VC is still a boys' club, Silicon Valley's most valuable startup, and TikTok clones
Welcome to Nº 16 of In The Money, your weekly newsletter on keeping up with all things finance, tech, and startups. As always, this week’s newsletter is filled with all the financy things. This week we got some updated numbers on women working in the private equity industry. While some progress has been made, the industry is still very much a boys’ club. Stripe became Silicon Valley’s most valuable startup, YouTube released a TikTok clone, and Facebook imagines a future where you can type with your mind. This week also marked a year since the stock markets started reacting to the pandemic. We take a look at what has happened since, and much more on what happened in the markets this week. I hope you enjoy this edition.
VC is still very much a boys’ club… 🤦♀️
The percentage of female decision-makers at U.S. venture capital firms is growing albeit slowly, according to an analysis by Axios. Only 243 of the US 1,716 decision-makers are women, which corresponds to 14.2%. The comparable percentage in past years was 12.4% (2020), 9.7% (2019), 8.9% (2018), 7% (2017), and 5.7% (2016). A percentage that is similar to previous years is that 61% of the analyzed firms did not have a single female decision-maker. The percentage of firms with two or more female decision-makers increases from 9.7% to 11.6%. For firms that raised $1 billion or more between 2015 and 2020, it's 26.6%.
The bad news is that the industry isn't close to parity. Not even when it comes to new hires. Axios identified around 697 more decision-makers than five years ago, women representing just 24.5% of the increase. This is an era when most VC firms talk big about the value of diversity. The bottom line is the same as previous years, venture capital is doing better, but it is still very much a boy’s club.
… but signs of progress on diversity in European private equity 👩💼
Although a long way from being a reflection of the society at large, the European private equity industry is making progress on diversity. This according to a new report from the British Venture Capital Association and Level 20, which gathered data on gender and ethnicity at venture capital (VC) and private equity (PE) firms. 186 firms were surveyed between October 2020 and January 2021, of which 61 were VC firms.
The overall proportion of women in the VC and PE industry has risen to 38%, up from 30% in VC in 2019 and 29% in PE in 2018, and women make up 20% of investment teams.
However, out of the 52 investment firms surveyed with less than £100 million assets under management (AUM), 25% still have all-male investment teams. A number down from 37% in 2019. Not all firms chose to contribute data on the ethnicity of their teams. Just 73 of the 186 firms surveyed (39%) submitted information on ethnicity. The data shows that VC and PE are still overwhelmingly white industries. 80% of people working in the sector are white, 11% Asian, and just 3% Black. When taking into account seniority, the picture gets even worse, just 1% of people in senior roles are Black. You can read the whole report here.
Silicon Valley’s most valuable startup 💳
Online payments technology provider Stripe has raised a new $600 million round of funding that values the company at $95 billion, the company announced on Sunday. The new valuation is nearly triple its last reported valuation of $36 billion from April 2020. The new $95 billion valuation makes Stripe the most valuable startup in Silicon Valley. Stripe intends to use the new funding to invest in its European operations. 31 of the 42 countries that Stripe operates in are located in Europe. The President and Co-Founder John Collison singled out Ireland as a particular area of focus. “Whether in fintech, mobility, retail, or SaaS, the growth opportunity for the European digital economy is immense,” Collison commented. Stripe is dual headquartered in San Francisco and Dublin. The two co-founder brothers Patrick and John were born in Ireland and founded Stripe in 2010. Stripe has seen explosive growth during the pandemic, its revenue largely being tied to the growth in online shopping.
How did Stripe become Silicon Valley’s most valuable startup? One of Stripe’s key competitive advantages is that it is doing more with less. It has a staff of 3,000, which represents a third less than Facebook had in 2012 when it went public at a similar valuation. Its business of online tools do not require a large sales force nor support team. That has allowed the company to remain capital-efficient, as it expanded to more than 40 countries. Stripe has raised “only” $2.4bn to date. Compared this to Uber’s $14bn in equity financing before its initial public offering in 2019. A person familiar with Stripe’s number told the Financial Times that Stripe recorded about $2bn in gross revenues in the third quarter of 2020, which translated to more than $120m in earnings before interest, taxes, depreciation, and amortization (EBITDA). If correct, these numbers imply that the company is valued on a revenue multiple similar to other comparable online payments companies, such as Adyen, which has a market capitalization of €60bn, or PayPal, at almost $300bn.
