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First-time entrepreneurs find early money hard to come by

Seed financing has borne the brunt of the pandemic’s hit on the venture capital sector, data show

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Breaking into Silicon Valley has become an even taller order for first-time entrepreneurs during the coronavirus pandemic.

Seed financing – the earliest stage of startup investing and the start of many technology success stories – has borne the brunt of the pandemic’s hit on the venture capital sector, data shows. While established start-ups and entrepreneurs have been able to tap investors to keep businesses afloat or start ventures during the financial upheaval, newcomers say the bar has been raised for start-ups trying to get their dreams off the ground.

That poses an additional challenge for a sector already trying to recast its insular reputation, where funding is largely available to “known quantities”. Venture firms have pledged to fund more minority-led start-ups amid the renewed national focus on ethnicity and inequality and have ramped up efforts to hunt for start-ups outside of traditional tech hubs.

“The people who drop off during this period tend to be the ones not already in the insiders club,” said Charlie O’Donnell, whose venture firm Brooklyn Bridge Ventures leads investments of around $1m into young, often pre-revenue start-ups. “It shrinks the number of new companies getting started, and it’s bad for innovation.”

While some investors worry the downturn is inflicting lasting damage on start-up innovation at the earliest stages, others see it as a form of natural selection. “Visionary founders are not going to be deterred by not being on the inside,” said Bradley Tusk, managing partner and co-founder of Tusk Venture Partners. “I think you lose some technologists who are a little more risk-averse.”

For decades, seed financings of several million dollars or less have given life to start-ups with little more than a PowerPoint or prototype. Companies such as Airbnb and Zoom Video Communications have parlayed small investments at their infancy into spectacular growth.

But the pandemic has damped these deals. There were 886 seed investments in the first half of this year, a nearly 40% drop from the first half of 2019, according to a report from data analytics firm PitchBook and the National Venture Capital Association. Late-stage deal count, by contrast, is on pace to eclipse last year’s count of 2,847.

Founders say prospective investors are presenting them with more aggressive timelines to generate revenue, a trend that had been growing pre-pandemic after a number of highly valued but money-losing start-ups were hammered by public investors last year.

While an undergraduate at the University of California, Berkeley, Bailey Farren, 23 years old, started developing a system for using data visualisations and real-time information to aid disaster-emergency response. The technology could, for example, warn users if a burned tree had fallen over a key evacuation road, said Farren, who has seen numerous wildfires menace her hometown of Santa Rosa, California, in recent years.

After testing the product at the Kincade Fire in Sonoma County’s wine country last October, Farren ramped up efforts to raise a $1.5m seed round. She met with dozens of venture firms about raising initial capital.

When the pandemic struck, selling investors on her startup Perimeter Inc. became difficult, Farren said. She believed venture firms were turned off that she hadn’t yet secured revenue-generating contracts with local agencies, and because wildfires were out of mind amid the health crisis.

“It definitely was an uphill battle considering the circumstances,” Farren said. “The present is in hyper focus.”

To stay afloat, Farren raised about $30,000 from individual investors and has shifted focus from fundraising with venture firms to securing paid testing agreements.

David Zysblat, 44, ran his own marketing agency in the UK before handing off his clients and moving to Los Angeles a couple of years ago to pursue his start-up idea of an online marketplace for classic cars. He spoke with a handful of California venture investors before the pandemic about raising initial capital. Two firms were interested in funding his start-up, Clasiq, but when the pandemic arrived, the tone of those discussions changed, Zysblat said.

“A lot of questions about revenue that hadn’t come up started coming up much faster,” Zysblat said.

Because of the new pressure to generate short-term revenue and falling valuations across the industry, Zysblat decided against raising traditional venture capital and opted to tap individual investors in his native UK, closing a $1m seed deal in April.

At a time when deals are getting hammered out virtually, investors say they are more inclined to back founders they know, or who fellow investors can vouch for.

Seed-stage firm Urban Innovation Fund has made two start-up investments since the pandemic hit, managing partner Clara Brenner said. Several weeks ago, the firm invested in Grain Technology, which allows debit-card holders to access a line of credit via an app. The deal largely came together over video calls with founders Brenner hasn’t met in person. For a character reference, she said she consulted the manager of an accelerator she knew who had worked with Grain previously.

“It was important,” Brenner said of the connection, though adding the deal likely would have occurred anyway.

 From The Wall Street Journal

Source: https://www.penews.com/articles/first-time-entrepreneurs-find-early-money-hard-to-come-by-20200827

Private Equity

Alternative Investments/Real Estate: U.S. Home Prices Record Biggest Gain Since 2014

According to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, home prices surged 7% annually in September, up from a 5.8% annual gain in August. For perspective, this gain is the largest seen since September 2014. Moreover, home prices are now ruling 23% higher than their previous peak in 2006.

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Alternative Investments/Real Estate: U.S. Home Prices Record Biggest Gain Since 2014

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In September, home prices spiked 7% year over year.

According to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, home prices surged 7% annually in September, up from a 5.8% annual gain in August.

For perspective, this gain is the largest seen since September 2014. Moreover, home prices are now ruling 23% higher than their previous peak in 2006. The index represents data from the period of July to September, averaged. (CNBC)

Reasons for the price surge

Mortgage rates fell to another record low last week, for the 13th time this year, according to CNN.

