Money is Changing

Money is Changing


By Keith Teare • Issue #271 • View online

Money is changing. Machine Learning is broken. China is winning foreign investment. Apple is becoming a spy and venture capital is exploding in all directions. Another That Was The Week.

Contents

Editorial

David Marcus heads up Facebook’s journey into digital wallets, stable coins, and payments infrastructure. The journey so far has taken him far from his starting point, but he has not lost his taste for a big vision that in my opinion would represent a net plus for most of us on the planet.

Having initially made the error of too closely aligning Facebook with the Libra Project and so alerting many national governments to the threat posed by a 2.85 billion-member super-organization with its own currency and global payments infrastructure, free of the need for banks and other custodians, Marcus has evolved the idea. Facebook is now simply a wallet provider (called the Novi wallet) and also an adopter of Diem (the token formally knows as Libra). He sits on the Diem Association Board too.

The Diem organization is taking the lead on software development, government relations, and regulatory issues.

Facebook as an adopter and payment provider will bootstrap and accelerate the adoption of Diem as its Novi wallet is issued to Facebook members in countries where regulatory approval permits.

In a major piece in Medium Marcus spells out that he is focused and patient but maintains his end game of a global, free, initially p2p and later merchant payments system using Diem as a stable coin.

His key statement is:

While there’s been a lot of talk recently about stablecoins and their role in payments, stablecoins in and of themselves don’t solve any problems. To unlock their potential, they need to be combined with an underlying payments network that’s cheaper, faster, safer, interoperable and programmable.

That end game is — for me — inevitable and generally good. The bad guys — from my point of view — are the myriad of middlemen who prey on those who want to manage and control their own money. And due to its cumbersome, analog, characteristics need to charge large sums for processing payments or holding funds, not to mention for loans or other debt. Interest paid on stored funds is pathetic compared to the possibilities with P2P loans currently being process on the Defi networks like Celsius and BlockFi.

A genuine global stable coin or coins would enable all elements of the human experience with money to be improved.

We have some other significant contributions this week. Cory Doctorow writes clearly and at length about the “rubbish in — rubbish out” problem of the data underlying machine learning. Data Analytics cannot be trusted unless the data and algorithms the analytics is founded upon can be trusted. Machine Learning is one step beyond analytics and will simply compound errors in the data it uses. So, how good is the data? Doctorow uses an example of duplicate voting analytics where the initial conclusions were over 90% inaccurate due to poor data. His concerns are entirely correct and are a major limit on much data-dependent automation. The fix is good data.

Edward Snowden writes about why Apple (or really anybody) can be trusted to place spying software on our personal devices, even in the aid of a good cause like the protection of children. He is right…

I included a long section on venture trends. These trends are fascinating to insiders. Fun fact of the week. Coatue has a 108% internal rate of return on its most recent fund and Series A pre-money valuations are at $37m. For those who care, venture capital’s evolution to a larger and more predictable asset class is well underway. In my role at SignalRank Corporation, I calculated this week that the 2021 cohort of unicorns has had over $136 billion of investments during the life of the 400 or so companies in the class (that includes companies that exited in 2021 above $1bn as well as private valuations over $1 bn). The investors at the angel, seed-stage would require $9 billion in pro-rata capital in order to maintain their equity stakes in those unicorns.  The lion’s share of the value created is not being taken by the early investors. It is being transferred to large private equity investors from the B and C rounds onwards. This ecosystem is ripe for disruption. More in the video.

Video

[Coming soon]


Money is Changing

Good stablecoins, a protocol for money, and digital wallets: the formula to fix our broken payment system | by David Marcus | Aug, 2021 | Medium

Note: I’m a board member of the Diem Association, and Novi is a member alongside 25 other organizations. I’m writing this with a focus on Novi and Facebook’s potential in the industry.

There has been a lot of conversation and debate in the US lately about stablecoins, crypto, and other digital assets. I’m encouraged to see the discussion gaining momentum, especially right now. Because it has never been more urgent to transform our broken payments infrastructure.

The systems we have today are costly, slow, and not interconnected. There are still about 1.7 billion people who are unbanked around the world, and even more who are underserved. Among them are 62 million Americanswho are unbanked or underbanked — people left behind by the current system and stuck in the cash economy. Globally the state of play for cross-border payments is dramatically bad with an average cost to consumers, who can afford it the least, of 6.5% (more than double the Sustainable Development Goal of 3%) and end-to-end settlement times of three days on average.