The new financing included backing from two major insurance players, Allianz, via its Allianz X fund, and Axa. The insurance angle may point to a direction in which the company is looking to go. After all, fintech and insurance are closely linked. The new financing round, rising valuation, and growing cap table inevitably leads to questions around the company’s next steps, and whether that will include a public listing. Stripe has long been shy about disclosing user numbers, revenues and profit, and those details, nor has it made any comments on IPO plans.
If you want to learn more about Stripe and its founders, I highly recommend this recent interview with Patrick on Noah Opinion and the How I Built This podcast episode with the brothers.
Citi leads banks with most women on board 🏦
Following Jane Fraser taking over the position as chief executive officer at Citigroup, women now account for half of the US bank’s 16-person board. This is the most of the 20 largest global banks. Until Fraser’s appointment, French banks have been the most progressive about promoting gender diversity, buoyed by government rules that require large companies to have at least 40% female representation on their boards. The promotion of Fraser, which made her the first woman to lead a Wall Street bank (you can read more about Fraser in the ITM edition where she was featured as the Woman of the Week), marks a turning point as it hopefully will prompt other financial institutions to follow suit.
A Bloomberg review of the world’s biggest banks by assets shows some signs that changes are on their way. In addition to Citigroup, HSBC Holdings Plc appointed a sixth women director last month and Industrial & Commercial Bank of China Ltd. added a third woman to its board in January. However, women occupy 25% or fewer of the board seats at Wells Fargo & Co. and Barclays Plc, while corporate boards in China and Japan remain male-dominated. Banks are under increasing pressure to boost gender diversity as research continues to show it adds to better long-term corporate performance and economic growth. In last week’s ITM you could read that empowering woman to participate fully in the economy could add about $20 trillion to global GDP (gross domestic product).
The French bank, Credit Agricole SA ranked second, after Citigroup, with women making up 47.6% of its board, followed by two other Paris-based banks, Societe Generale SA and BNP Paribas SA. The UK’s Barclays ranks last among European banks with just 25% of its board made up of women. US-based Wells Fargo had even less, 23.1%, the worst among the largest US banks.
Women empowering other women 💪
Speaking of Jane Fraser, CEO at Citigroup. On a panel discussion with General Motors Co. Chairman and CEO Mary Barra for the Economic Club of New York, last week, Fraser commented on a theory that women in positions of power in corporate America don’t help other women, saying it is “utter rubbish”.
“From my own experience, I have to say I’ve had wonderful male mentors, but the support of different female mentors, friends, colleagues, female CEOs has been extraordinary.”
A Harvard University research showed that women who had an inner circle of close female friends often landed jobs that came with 2.5 times more authority and pay than female peers who didn’t have that support of close female friends.
Bow Down 👑
Female performers had a record-making night at the 2021 Grammy Awards. Four women won the top four prizes on Sunday. Swift, became the first female performer to win the album of the year three times. Beyoncé with her 28th win became the most winning woman in Grammy history. H.E.R. won song of the year which allowed Billie Eilish to pick up her second consecutive record of the year honor, while the best new artist winner was Megan Thee Stallion. Though women have won all top four awards in the past this marked the first time four separate and solo women won the top four honors.
In other award news, the Oscars, for the first time in its history, more than one female filmmaker has been nominated for an Academy Award for best director in a single year. Chloé Zhao (“Nomadland”) and Emerald Fennell (“Promising Young Woman”) scored nominations. The honor is also notable because the category has rarely seen any women. Before this year, only five female filmmakers had been recognized.
Then they were one less ⬇️
Ulta Beauty, the US largest beauty retailer, announced last week that CEO Mary Dillon is stepping down from her post in June. Ulta Beauty’s president Dave Kimbell will succeed her. Dillon’s exit will decrease the number of women running Fortune 500 companies. Dillon will transition to the role of executive chair of the board of directors. During her eight years as chief executive, she transformed the cosmetics, skincare, and haircare chain into a retail behemoth with a leading e-commerce position.
Largest cash-returning female startup investor 💰
Last week Lydia Jett, an investor at SoftBank made history with an almost certainly largest cash-returning position for a female startup investor, but also one of the biggest for anyone, ever. At SoftBank, Jett had a massive $2.7 billion position in Coupang, a South Korean e-commerce company, which represents a stake of about 33% of Coupang. As of Friday, Son’s Vision Fund held a position valued at more than $27 billion.
This comes as last week, Coupang made its public market debut on the New York Stock Exchange, under the ticker symbol CPNG. Shares of Coupang surged 40% in the debut, making it the largest IPO so far this year in the US. Founded in 2010 by Korean-American billionaire Bom Kim, Coupang has made a name for itself through its guaranteed same-day or next-day delivery service. It is often compared to Amazon or Alibaba. It employs 15,000 drivers in South Korea for its deliveries.
