and industrial dependence(China).

     

    There’s a danger these challenges are perceived as nothing new. Arguably, the outbreak of a full scale European war is the only really new challenge of recent years. The other challenges have been slow-moving train wrecks over a decade or more. However, the point to be made is, like our climate crisis, Europe is running out of time. As always, I try to use data to tell a story and here are a few standout numbers which have crossed my desk in recent weeks:

     

    *In the 1950s to 1970s period European investment in innovation equated to 4% of GDP. That percentage is now 0.5%.

     

    *Venture capital investment in Europe is 6 times lower than the US.

     

    *71% of all current funding for AI globally is in the US. Europe accounts for just 14% of global AI investment.

     

    *The performance gap between US and European stock markets this year is over 21%. That’s the biggest performance divergence since 1976. In fact, US stock markets now account for 65% of global stock market capitalisation but with just 26% of global GDP.

     

    *According to Bank of America research, US to European equity valuations have risen to 3.6x in November, an all-time record. This ratio has DOUBLED in 8 years, and is 3 times the historic average.

     

    *The US stock market has outperformed Europe in 12 out of the last 15 years.

     

    *There are more than 270 regulatory bodies involved in digital networks in the EU today.

     

    *The EU has 34 mobile network operators. China has four, and the US three.

     

    If the list above feels a bit “money” oriented there is good reason. If investment, performance, valuations and growth gravitate to one economic region the knock-on effect is significant for competing regions like the EU. Stripe didn’t even bother starting out in Ireland. The Collison brothers went straight to California. It’s not just start-ups. One of Europe’s homegrown fintech stars, Revolut, is about to IPO but co-founder and CEO, Nikolay Storonsky, has said the US will be their public listing home as London “can’t compete”. Not surprisingly, CB Insights are saying 40% of the world’s AI companies (and talent) are located in the US.

    It’s not just a money tale – those stats above about regulators and network fragmentation are massive hurdles to companies competing for investment capital based on growth. You don’t need a notary to grow GDP. However, like Greece and Ireland in the recent past, it is possible to be ‘forced’ into survival strategies which may require pain. As an illustration, the decision of VW to close manufacturing plants in Germany for the first time in 87 years might only be the start of bad news for the 100,000 VW workers striking in protest. Now for some better news, and a bit of European inspiration…

    Europe has proven already it has whatever it takes to win the battle of the skies. In a truly pan-European collaboration project, Airbus has emphatically emerged as the dominant aircraft manufacturer on this planet. Even before Boeing’s troubles, Airbus was racing towards 60% global market share and currently is winning the market for large single-aisle planes on an 80/20 basis. The European champion of the skies has been beating Boeing for 5 consecutive years and has an order backlog of 8,600 planes. This is the inspiration and illustration of European collaboration. Now look to the skies again.

    War is a tragic European fact of life in Ukraine. However, battles for survival can bring innovation. WW2 was the catalyst for Europe to invent radar, penicillin and jet engines. Today, you might consider the 200 Ukrainian companies currently manufacturing Unmanned Aerial Vehicles (UAVs). Yep, drones are the future and Elon Musk has had the temerity to suggest US F-35 jet fighters are “already obsolete”. If Musk is right and “Future wars will be drone wars” then Europe is the epicentre of UAV innovation. Interestingly, Germany’s start-up AI software company, Helsing, has focused on drones and jet-fighters and is now manufacturing its own attack weapons. These drones are armed and don’t need pilots or GPS, it’s all AI. And, Helsing is already valued at $5 billion.

    Our other survival battle is climate. And Europe can lead. One of the key drivers of productivity and valuation divergences over the years has been energy costs. An auto factory or chemical plant in Europe can typically pay $500m to $1 billion more for its power supply…. each year. Electrification is not just the decarbonised future, it is European industrial survival. While Europe might be stuck in a “middle-technology” trap it might be the US and China who remain wedded to cheaper fossil fuel options. Draghi’s analysis envisages Europe spending €3-4 trillion on electrification, or about 25% (!) of EU GDP over the next 10 years.

