Welcome to September! The leaves are turning, PSLs are here, and so is the KingsCrowd news roundup. Let’s get to it.
The Sheriff of Nottingh– I mean, the SEC strikes again. Popular day trading app Robinhood is under SEC investigation, the WSJ reported this week. The cause? Robinhood failed to fully disclose that it sold client orders to high speed trading firms until 2018. Early on, the app’s website claimed that its main sources of revenue were its margin-trading service and interest accrued on customer deposits. But payments it received from selling client orders (known as payments for order flow) also contributed strongly to Robinhood’s bottom line. That fact wasn’t openly stated on the website until October 2018.
Those months of limited disclosure could cost the company around $10 million — if it settles with the SEC. A settlement would mean that Robinhood doesn’t admit to any intentional wrongdoing, but acknowledges that some of its material was misleading. As Robinhood and the SEC work to reach an agreement, the app continues to sit pretty at its recent $11.2 billion valuation.
Throwback to WWII. The Congressional Budget Office released updates to its budget outlooks this week. And it’s not a pretty picture. The CBO predicts that US federal debt will likely be larger than the entire GDP next year. We haven’t seen that happen since 1946 — right after WWII. But wait, there’s more. The CBO also expects the federal deficit to reach $3.3 trillion this year (assuming no further aid or stimulus packages are passed). “At 16.0 percent of gross domestic product (GDP), the deficit in 2020 would be the largest since 1945,” the office stated.
Much of these economic woes can be blamed on the global pandemic. However, US debt was growing even before coronavirus sent us all home, caused record unemployment, and shuttered the doors of businesses across the country. And the CBO expects debt to continue outpacing GDP for the next 10 years, with it reaching 109% of GDP by 2030. Huzzah to the new normal.
Solving wealth inequality one investment account at a time? Hedge fund manager and billionaire Bill Ackman proposed a novel solution to wealth inequality in America — mandatory investment accounts. He said that the government could fund tax- and fee-free accounts for every child born in the US. Assuming an initial investment of $6,750 and continued average returns of 8% annually, each account would reach $1 million by the end of 65 years — just in time for its owner to reach retirement.
Ackman also argued that addressing wealth inequality is necessary to maintain capitalism — else you risk the disenfranchised seeking out other models of economics, such as socialism. And considering that in just three months and in the midst of a raging pandemic (specifically from March 18 to June 17), over 600 American billionaires saw their wealth increase by $584 billion… I think Ackman might be onto something.
Exit to the audience. Readers familiar with startups will also be familiar with the concept of “exits” — when a company graduates from startup to successful business. Usually this happens in one of two ways: through an IPO or by being acquired by another company. But what if there were a third way?
A project based out of University of Colorado Boulder is proposing just that. The project is called Exit to Community. And that’s the third option it is encouraging founders to consider. The idea is that startups could become community-owned — that is, some combination of the users, employees, investors, and other stakeholders would all jointly own the company. Exit to Community points to startups like Buffer and Conductor as good examples of what this kind of exit can look like. The project also argues that having a third option could help investors see returns on companies that don’t reach IPO or acquisition levels. With equity crowdfunding already working to democratize investing, this could be an interesting next step.
Crowdfunding stays on the rise. Despite new levels of economic uncertainty, 2020 has been very good for equity crowdfunding. Not only has this year seen some of the highest amounts of funding in single months — Crowdfund Capital Advisors reported that July saw $23.2 million invested — but the number of equity crowdfunding platforms is increasing too. There are now 55 active funding portals in existence. That’s a whole lotta opportunity for startup investors.
Check out the columns on that one. If you want to seem cultured at the BBQ conversation this Labor Day weekend, why not debate the aesthetics of these unique buildings? They’re all on the longlist for the Dezeen Awards — architectural awards for the world’s best buildings, studios, and architects. The shortlist is expected to come out later this month, so bringing these buildings up now will make you look extra-sophisticated. Take that Uncle Greg.