TechnoKing 💿
In an SEC regulatory filing released on Monday, Tesla officially gave CEO Elon Musk the title of “Technoking of Tesla”. Musk will retain his position as chief executive officer. Zach Kirkhorn, the company’s chief financial officer, was also given a new title: “Master of Coin.” In the filing (which you can read here), the electric car company said, “Effective as of March 15, 2021, the titles of Elon Musk and Zach Kirkhorn have changed to Technoking of Tesla and Master of Coin, respectively.”
In other Technoking moves this week, Musk announced he is selling a recent tweet of his as an NFT, or non-fungible token (you can read more about NFTs in a previous ITM edition). “I’m selling this song about NFTs as an NFT,” Musk, tweeted on Monday. In the Twitter post, Elon released a techno song with the lyrics: “NFT for your vanity. Computers never sleep. It’s verified. It’s guaranteed” accompanied by a futuristic video loop, which shows a trophy labeled “Vanity Trophy” with the term “NFT” and “HODL,” (a cryptocurrency community term meaning to hold a coin rather than sell), repeated across its bottom.
Musk’s tweet is listed for sale as an NFT on Valuables, a platform released by Cent, a social media network built on blockchain. The highest offer, as of Tuesday morning was from Sina Estavi, CEO of Bridge Oracle, for $1.12 million. Later, Musk changed his mind and said in a tweet: “Actually doesn’t feel quite right selling this. Will pass.”
Gender neutrality at JPM 📝
Tesla was not the only company updating its titles. The US banking behemoth, J.P. Morgan Chase updated its bylaws to eliminate any gender designation, as per an SEC filing. Now for example, “chairman” is called simply “chair,” and it deleted a line that read: “The masculine gender, where appearing in these by-laws, shall be deemed to include the feminine gender.” It also swapped “his,” “him,” and “her” pronouns for gender-neutral terms throughout the document. The changes are an effort, to show J.P. Morgan as an inclusive company that is dedicated to diversity. A move that aligns with investor demands and societal expectations. The US bank is led by longtime CEO Jamie Dimon, but 40% of its board is female, as is 44% of its operating committee.
YouTube’s TikTok clone 📱
On Thursday, YouTube launched in the US, YouTube Shorts, the company’s short-form answer to TikTok. Shorts has already been available for several months in India. For the beta launch, YouTube Shorts will feature the basics of any TikTok clone, which include a multi-segment camera, a wide selection of music tracks, and a robust-looking captioning tool. Like on TikTok, users will be able to swipe through an endless, algorithmically generated feed of short videos. The interface also looks similar to that of TikTok’s. Instead of getting its own app, Shorts will come as a new carousel on the home tab of the mobile YouTube app. While it covers many of the basic TikTok features, Shorts is missing plenty of the features that make TikTok a unique viral hit. There are no collaborative features available, meaning users can’t reply to other videos or join together such as in TikTok’s popular duet feature. Another thing missing is a way to view a more curated feed. Shorts only offers its main, algorithmic feed with no option to only view videos from accounts you’ve subscribed to.
Facebook mind-blowing plans 🤯
In 2019, Facebook acquired a start-up called CTRL-Labs. On Thursday the company offered a glimpse of its plans for a new augmented reality interface, based on technology from CTRL-Labs. In a video (see the video here), it shows off wristbands that use electromyography (EMG) to translate subtle neural signals into actions such as typing, swiping, or playing games like an archery simulator. Facebook Reality Labs also published a blog post describing its work on the prototype of the wristbands. At its simplest, the bands would track basic gestures that the company calls “clicks”. The wristbands can theoretically do a lot more, such as tracking the nerve signals your brain sends to your fingers while you’re typing, so you could type on a virtual keyboard without physical buttons. And unlike a normal keyboard, the bands can slowly start to adapt to the way you type. That is, they can “learn” the ways your fingers move when you’re making common typos, then automatically correct for them. The ultimate possibilities for the EMG wristbands are much more mind-blowing. Eventually, you could do the same typing-style gestures by only thinking about moving your hands instead of actually moving them.
Volkswagen goes electric 🚗
Volkswagen’s US-listed stock rose almost 17% on Monday and Tuesday. While its main class of stock, increased almost 9% during the same period in Frankfurt. So, is Volkswagen listed in the US or Frankfurt? Volkswagen’s ordinary shares are listed in Frankfurt, while in the US the company has offered ADRs (see definition below). ADRs are usually thinly traded and as such rarely traded by institutional investors who prefer more liquid preference shares. Thus, the significant move in Volkswagen’s ADR is an indication of buying from US retail investors.