    Investment/spend is critical to innovation, and Europe right now looks like it is losing out in the energy race. So, we must hope a power crisis breeds innovation opportunity in electrification and perhaps gives Europe a head start over more complacent rivals. In fact, one of my favourite stats this week emerged in the decarbonisation space. A research paper from University of Chicago and Wharton estimates the total carbon burden of US corporates is $87 trillion. That’s 1.3 x the market capitalisation of US companies in 2023, and starkly demonstrates payment for damages caused by greenhouse emissions would bankrupt corporate America.

    Adversity forcing dramatic shifts in industrial policy and investment capital could ultimately be Europe’s saviour. Furthermore, we should look east to see how countries and cultures free themselves from government and regulatory over-reach. Poland is now, per capita, as rich as Japan or Spain. Its military is arguably the strongest in Europe, and its GDP has grown by 3.5x since 1990. Quietly Poland is becoming a tech and innovation hub. And, behind that drive is a STEM graduate pipeline ranked 4th in Europe between 2013 and 2019. That will only accelerate as Microsoft invests $1 billion, Google builds an R&D centre and a talent brain drain now moves into reverse. Inspiring stuff.

    It can be done. However, it might need a further crisis to prompt Europe’s leaders to commit to ‘whatever it takes’ to survive and lift itself out of decades of decline. And… the data and vibes suggest we are close to that moment.

     

     

  • Banking On A Deal Frenzy

    Banking On A Deal Frenzy

    This hurts a bit. It kills me to potentially reward poor behaviour, but hey, I’m not nominated to be the Attorney General of the United States of America. The financial giants of Wall Street kept their heads down in the lead up to the US election. We didn’t hear too much commentary on the rule of law, inflationary tariffs or accelerating budget deficits. I mean…who needs property rights (law) or a functioning national balance sheet? Possibly, the infamous Leona Hemsley’s “little people” because they pay taxes, aka the price, in time. But, for now, there’s a very clear short-term calculation being made by Wall Street. A Trump administration determined to slash regulation and speed up commercial transactions is a godsend for bankers. Of course, Elon Musk, Tesla and Bitcoin are perceived as the early big ‘winners’ of a transactional incoming President. However, at a broader level the clear winner in the week since election is the enormous financial sector.

    US Financials are the best performing sector in the markets over the last week (+1.5%) while tech, telecoms, healthcare and materials all have actually booked negative returns for investors(Source: Finviz). That big picture split is interesting and highlights the very essence of what financials are about. It’s all about deals. More deals, more commissions, more fees, more revenues, more bonuses. What deals you ask? Let’s start with the biggies like massive M&A deals. In recent years, the broligarchs have been frustrated by FTC Commissioner, Lina Khan, who has blocked more than 30 corporate mergers/acquisitions on grounds of reduced competition. High-profile deals attracting government(FTC) scrutiny included Microsoft/Activision and Kroger/Albertsons. Only this week, the parent companies of luxury brands Coach and Michael Kors abandoned their merger due to FTC competition-based objections. No deal, no fees. Hence, a more lenient transaction-friendly FTC under Trump is expected to increase deal flow. And, not just in M&A.

    How do I put this delicately? Well, if the incoming Attorney General is already under investigation by his House of Representatives colleagues for sex trafficking, let’s just say the whole area of compliance could be significantly relaxed. We can expect more financial products to be launched and faster in a more relaxed regulatory environment. One area already due to increase activity levels is the IPO sector. Interestingly, Sweden’s Klarna has just announced its plans to list publicly (IPO). However, despite its Swedish home, Klarna is going to list in the US, not Europe. Oh, and Klarna is a financial company. It’s also a great comeback story – the buy-now-pay-later (BNPL) platform and its 85 million customers is heading for a $20 billion valuation. That’s a tripling of value since the fintech ‘winter’ of 2022. Note fintech is not the only survivor of the investor ‘winter’ of 2022…

    The cryptocurrency universe has already been perceived as a Trump regulatory relaxation winner. Bitcoin has rocketed to all-time-highs of $93,000 with an individual asset value of $1.7 trillion exceeding that of Facebook/Meta. The wider cryptocurrency ecosystem has achieved a market value of $3.2 trillion but the bigger story is possibly stablecoins (cryptocurrencies backed by liquid financial assets ). Again, I’d highlight ‘transactions’ as the opportunity for financial services platforms. Stablecoins were used in $8.5 trillion of transactions in the second quarter of this year. That’s more than double Visa’s transaction volume of $3.9 trillion. It also provides a pretty good clue as to why Stripe acquired stablecoin platform, Bridge, for $1.1 billion.