The COVID-19 pandemic supercharged the expansion of the digital economy around the world. It sparked changes in how people buy, where they buy, and how they discover and interact with businesses. It prompted greater reliance by many families on money sent from overseas as a critical economic lifeline. And this trend is set to continue — the percentage of global digital transactions is expected to rise from 57% before COVID-19 to 67% by 2025. This all makes it more critical than ever for businesses and policy makers to move faster to help ensure people aren’t left behind.

And yet, there are still so many roadblocks being put in front of responsible innovations that solve these challenges. America should be leading change at this crucial moment — but right now we are in the back seat, allowing countries like China to take the lead.

I have come up against these roadblocks in my role leading the team at Facebook that has been heads down for the past two-plus years building the Novi wallet — an interoperable digital wallet that will enable people, and eventually small businesses, to move money around domestically and internationally in a quick and affordable way.

During this time, I’ve had many conversations about our choices, and why we cared so much about building Novi with stablecoins, rather than with fiat money, or in other words, the government-issued currency we are all familiar with and use today. I want to take the time to explain why it matters to us.

medium.com • Share


Cory Doctorow on Machine Learning with Bad Data

Machine Learning’s Crumbling Foundations

Doing ‘data science’ with bad data.

Cory Doctorow

Technological debt is insidious, a kind of socio-infrastructural subprime crisis that’s unfolding around us in slow motion. Our digital infrastructure is built atop layers and layers and layers of code that’s insecure due to a combination of bad practices and bad frameworks.

Even people who write secure code import insecure libraries, or plug it into insecure authorization systems or databases. Like asbestos in the walls, this cruft has been fragmenting, drifting into our air a crumb at a time.

We ignored these, treating them as containable, little breaches and now the walls are rupturing, and choking clouds of toxic waste are everywhere.

The infosec apocalypse was decades in the making. The machine learning apocalypse, on the other hand…

ML has serious, institutional problems, the kind of thing you’d expect in a nascent discipline, which you’d hope would be worked out before it went into wide deployment.

ML is rife with all forms of statistical malpractice — AND it’s being used for high-speed, high-stakes automated classification and decision-making, as if it was a proven science whose professional ethos had the sober gravitas you’d expect from, say, civil engineering.

Civil engineers spend a lot of time making sure the buildings and bridges they design don’t kill the people who use them. Machine learning?

Hundreds of ML teams built models to automate covid detection, and every single one was useless or worse.

onezero.medium.com • Share


China is Winning the Foreign Investment War

The Importance of FDI and Why It Must Be Revived

Foreign direct investment (FDI) has helped to transform entire economies around the world. So why has it been declining?

www.visualcapitalist.com • Share


Edward Snowden on Apple as a Spy

The All-Seeing “i”: Apple Just Declared War on Your Privacy

By now you’ve probably heard that Apple plans to push a new and uniquely intrusive surveillance system out to many of the more than one billion iPhones it has sold, which all run the behemoth’s proprietary, take-it-or-leave-it software. This new offensive is tentatively slated to begin with the launch of iOS 15⁠ — almost certainly in mid-September⁠ — with the devices of its US user-base designated as the initial targets. We’re told that other countries will be spared, but not for long.

You might have noticed that I haven’t mentioned which problem it is that Apple is purporting to solve. Why? Because it doesn’t matter.

Having read thousands upon thousands of remarks on this growing scandal, it has become clear to me that many understand it doesn’t matter, but few if any have been willing to actually say it. Speaking candidly, if that’s still allowed, that’s the way it always goes when someone of institutional significance launches a campaign to defend an indefensible intrusion into our private spaces. They make a mad dash to the supposed high ground, from which they speak in low, solemn tones about their moral mission before fervently invoking the dread spectre of the Four Horsemen of the Infopocalypse, warning that only a dubious amulet — or suspicious software update — can save us from the most threatening members of our species.

Suddenly, everybody with a principled objection is forced to preface their concern with apologetic throat-clearing and the establishment of bonafides: I lost a friend when the towers came down, however… As a parent, I understand this is a real problem, but

edwardsnowden.substack.com • Share


Youtube and Regulation

Analysis | ‘YouTube magic dust:’ How America’s second-largest social platform ducks controversies

While Facebook and Twitter take the brunt of backlashes over misinformation and ‘censorship,’ the Google-owned video giant has often laid low. That may finally be changing.

The morning after Afghanistan’s capital fell to the Taliban last week, Facebook said it would continue to ban the group, while Twitter said it would “remain vigilant” as it prioritized safety.