ADR or an American depositary receipt is a negotiable certificate issued by a US depository bank representing a specified number of shares (often one share) of a foreign company's (non-US) stock. The ADR trades on US stock markets as any other domestic shares would. ADRs offer U.S. investors a way to purchase stock in overseas companies that otherwise would not be available. The foreign firms also benefit, as ADRs enable them to attract American investors and capital without the hassle and expense of listing on U.S. stock exchanges. ADRs and their dividends are priced in U.S. dollars.
On Wednesday Volkswagen said on it expects its 2021 deliveries, sales, and earnings to come in above the previous year’s level. The company simultaneously announced the start of its new strategy. The group plans to deliver more than 450,000 electrified cars this year, which is more than twice as many as the year before. Earlier this week it was announced that Volkswagen had signed a massive $14 billion battery order from Northvolt, the Swedish battery manufacturer. The big buy clears up some questions about where Volkswagen will be getting the batteries for the huge push into electric vehicles. The automaker hopes to reach a production capacity of 1.5 million electric vehicles by 2025. The deal will also involve the German automaker increasing its equity ownership of Northvolt. Previously, Northvolt raised $1 billion in financing from investors led by Goldman Sachs and Volkswagen back in 2019. The agreement between Northvolt and Volkswagen brings the Swedish battery maker’s total contracts to $27 billion in the two years since it raised the big $1 billion cash. Northvolt’s other partners and customers include some of the largest manufacturers in Europe such as ABB, BMW Group, Scania, Siemens, Vattenfall, and Vestas. Northvolt was founded by Peter Carlsson, a former executive at Tesla.
One year in the markets 🗓
One year ago, on March 16, 2020, Covid got very real for market investors. The S&P 500 fell 7% shortly after the open, and circuit breakers halted trading for 15 minutes. It was the third halt in a week, after similar halts on March 9 and 12.
Trading halts are the temporary suspension of trading for a particular security or securities at one exchange or across numerous exchanges. They are typically enacted in anticipation of a news announcement, to correct an order imbalance, as a result of a technical glitch or due to regulatory concerns. Halts may also be triggered by severe down or up movements, in what are called circuit breakers or curbs (such as what happened in March 2020).
The Dow industrials dropped 12.9%, which was the second-biggest percentage loss after WWII (in 1987 it dropped 22.6%). The S&P 500 dropped 12%, its third-biggest percentage loss, while the Nasdaq experienced its largest percentage loss ever of 12.3%. The S&P 500 bottomed a week later on March 23. Then, almost as quickly, the market reversed, and by August, the S&P was back to its old highs. Today the S&P 500 is up 42% from where it closed a year ago, while the Nasdaq is up 62%.
On the other hand, the economic impact of the pandemic has been severe, most notably on the labor market. Despite recent job gains, there are still 9.5 million fewer jobs in the US than a year ago. There were also more than 600 big corporate bankruptcies last year, which is still fewer than were recorded after the 2008 financial crisis. Businesses that were already on the brink of bankruptcy before the pandemic fell early on. Some of these included department stores J.C. Penney and Neiman Marcus, and the car rental business Hertz. Other companies managed to survive thanks to the Federal Reserve keeping debt markets open.
The rapid rebound of the stock market has been fueled by retail traders who became a formidable force, piling into the markets through apps like Robinhood and collaborating on internet forums like Reddit. They helped propel the rise of so-called meme stocks like GameStop (we covered the GameStop frenzy in ITM). Few in the investment industry took this long-maligned “dumb money” (institutional investors are usually called “smart money”, while retail investors are referred to as “dumb money”) seriously. Market veterans have pointed to the retail traders and online communities as a sign that markets are about to top out. But a serious pullback is yet to come, and 2021 has proven to be a breakthrough year for amateur traders. Credit Suisse estimated that at times this year retail traders have accounted for a third of all US stock market trading.
Record-breaking Dow 📈
Continuing on the record-breaking theme from last week, The Dow and S&P 500 both hit new records on Monday. The Dow Jones Industrial Average rose 174.82 points, or 0.5%, to a record close of 32,953.46. It was the Dow’s seventh positive trading session in a row, marking its longest winning streak since August. The S&P 500 also added 0.65% to 3,968.94, a fresh all-time high and its fifth straight day of gains. The Nasdaq Composite gained 1.1%.
Again, on Tuesday, the S&P 500 hit an all-time, while the Nasdaq jumped about 1% as technology stocks moved up ahead of the Federal Reserve's two-day policy meeting. The Nasdaq was at a two-week high, extending the rebound in tech-stocks that were at the heart of a selloff in February.