    For the avoidance of doubt, more transactions and deals is an overall positive. More exits, more funding, more deals… the circle of start-up life. At Spark we know more deals, exits and IPOs eventually feeds into the smaller regions of financial markets. We also know there’s a hefty €150 billion sitting in Irish bank accounts earning almost zero returns. It’s not just an Irish phenomenon. There is currently a record $7 trillion of cash sitting in US money-market funds. That’s not a huge surprise when one can earn 4-5% interest in these US deposit accounts for relatively minimal risk. However, watch out for lower US interest rates and increased mega deal headlines in the coming months. Then watch that cash move. And, not just in the USA.

    The EU economy is 99% driven by 26 million private small and medium sized businesses (SME) who account for €5.4 trillion of economic activity. The headlines will almost exclusively focus on the impact of a Trump regime on US multinationals, corporation tax, homeshoring etc. Rather like the trading evidence in markets of the past week, probably not much will really change for the “broligarchs” and the big tech multinationals. However, the markets are telling you financial services will enjoy greater deal activity which will feed through the global funding ecosystem. Indeed, right now there’s an all-time-high number of investment campaigns on the Spark platform (8) with interesting additional private asset/deal opportunities in the 2025 pipeline. We’ve written it before; the future is private.

    So, it seems like a good time to launch Spark Private, the personalised service to grow your private asset portfolio. More details on that next week, after you’ve finished gasping at AG Gaetz.

  • Silver Linings For Finishing 2nd Almost Everywhere…

    Silver Linings For Finishing 2nd Almost Everywhere…

    I blame the Irish. Should have seen it coming. Poor immigrants once upon a time, the changed perspectives were there for all to see. A couple of Kellys, a Mulvaney, a Spicer, a McMahon and a McGahn, all key lieutenants in the Trump 1.0 cabinet of 2017, championed Muslim bans, Mexican walls and family separations. I’m being flippant and skipping through a few decades of political evolution here but political integration of immigrant communities is a good thing. Take it as a genuine US presidential election positive. Of course, there will be plenty of Democratic Party navel-gazing and gnashing of teeth in the days and years ahead, but finishing second for the first time in 20 years (last popular vote loss was 2004) will focus minds on the stunning shift of ethnic minority voters to an anti-immigrant Trump ticket.

    Things looked bad for the Harris campaign very early on Tuesday evening. Hispanic-heavy Miami-Dade County in Florida had given Hilary Clinton a 30 point winning margin in 2016. On election day, Trump obliterated that by 40 points to secure a 10 point winning margin. There were other shockers – Star County (Texas and 97% Hispanic), Suffolk County (New York) and my personal favourite, Anson County in North Carolina. Republicans have won this 45% black county only once before since…. 1870. Wowzers. The purpose of this article is not to follow most post-mortem commentary and examine where the Democrat messaging didn’t connect but rather to highlight some potentially positive developments. If anything, the change in the mix of the Republican vote is more interesting. Try the dilution of white voting power.  The ‘dilution’ phrasing might surprise readers’ perceptions of what constitutes the Republican party base vote, but the scores are in:

     

    *Trump won less of the white vote this year (55%) than 2020 or 2016. And…

     

    *Harris (43%) did better with the white vote than Hilary Clinton or Joe Biden.

     

    *Hispanic men voted for Trump 54% vs 44% for Harris.

     

    The always excellent Noah Smith in his newsletter recalled a former Irish Republican, Ronald Reagan, saying that Latinos would eventually become Republicans. The social negatives attached to that shift are for another day but Smith highlights an even more important point for a polarised US society:

     

    “This largely destroys the narrative that non-white immigration will demographically drown White Americans under a tide of imported minority votes….. At some point, Republicans are going to realize this, and hopefully become less anxious about America’s racial future. Hopefully they will also realize that any attempt to make voting harder actually hurts them in the future, because the impact would fall disproportionately on their own base”.

     

    Oooooh Tucker Carlson might not like that narrative challenge to the “Great Replacement Theory”. But, there’s also another positive attached to this stunning shift in voting patterns. Harris lost so emphatically and so early that there was no dispute over electoral process. In fact, Trump improved his vote in 90% of all counties in the USA, and that includes Guam flipping to red. For those who hoped for decency, that feels like finishing 2nd just about everywhere. Many wanted democracy to prevail. It did, but with the anticipation that the “right” side probably had to win for a smooth transition, right? That caveat is for another day’s discussion too.