Hours later that day — after the other social media companies made headlines — YouTube said it would also continue to ban Taliban accounts.

It’s not the first time YouTube lagged behind its rivals. Earlier this year, it was the last to suspend President Donald Trump following the Jan. 6 Capitol riot, and it has said the least about potential reinstatement. Three years ago, its parent company Google declined to send an executive to a Senate grilling on foreign election interference, leaving Facebook and Twitter’s leaders to face the music. And in 2017, it was the last of the major social media outlets to disclose evidence of Russian interference on its platform.

“Overall, it seems like Google’s strategy has been to keep their heads down and let Twitter and Facebook take the heat, and so far the media and political classes have rewarded that strategy,” said Alex Stamos, director of the Stanford Internet Observatory and Facebook’s former chief security officer.

www.washingtonpost.com • Share


Venture Trends

The Institutions With the Biggest Allocations to Private Markets Outperform Their Peers — Institutional Investor

Institutions with larger shares of capital invested in private equity and venture capital earned higher returns in 2020, according to new research from Cambridge Associates.

In the past decade, those with a private investment allocation of at least 30 percent have outperformed those with an allocation of 10 percent or less by 200 basis points, the investment and consulting firm said.

Private equity and venture capital investments were also found to be more profitable than U.S. public equities over the last five, 15, and 25 years.

In the report, Cambridge Associations evaluated the performance of public equities by calculating the return of the S&P 500 index if shares were bought and sold on a schedule matching the cashflows of private funds. Measured this way, U.S. public equities have fallen behind their private peers by 250 to 320 basis points over the last five and 15 years.

www.institutionalinvestor.com • Share

Coatue’s Newer Growth Funds Return More Than 45% Annually, Internal Data Show

The private tech funds of Coatue Management, the New York hedge fund that’s become one of Silicon Valley’s biggest investors, have started to outpace the returns of rival VC firms in recent years as the size of those funds swelled, according to internal data reviewed by The Information.

Coatue’s third venture growth fund, which it raised in 2017 to invest primarily in more-mature startups, posted a net internal rate of return of 47% as of last December, according to a May memo for prospective investors in its multibillion-dollar, fifth growth fund. That puts the 2017 fund, which includes stakes in big names such as TikTok owner ByteDance and food-delivery firm DoorDash, in the top quartile of venture funds raised in the same year, according to investment adviser Cambridge Associates. By contrast, the firm’s first two growth funds, raised in 2013 and 2015, posted returns that were multiple percentage points below the top quartile of fund performers, as the chart below shows.

www.theinformation.com • Share

‘Can’t Get More Crazy’: Series A Valuations Extend Record Rise — The Information

By Kate Clark

Financial software developer Orum, which disclosed a seed round over the summer, wasn’t seeking more capital when Bain Capital Ventures offered to lead its Series A investment last year. But the one-year-old startup took the money anyway and got a post-investment valuation of $100 million, according to a person with direct knowledge of the deal. Such unsolicited deals, carrying price tags once equated with more mature companies, have been driving early-stage valuations to record highs.

The median pre-investment valuation for a Series A round of funding has increased sixfold to $37 million since 2010, according to data on U.S. companies provided to The Information by research firm PitchBook. With more capital flowing into public and private tech stocks, investors are paying higher prices to win VC deals. These steep valuations allow founders to preserve their equity stakes but may hurt companies’ ability to raise capital in the future if they don’t grow fast enough.

THE TAKEAWAY

• Median Series A valuations have increased sixfold since 2010

• Buzzy consumer startups fetch $100 million valuations

• Inflated prices could harm startups if they fall short

“It’s hard to know where it stops,” said Dick Costolo, the former Twitter CEO who co-founded venture firm 01 Advisors. “It has felt for a while that it can’t get more crazy than this.”

A record amount of VC dry powder is propelling prices higher. VC funds amassed $70.9 billion last year as low interest rates and a sharp rebound in tech stocks attracted institutional investors looking to back the next Airbnb or Zoom. The cash surplus means young companies, particularly in hot sectors like fintech and social media, are raising a similar amount for Series A rounds as they might have in the past but at higher valuations.

www.theinformation.com • Share


Our Shrinking Planet

What are the advantages of US versus European VCs? — EU-Startups

Recently, a wave of US venture capital investors entered the European startup ecosystem flooding it with money. Sequoia Capital, Bessemer Ventures and Accel are just three examples of many. This development has led to an upward shift in investment rounds. In 2021 alone, €10.1 billion have been invested by US American VCs into European startups. What is behind this, and what are the advantages and disadvantages of US versus European VCs?