On Wednesday the market was awaiting signs from the Feds policy meeting. The Fed released new projections that showed that the central bank’s policy interest rate is on hold at near zero for years to come. This sent a patient message about the path ahead, with most policymakers expecting interest rates to remain near zero through 2023, despite improving economic forecasts. With investors digesting the key monetary policy decision and upgraded economic outlook from the Federal Reserve, the market continued on the record-breaking streak. The S&P 500 rose about 0.2%, while the Dow traded about 200 points higher to reach again a record high of more than 33,000. At the same time, Treasury yields climbed, and the yield on the benchmark 10-year Treasury note jumped to more than 1.65%.
On Thursday a new spike in Treasury yields came, with the 10-year Treasury yield jumping 11basis points (basis points are a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. So, the 11 basis points jump in the 10-year Treasury yield corresponds to 0.11%) to 1.75%, its highest level since January 2020. The spike in bond yields fueled fears of equity valuations and caused investors to sell growth-focused high flyers, sinking technology shares and as such the S&P 500. However, a rally in bank stocks pushed the Dow Jones Industrial Average to a new high. Bank stocks were depressed for much of the last year, but are one of the few beneficiaries of the jump in long-term yields, why? The banking sector was hammered after the Federal Reserve lowered interest rates to near-zero last year because banks benefit when rates rise. Banks lend money on the long end of the yield curve and borrow on the short end of the curve. Even with interest rates still low by historical standards, any steepening of the yield curve is a welcome sign for banks because they make money on the spread between loans and deposits.
Woman of the Week
Rana el Kaliouby
Rana el Kaliouby is a computer scientist and entrepreneur. She is the co-founder and CEO of Affectiva, an AI startup spun off from the MIT Media Lab.
El Kaliouby grew up in Cairo, Egypt. She earned a Bachelor's and Master of Science degrees from the American University in Cairo, then a Ph.D. at Newnham College, Cambridge. After earning her Ph.D., she joined the MIT Media Lab as a research scientist. There she spearheaded the application of emotion recognition technology in a variety of fields, including mental health and autism. Her original goal was to improve human-computer interaction. However, she quickly became fascinated with the possibility of applying this technology to improve human-to-human communication, especially for autistic people, many of whom struggle with emotional communication. At the Affective Computing group of MIT Media Lab, she was part of a team that pioneered the development of the emotional hearing aid, a set of emotion-reading wearable glasses which the New York Times included in their Top 100 innovations of 2006. In a documentary on artificial intelligence called Do You Trust This Computer? El Kaliouby demonstrates her work. El Kaliouby has stated that computers, while good with information, fall short when it comes to determining emotions. Therefore, they require manual prompting to respond to an operator's needs. Primarily, her work lies in the subtle facial changes that people tend to make. She has identified 24 landmarks to the face, all of which move in different ways, depending on an expressed emotion. This has many applications, from linguistics to video production.
El Kaliouby mission is to humanize technology with artificial emotional intelligence, or what she calls “Emotion AI.” through developing a “deep learning” platform that combines facial expression with the tone of voice to infer how a person is feeling. She left MIT to together with Rosalind Picard co-found, Affectiva, a company that is credited with defining the field of Emotion AI. Affectiva now works with 25% of the Fortune 500. To understand people's feelings and behaviors, the company applies computer vision, machine learning, and data science to leverage the company's facial emotion repository, which has now grown to nearly 6 million faces analyzed in 75 countries with 5,313,751 face videos, for a total of 38,944 hours of data, representing nearly 2 billion facial frames analyzed. In 2016, El Kaliouby became the CEO of Affectiva. In November 2019, Affectiva was covered as a case study at Harvard Business School on the Emotion AI category.
El Kaliouby is the author of "Girl Decoded: A scientist's quest to reclaim humanity by bringing emotional intelligence to technology". El Kaliouby has been named by Forbes as one of America's Top 50 Women in Tech, and Fortune included her in their list of 40 under 40. She has also been chosen by the World Economic Forum to be a Young Global Leader and member of WEF’s Future Global Council on Robotics and Artificial Intelligence. She has spoken regularly on ethics in AI and fighting bias in AI at conferences.
Thank you so much for reading this week’s newsletter. I would love to hear your feedback and please share this with a few friends you think would find this interesting. Have a lovely weekend 💜
I’m Marianne, an early-stage VC based in Stockholm. You can reach me by replying to this email, or find me on Twitter or LinkedIn.