The average interest rate on a 30-year fixed-rate mortgage dropped to 2.72%, according to Freddie Mac. That plumbed the lowest level in the nearly 50 years of survey records. The 15-year fixed-rate mortgage dropped to 2.28%.

These low rates have been a primary trigger for the current boom conditions in the U.S. housing market. However, rising home prices may soon outweigh the benefits of lower rates.

Another reason is the continuing crunch in the supply of housing, which remains limited. Inventory slumped to a mere 2.5 months of supply by the end of October said the National Association of Realtors.

This has been compounded by the skyrocketing demand for second homes as a result of the virus pandemic.

“The delayed spring homebuying season fueled sales well into October and past the time when they would normally begin to slow down,” said George Ratiu, senior economist at realtor.com to CNBC. “Heading into winter, demand continues to be strong, driven by mortgage rates which have broken record lows 13 times this year and a growing list of companies which have extended their remote work policies well into 2021.”

Home prices may remain elevated in case of an economic recovery and an effective and easily available vaccine against the virus.

Homebuilder ETFs likely to be in focus

  • SPDR S&P Homebuilders ETF (NYSEARCA: XHB)
  • iShares U.S. Home Construction ETF (BATS: ITB)
  • Hoya Capital Housing ETF (NYSEARCA: HOMZ)

Related Story:  Homebuilder ETFs In A Bull Grip

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Source: https://dailyalts.com/u-s-home-prices-record-biggest-gain-since-2014/

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Private Equity

L Catterton sells Cholula Hot Sauce for $800m

The seasonings company McCormick is trying to capitalise on record demand for spicy condiments

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McCormick confirmed that it has agreed to buy the maker of Cholula Hot Sauce from private equity firm L Catterton for $800m in cash.

The Wall Street Journal late Monday, 23 November, reported that the seasonings maker was near a deal to buy Cholula, which has annual sales of roughly $96m.

McCormick said it will fund the acquisition, which it expects to complete by the end of the year, with cash on hand and commercial paper.

L Catterton, a US-based, consumer-focused private equity firm, acquired Cholula in April 2019.

Write to Colin Kellaher at colin.kellaher@wsj.com

From Dow Jones Newswires

Source: https://www.penews.com/articles/l-catterton-sells-cholula-hot-sauce-for-800m-20201124

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Private Equity

FinTech: HSBC, Western Union Announce Global, Real-Time Payments

Both HSBC USA, a part of the HSBC Group (NYSE: HSBC), and Western Union (NYSE: WU) reported rapid growth in the usage of services such as mobile banking, digital transactions, and app downloads during the pandemic afflicted quarters. Encouraged, the finserve giants launched global, borderless real-time payments.

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FinTech: HSBC, Western Union Announce Global, Real-Time Payments

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HSBC, Western Union: On-the-go, anytime, nearly anywhere in the world.

Both HSBC USA, a part of the HSBC Group (NYSE: HSBC), and Western Union (NYSE: WU) reported rapid growth in the usage of services such as mobile banking, digital transactions, and app downloads during the pandemic afflicted quarters.

Encouraged, the finserve giants launched global, borderless real-time payments.

HSBC launches a Global Money Account

HSBC USA announced the launch of its Global Money Account. It has the ability to hold different HSBC currencies online, with conversion to other currencies. The fully mobile-based account manages finances in multiple currencies/geographies. The platform allows fee-free remittances to 14 million HSBC customers in 20 countries worldwide. (BusinessWire)

“Through the COVID-19 pandemic, we have seen the usage of our Mobile Banking facilities increase by more than 150 percent,” said Matthias Dekan, Head of HSBC Global Money, HSBC Group.

“The HSBC Global Money Account further supports our customers in being able to manage their finances from the comfort and safety of their homes or when they’re on the go.”

With their Global Money Account, HSBC customers have one global account for all the financial needs. They do not need to open a new account in case they move from one market to another. “This will allow them to pay bills in multiple markets, make cross border transfers and spend like a local wherever they are,” said Carolyn Criscitiello, Head of Digital Payments, Wealth and Personal Banking, HSBC USA.

Western Union expands real-time digital payout capabilities globally

Western Union made good on its 2019 promise to expand its real-time payout into bank accounts, wallets, and cards in 100 countries by 2020.

The company announced Monday that digital transactions grew 96%, including 53% for WesternUnion.com in the third quarter of 2020. Further, there was significant incremental growth from digital partnerships. The payment giant saw strong customer engagement because the average monthly active customer growth was 47% during the quarter.

In the context of the company’s expansion of real-time, cross-border payouts into billions of bank accounts in 100 countries, Jean Claude Farah, Western Union President Global Network, said the company’s strategy was purpose-built for where the world is headed.

“With rapid execution with global scale, we are powering the world’s cross-border payment momentum with a globally diverse network to serve payment solutions, anytime and anywhere.”

The real-time payout capabilities are available to bank accounts and/or wallets or cards globally through select partners or banks.

Related Story: Heavyweights Are Match-Making In Global Cards And Payments

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Source: https://dailyalts.com/hsbc-western-union-announce-global-real-time-payments/

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