It’s fun when there’s resolution to a story I wrote about months ago. Remember when Citibank accidentally paid out $900 million on behalf of Revlon? Well, Citibank sued the creditors who refused to send the erroneous money back — about $500 million worth of the total sum — and a judge has ruled that the creditors do not have to pay the money back. Unsurprisingly, Citibank intends to appeal — but it doesn’t look like the law is in the bank’s favor.
The Business Buzz
Lots of bluster, not much closure. The Committee on Financial Services ran a hearing on Thursday surrounding the GameStop short squeeze that sent the video game retailer’s shares soaring to more than $400 in late January. The hearing had five headliners — Robinhood CEO Vlad Tenev, Keith Gill (better known as Roaring Kitty and DeepF—–Value on YouTube and Reddit respectively), Citadel founder Ken Griffin, Reddit CEO and cofounder Steve Huffman, and Melvin Capital founder Gabe Plotkin. Representative Maxine Waters — who chairs the Committee — stated previously that the behavior of hedge funds in this scenario were a major concern. Accordingly, much of the focus in the hearing was questioning Tenev about Robinhood’s decision to limit GameStop trading by individuals — there were rumors that Robinhood’s connection to hedge funds like Citadel was a factor in the move. Tenev denied these claims while also defending his app’s practices of receiving payment for order flow. (Side note: payment for order flow is a complicated process to summarize — if you want a better understanding of it, I recommend this opinion piece from Bloomberg.) Griffin was also questioned about whether Citadel pressured Robinhood. He also denied the claims.
Keith Gill reiterated his bullish opinion on GameStop — which is currently priced around $40 a share. He also emphasized that his YouTube videos are provided purely as educational content and that he does not actively encourage anyone to emulate his investment style. Gill is being accused of falsely representing himself as a novice trader in a separate proposed class-action lawsuit that was filed in Massachusetts on Tuesday.
Plotkin and Huffman both faced far less attention from the Committee members. Much of the center stage was dedicated to Tenev and Griffin. Despite hours of questioning, no conclusions were reached. Waters promised further hearings in the future.
As you might imagine, that’s been a pretty unpopular proposal with Facebook and Google. This week we found out how each company is handling the regulations. And the responses could not be different. Google has been busy working on licensing agreements with news companies. Facebook, though, put its foot down. The social media company will restrict Australian users and publishers from sharing and viewing content on its platform in order to avoid the payments.That means even users outside of Australia will be unable to see Australian content on the site. It’s a pretty big power play for Facebook — and it may become precedent for the company as the EU considers its own set of digital regulations.
The Private Market
Is San Francisco really losing its cultural foothold? We’ve been hearing a lot about how the work-from-home change has led many people to move from expensive urban areas to lower cost regions. And with that narrative, the dominance of San Francisco as a tech hub has been questioned. But the picture isn’t quite as clear cut as it seems at first glance.
It’s true that San Francisco lost its place as the top economically performing city last year. The new leader? Provo, Utah — followed by Palm Bay, Florida and Austin, Texas. And San Fran also fell in terms of job creation and wage growth. Those are big market shifts, it’s true. But recent USPS data shows that while people did move away from San Francisco, many didn’t actually leave the state. Instead, they moved to other Bay Area counties nearby — which might allow them to move back if prospects improve.
Despite the mixed messaging on San Francisco’s diaspora, there is one important shift happening — the area is losing its stronghold on venture capital. Pair that with the upcoming Reg CF limit increase in March and you can definitely see a change happening in how and where startups secure funding. With online private equity, deals can easily come from anywhere and reach investors anywhere. The reliance on Silicon Valley as a hotbed for technical innovation is fading — and that’s good news for everyday investors.
Market sector to watch — edtech. Alongside work-from-home, telehealth, and food delivery tech, the pandemic has also forced us to view edtech in a whole new way. Holding classes over Zoom or other video conferencing platforms is messy and difficult for many teachers and students. So naturally, startups are answering the call for a better solution. These companies are betting that virtual learning will not fall by the wayside once the pandemic ends. This TechCrunch article highlights four edtech startups that are each approaching the problem in unique ways. From building a virtual learning platform from the ground up to providing asynchronous content, from targeting colleges to primary education, these companies are bringing innovations to a market that desperately needs it. And maybe more importantly, it’s a sign that the edtech market is worth watching as a startup investor.
The Fun Stuff
Because creativity isn’t only for artists. As part of my ongoing series for Black History Month, I want to put the spotlight on black scientists. Did you know that the first blood bank — and many modern blood bank practices — was started by a black doctor named Charles Drew? Or that we owe much of the development of GPS to mathematician Gladys West? This article from Live Science covers West and Drew, among many other significant black scientists. And this timeline shows the legacy of black scientists through the decades, from the first black woman to graduate from a US medical school in 1864 — Rebecca Lee Crumpler — to Clarise Phelps, the first black woman credited with helping to discover a new element just two years ago.