    Also, while we are on the topic of ‘right’, another stunner for me was that the white evangelical vote was 22% of the total vote and they voted 81-17 for Trump. Other voters who make up the remaining 78% of the electorate voted overwhelmingly for Harris by a 19 point margin (58-39). So, without white evangelicals Harris would have won the election by 20 points!  Let’s hope God is right……

    Meanwhile, for the socially agnostic financial markets, uncertainty is a wealth destroyer, paralyses decisions and kills investment activity. So, not surprisingly, there have been a few financial wins in the early days after the election. We’d highlight the following:

     

    *Banking and asset management stocks like Goldman Sachs, Blackstone, Blackrock, JP Morgan and Apollo all flew up by 10% or more.

     

    *The S&P 500 had its best day in 2 years and best ever post-election bump (+2.5%).

     

    *Elon Musk’s Tesla jumped 15%

     

    *Bitcoin’s price rise by 9% to $75,000.

     

    The Musk win is probably a struggle for some but the EV revolution is climate critical and hopefully keeps Trump tangentially on board with decarbonisation of the economy. Intriguingly, the presence of Musk as chief Trump mascot could bring a slightly contrary positive. There are some, including me, not comfortable with the billionaire “broligarchs” brazenly pushing their own commercial agendas. However, it would be a mistake to conclude that it is only the Republican party engaging billionaire promoters. The Democrats had their own, possibly glitzier line up of billionaires, influencers and celebs. And, the big strategic mistake would be to react to a Jaws-like electoral savaging by suggesting “we need a bigger boat” or better billionaires. That boat has sailed. The positive lesson from this would be to “listen” and start exerting proactive power.

    One of the critical shifts in voting patterns was urban voting. Democrats still won the big cities but the winning margins were embarrassingly small compared to double-digit history. Urban voters in the likes of New Jersey, New York, Chicago, San Francisco and Detroit have witnessed a disgraceful decline in the condition of their cities. And, other urban voters have noticed. Where Democrats have governing power, they need to deliver better city living. Security, mental healthcare, housing, crime and infrastructure are very real challenges experienced, in particular, by the lower middle and working classes. Investment and solutions to these challenges will improve urban lives and win votes.

    Commentators recently described the US voter base as one now split evenly across three cohorts: i) white college-educated, ii) white non-college educated and iii) everybody non-white. Currently, the Republican party is connecting more effectively and adding voters with two of those three. The Democratic Party should be surprised and concerned about the only one with which they are growing/connecting. The good news is that the key driver of political power in today’s America is not ideology or race. The winning factor is DELIVERY, perceived or promised. Clearly, social growth and stability are important for a nation but there’s a price for everything. In this instance, the price (inflation) – and a perception of social agenda prioritisation – was too high. Just ask Latinos, now known as “Latinx” in Democratic Party literature.

    For investors, less financial regulation, lower technology oversight(AI) and more deals (M&A, IPOs) all promise more exits and further investment cycles. All good news, until it’s not. Note, only 15 years ago the world paid a shattering economic price for deregulation of financial credit markets. Go back another two decades, and here’s a final thought for the autocracy delivery (over democracy) fans out there celebrating technology and commercial freedom…….

    The last global authoritarian empire to implode was tipped into collapse by lies and a catastrophic failure of technology .

     

    “Every lie we tell incurs a debt to the truth. Sooner or later, that debt is paid”

     

    – Valery Legasov, chief of the Chernobyl disaster investigative commission.

  • A Quick Guide For Private Investors In Start-Ups

    A Quick Guide For Private Investors In Start-Ups

    One of our portfolio companies ceased operating this week. Lesson learned? Yes. Would we use the same vetting process again? Yes. And, no, Einstein’s definition of insanity is not in play here. Let’s be very clear that mistakes will continue to be made. We just can’t forecast the future. In fact, human beings are not particularly good at the forecasting thing. However, we can control the controllables,  and one of the critical things for a private investor to control is one’s investment process. Call it a check list. Then, know that we probably turn down 10 opportunities for every one we offer on the Spark platform. So here’s a quick guide as to how we compile a score card for companies seeking new investment capital. Note we will expand on some areas in later articles but, for now, this could be an outline framework used by any wannabe early-stage investor….