The European startup landscape is very attractive for investors. Especially when it comes to B2B business models with software solutions, industry leaders increasingly come from Europe. Despite their excellence, software startups from Europe still have slightly lower valuations than US Startups, although the gap is reducing. These European hidden champions attract investors from abroad, especially from the US. Furthermore, compared to their US competitors, European B2B startups generate about 10% more value per invested capital. One decisive factor favoring investment momentum: The coronavirus pandemic. The pandemic enabled global access to investors, as everything went virtual anyway, and therefore it didn’t matter anymore whether you have a Zoom Call with New York or Berlin. This development is a big advantage for startups that want to expand their global network quickly.

www.eu-startups.com • Share

The symbol of ByteDance’s app TikTok, which has gained global popularity. Photograph: Reuters

The party’s over: China clamps down on its tech billionaires | Chinese economy | The Guardian

The startling rise to wealth of the nation’s entrepreneurs has been an affront to Beijing’s political philosophy and increasingly, a threat to the communist party

In a Politburo group study session on 23 November 2015, China’s president, Xi Jinping, recommended the book Capital in the Twenty-First Century by the French economist Thomas Piketty. “The rich data he used demonstrated that … unrestrained capitalism accelerates wealth inequality … [His] conclusion is worth us pondering on.”

Back then, Piketty’s work on inequality was reported all over the world and sparked soul-searching among elites from Wall Street to Main Street. Some were surprised that Xi was paying attention, too.

www.theguardian.com • Share

London tech firms struggle to hire as Silicon Valley giants scale up in the city

KEY POINTS

  • U.S. tech giants including Google, Facebook, Amazon, Apple, Microsoft and Twitter now employ tens of thousands of tech workers in swanky offices across London, and some have major expansions underway.
  • Oscar White, CEO and founder of venture capital-backed travel start-up Beyonk, told CNBC that the expansions were making recruitment more challenging, adding that they have prompted inflated salary expectations and a scarcity of tech resource.
  • Facebook currently has 266 open positions in London, according to its career website, while Google has 172 and Apple has 103. Amazon is on the hunt for 162 software developers, 143 solutions architects and 72 technical managers in the city.

www.cnbc.com • Share

Africa Now Has The Largest Volume Of Bitcoin Peer-To-Peer Trading Worldwide

Africa has become the continent with the largest volume of bitcoin peer-to-peer trading in the world, according to data from analytics platform UsefulTulips. In the past seven days, the continent’s $18,073,777 negotiated in LocalBitcoins and Paxful surpassed North America, the previous leader, that traded $17,540,134 worth of bitcoin in peer-to-peer platforms.

Although the data is harvested in absolute numbers, not weighting it for each region’s individual and collective wealth measures, it shows how strongly bitcoin adoption is increasing in emerging markets. While financially privileged investors in developed countries often dismiss bitcoin’s usage as a currency or see it solely as a store of value, those in less-privileged regions who usually face strong currency debasement or limited access to the traditional financial system show how vital bitcoin can be and the real-world problems it can solve.

This reality is further reiterated by Chainalysis’ recently released global bitcoin adoption index, which demonstrated how bitcoin is entrenching into the countries that actually need it the most — not the ones that see a money-making opportunity in it. By weighting each country’s Bitcoin activity to prevent it from skewing to favor developed countries’ huge institutional trading volume, the index found that the greatest leap in adoption by ordinary people is in emerging economies — who focus on saving in and transacting with bitcoin.

bitcoinmagazine.com • Share


Startup of the Week — India

Venture capital funding: Startups raise $17 billion — Times of India

NEW DELHI: Indian startups got $16.9 billion of venture capital funding in 2021, next only to Chinese counterparts in the Asia-Pacific (APAC) countries, Global-Data said on Friday.

“Despite the third wave of Covid looming large and slow economic recovery, venture capital (VC) investors seem to be reposing faith in the Indian startup ecosystem. In fact, Indian startups stood next only to Chinese counterparts in terms of VC funding value among the APAC countries during January to July 2021,” the leading data and analytics company said.

An analysis of Global-Data’s financial deals database reveals that a total of 828 VC funding deals were announced in India during January-July 2021, while the total disclosed funding value of these deals stood at $ 16.9 billion.

timesofindia.indiatimes.com • Share


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