Today’s Must-Reads For Entrepreneurs: Equity Crowdfunding Arrives! (Is That Good?)

By Loren Feldman


Here’s how Jeff Bezos reinvented the 140-year-old Washington Post, whose website passed the New York Times’ site in unique visitors last October: “The Post now has a growing team of 700 staff members, including an engineering team that nearly tripled over the past two years. Bezos says The Post’s engineering team rivals ‘any team in Silicon Valley.’ It’s also hired a bunch of new editors and reporters lately. It now publishes 1,200 articles a day. Its content varies from breaking news and long features to fun photo slideshows.”


Tech layoffs in the Bay Area have more than doubled: “The Bay Area’s skyrocketing tech layoffs reflect a transformation in the sector, said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. ‘We are being increasingly driven by the growth of the large companies,’ Levy said. ‘What you did not see on the list is layoffs from Apple or Google or Facebook or LinkedIn … which are all expanding. This is the era of the large companies. As 2016 progresses, smaller tech firms are caught up in a Darwinian brawl, Levy suggested. ‘Those who have not kept up with their industries’ trends are facing layoffs,’ Levy said. ‘It’s an indication of churn in an increasingly competitive and volatile sector that’s doing well overall.’”

Venture capitalists still deny they’re in a bubble: “The fault, they said, didn’t belong to the technological elite but to everybody else: What has driven inflated valuations, in a time of extremely low interest rates and meager returns elsewhere, is ‘dumb money,’ all the alien capital that has flowed into the Valley in recent years. Dumb money is a hedge-funder who’s jealous of a V.C. Dumb money is sovereign wealth. Dumb money is an Emirati home office. Dumb money is a Facebook millionaire in a Maserati who wants to look like a player. Dumb money wants to get in on tech because it’s a box to check off. Dumb money isn’t in it for the long run. Dumb money doesn’t actually care about the technology. Dumb money doesn’t create value. Dumb money thinks what you lose on the margin you’ll make up for in volume. Dumb money wants to get in on Uber at any price, and will accept a ‘limited-edition private offer’ to join the scarce ranks in a ‘special purpose vehicle’ that bears all the risks of one company with none of the hedging benefits of a portfolio. Dumb money is those pinkish guys with bull necks in Zegna suits. The weird thing about dumb money, unfortunately, is that it can act with fiendish intelligence, insisting on stipulations that guarantee returns at the expense of founders, employees and other investors.”

Asian startups have been hit by a venture capital slowdown: “The reversal of Mr. Yin’s fortunes underscores a new reality for many startup founders across Asia: venture capitalists are hitting the brakes on funding. In recent years, investors flocked to Asia—home to the world’s biggest number of mobile users—as its startup scene boomed. Now they are spooked by weakness in the global economy, volatility in China’s stock market and slumping investments in Silicon Valley amid talk of a tech bubble. The result for founders is growing investor scrutiny, protracted fundraising discussions, and downward pressure on startup valuations, entrepreneurs and venture capitalists say. Some startups are shutting down altogether while others are laying off workers, cutting costs and moving away from business models that burned through cash to attract users.”


The new crowdfunding rules take effect today but there’s a reason the SEC took so long: “Many start-ups that take crowdfunding money — probably most — will fail. Half of American small businesses close within their first five years, and even successful companies usually struggle through many lean years before generating meaningful profits.”


There’s a tech boom in Mexico: “Behind them sits a bustling co-working space with 850 tech workers and dozens of start-ups building apps, tweaking online experiences, pumping out design. The vibe feels much like Silicon Valley. But they’re nowhere near Northern California. They’re hundreds of miles south, in Guadalajara, Mexico’s ‘Digital Creative City,’ the capital of the state of Jalisco, where government subsidies and affordable talent attract foreign tech giants. Many places claim to be the next Silicon something. New York as Silicon Alley, Los Angeles as Silicon Beach. None faces the same south-of-the-border scrutiny. Yet, there is a burgeoning scene in these agave-lined hills.”

More startups are forcing employees to settle disputes through arbitration rather than litigation: “As once-plucky start-ups like WeWork grow — the company’s work force has swelled to 1,500 from 300 a year ago — they are taking a page from the playbook of big corporations, which are increasingly using arbitration to thwart employees from bringing any meaningful legal challenge in court, an investigation by The New York Times found last fall. Uber and Lyft, the ride-hailing services, make their drivers sign an arbitration clause. Square, the mobile payment processor, also requires that employees agree to bring disputes to arbitration. In advice to start-ups, Brotman Law, a tax firm in San Diego, promotes the benefits of arbitration for ‘companies doing business over the Internet,’ emphasizing that it ‘can save significant costs.’”

In Washington state, cannabis farmers are trying to cope with falling prices: “Some companies are folding because they don’t have enough capital to get through these early turbulent years Ms. Olson said. ‘It’s a market without reliable financial modeling because prices, laws and business conditions are changing so quickly,’ she said. ‘The state did their best, but right now there is too much supply for too few stores.’”


Here’s why small-business owners are backing Donald Trump: “Excluding retirees, the most identifiable contributions to the billionaire businessman have come from owners, presidents and CEOs, in that order, according to a Center for Public Integrity review of Federal Election Commission data through January. But they’re hardly corporate titans. They’re owners and operators of mostly small to mid-sized businesses. And while the companies themselves vary, the proprietors share a common trait. They are fed up with politicians. ‘Just get somebody in there who’s different,’ said Anthony Forlini, whose Ocean Park, New Jersey, firm disposes of contaminated dirt. ‘I don’t even care anymore.’”

Human Resources

The Secretary of Labor is spotlighting companies thatexemplify social and environmental responsibility: He is talking about ‘conscious capitalism’ and ‘inclusive capitalism.’ He is singling out “high road” employers. He is promoting B Corps, companies that adhere to lofty social and environmental standards. In doing so, he hopes he can persuade less enlightened corporations to change. ‘The employers who do best are employers who reject these false choices,’ Mr. Perez said. ‘It’s not a zero-sum world where you either take care of your workers or you take care of your shareholders. You can do good and do well, too.’”

Here’s why getting rid of tips didn’t work at Joe’s Crab Shack: “Company research had found that 60 percent of the restaurants’ customers disliked the change in tipping, Mr. Merritt said. They wanted to inspire good service with their tips and they didn’t trust management to pass on the money to its employees, he said. ‘The system has to change at some point, but our customers and staff spoke very loudly,’ Mr. Merritt said. ‘And a lot of them voted with their feet.’ The number of customers at the no-tip locations dropped 8 percent to 10 percent on average, he said.”

The Economy

U.S. retail sales recorded their strongest increase in a year in April: “Online retail sales jumped 2.1 percent, the biggest gain since June 2014. Receipts at sporting goods and hobby stores rose 0.2 percent last month. Sales at electronics and appliance outlets increased 0.5 percent. Building materials and garden equipment store receipts, however, fell 1.0 percent last month, the largest decline since August. Sales at restaurants and bars rose 0.3 percent.”


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