     

    Founders: This is probably the most fundamental factor in any company assessment. The calibre of the founders is critical to our confidence that the key people in a startup have the energy, resilience, expertise, discipline and ‘market-listening’ gene to drive a project or business to success.

     

    Solution: A laser-like focus on solving a consumer or business problem which can be clearly defined should underpin any analysis of a company’s product or service.

     

    Validation: Revenues generated by the product or service are the ultimate validation. Note business customers are ‘stickier’ than main street consumers so it is not surprising that business-to-business (B2B) investments tend to attract more investment. Other elements of validation like awards, patents or industry thought-leader financial backers can also add weight to the pitch.

     

    Market Opportunity: Huge global market spend numbers sound good but also attract plenty of competing products and services, and imply a danger subsequent funding rounds shift to the perceived ‘winners’. A niche focus on a particular segment of the market can be an easier ‘sell’ and gain better traction with both prospective customers and investors.

     

    Communication: We just mentioned customers and investors together. For good reason. Founders and startups must be on top of their communications and messaging. A poorly worded investment pitch should raise investor concerns about the primary challenge – forget funding, what about founders’ abilities to win over prospective customers?

     

    Endorsement: Many pitches feature impressive testimonials or endorsements. However, there is a higher impact endorsement – money. Typically, in a funding round we would expect founders to bring some financial/investment endorsement to the table. Think about it – if the founders can’t ‘sell’ their business to ‘warm’ friends, family or commercial counterparties, it’s going to be a lot harder to convince ‘cold’ investors to back a project.

     

    Financials: Of course, not everyone is an accounting wizard. However, returning to our comment about ‘forecasting the future’, whatever projections are put in a business plan are most definitely going to be ‘wrong’. The thing to control is unsubstantiated growth trajectories or ‘hockey stick’ forecasts. Initial projections should show an understanding that a slower grind in the early years is a better (and more credible) base case.

     

    Business Model: Company’s when first entering a market will try out different pricing strategies but there’s a bigger strategic consideration than price. The payment framework for the customer is critical: monthly/annual subscription, up front/service models, wholesale, distribution partnerships etc. Investors should be clear as to how an investee company is going to be paid.

     

    Valuation: This is another area/assessment which is going to end up being completely wrong. However, a base valuation can be derived from the projected revenues/profits in the next two forecast years (and previous 12 months if any). Also, where it is very early days with minimal revenues, a good way to think about a business is to calculate how much would it cost to build the product/company/service today. Monies invested in a company to date are a good basis for valuation. And watch out for technology overspend (so so common) and marketing waste (lots of Google ads algorithm sob stories). On the other hand, proprietary databases built in a niche area can support a business valuation.

     

    Last Mile: Very often investors see great products or services and wonder why the business ultimately does not succeed. This writer increasingly believes ‘the last mile’, aka commercial intensity/engagement, is where analytical frameworks need to beef up risk metrics. Clearly, ‘build it and they will come’ is not a business strategy in today’s world. Scaling up customer bases and revenues is a real challenge for early stage companies. Hence, investors should be very clear about what the marketing/distribution/partner strategy is for a start up business. In many ways, fuzziness on this question makes estimates on the size of a market opportunity (with juicy TAM and SAM numbers) completely irrelevant. A roadmap with milestones, skills/talent build, later funding series, and customer mix evolution should be sufficiently clear for investors to understand the plan and the building blocks required to scale.

     

    Exit: Healthy deal activity for smaller businesses, a sector’s track record of consolidation, cash-rich global players as serial acquirors, the network of the founders etc all help paint an exit picture for an investor. For investors, make sure there is plenty of colour in the answer.

     

    The above is not an exhaustive list but captures the main pillars in our analytical framework, and could become a regular check list for a private investor. Of course, each section features mere highlights and headlines but at the same time this should not be ‘rocket science’. Many of the questions you, the investor, want answered need to be answered by customers and partners too. And, we know clear communication is critical to customer success. So, understand the fundamentals of a business and that’s a decent start to building a robust investment score-card. That’s all you can control. Or as ‘Cousin’ Greg in Succession might say… you don’t need to know everything, just the key business/relationship levers which matter.