Future worries causes Visa to pump billions into Tink

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on June 24th, 2021.

The Swedish company Tink has 18 billion reasons to thank the US Department of Justice. Their stopping of Visa’s intended deal with the similar company Plaid laid the foundation for today’s giant acquisition.

Al Kelly, CEO of the card company Visa, seems to know what he wants.

In 1.5 years, he has tried to make two billion dollar deals of a very similar kind.

The segment that Visa is interested in is called “open banking” – a new standard for being able to share financial information between banks and companies. The first deal, with the fintech company Plaid, was blocked by the US Department of Justice, which accused Visa of breaching anti-trust.

After a 364-day wait, the acquisition was canceled and the deal worth 5.3 billion dollars was canceled.

Then Kelly got another chance to do the same thing again – but on the other side of the Atlantic. The card company Visa wants to buy Swedish Tink for 1.8 billion euros, about 18 billion SEK.

Both acquisitions point to the major change that is currently taking place in the banking world. The idea of ​​the legislator, the European Parliament in this case, is that consumers should be able to move money, accounts and financial services between different providers in a simple way.

But what is easy for the consumer is not always easy for the bank that has to deliver it.

This is where Tink comes into the picture.

Simply put, Tink has built a technology that makes it easier for banks, systems, and apps to talk to each other. In Sweden, Tink has long had collaborations with, among others, Nordea, Avanza, and SEB.

The great interest from Visa indicates one more thing: a concern about the future of payment cards.

For a long time, Visa, Mastercard and American Express have in practice functioned as the global infrastructure for moving money between people and companies.

But then there are upstarts like Trustly who offer several different options for moving money, where debit cards are just one of them and rarely neither the fastest nor the cheapest. And already today there are Swedish stores and e-retailers that, for example, only accept the Swedish payment system Swish as a form of payment.

Anyone who has ever tried to transfer money between different countries knows that it is anything but smooth, with long IBAN numbers and SWIFT codes.

Open banking makes it possible – in theory at least – to circumvent both debit cards and other hassle. Bad news for someone who is the CEO of a card company, if you do not have a real pile of billions to invest.

Al Kelly at Visa has just that.

Now he wants to be part of that movement.

The deal with Tink was therefore fairly expected. When the analysis company Forrester listed the leading companies in open banking, Plaid came in first place, and Tink in second.

Tink also has an advantage in that they operate in 18 European markets. Thus, the US Department of Justice does not have much to say about this deal.

However, their European counterparts could have similar objections. The acquisition will now undergo the usual review by the European Commission before the deal closes completely.

Even if Visa should have legal problems this time too, Tink is expected to emerge as the winner. After the deal with Visa went awry for Plaid, it took only three months before they received a new investment – at an almost three times higher valuation than what Visa had paid.

This column was first published in SvD Näringsliv, in Swedish, on June 24th, 2021.

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Why Telia wants to sell TV4 – 1.5 years after the big deal

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This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2021.

Only one and a half years in its possession – but already Telia is rumored to want to dump the Swedish broadcaster TV4. Surprising? Not at all. The world’s telecom companies never seem to learn from history – and all indications are that Telia will soon buy a “new” TV4.

A giant deal valued at almost SEK 10 billion. Transformative for both buyers and sellers. This is how it sounded when Telia bought Bonnier Broadcasting, which includes TV4, the Finnish equivalent MTV3, and the pay TV channels under the C More brand.

Only a year and a half later, Dagens Media states that Telia, where the Swedish state is the largest owner, wants to get rid of everything except C More.

How did we end up here?

The answer can be found with Telia Company’s current CEO, Alison Kirkby, who described the telecom market for SvD Näringsliv in October 2018.

I think it is very difficult for small, regional telecommunications companies to invest in both technology and content at the same time.

Kirkby was then the incoming CEO of the Danish telecom giant TDC, which blew off a merger with the Swedish television company MTG a few months earlier.

Content is difficult, she stated laconically.

That Kirkby would be skeptical of her new employer’s huge acquisition was perhaps therefore no surprise. The deal, which was examined by the European Commission for over a year, took place before she started. But it has now become her headache to solve.

The solution for Telia, which rejects the story, can therefore be to sell TV4 and Finnish MTV3. The article in Dagens Media refers to internal dissatisfaction and conflicts between the television unit and the telecommunications company. But more than anything, there are other mechanisms behind a potential sale.

The underlying reason is rather the identity crisis that the entire telecom industry is suffering from. It is, essentially, an infrastructure company that delivers broadband, television and mobile telephony – sometimes via cable, sometimes without. Infrastructure can be very profitable, but is also difficult to differentiate. Who really cares about the name of your broadband provider? Provided that the service works, is fast, and fairly cheap, the company behind it plays a minor role.

The same pattern can be found at telecom companies around the world. American Verizon, for example, bought the content companies Yahoo and AOL for a total of almost $10 billion, and then wrote off $4.6 billion just 2.5 years later.

Their competitor, AT&T, bought the media company Time Warner for $85.4 billion in June 2018. In May this year, they announced that Warner Media, as the company is now called, will instead be merged with Discovery.

These big, failed deals have been done to try to create an edge over the competition. The strategy is usually that you can share data with each other to increase the precision of your ads, and to be able to sell joint subscriptions to your end customer. Buy Telia’s broadband, get C More for a few extra bucks – that kind of offer.

However, that is easier said than done. The culture of telecom and media companies could not be further apart. The synergies rarely arise, and instead an internal strategy review is often appointed to go through the business. The investigation almost always comes to the same conclusion – the telecom company should focus on its core business instead. Which means the underlying technology.

A clear example of this is Swedish Hans Vestberg, who took over as CEO of Verizon 2018. He quickly stated that the company’s future was called 5G, and that the content it recently bought did not fit into that vision. They would invest in technology and infrastructure again. The social network Tumblr, acquired through the acquisition of Yahoo, was sold for $3 million. Original price: $1.1 billion.

Shortly before Allison Kirkby left TDC for Telia, she carried out a similar maneuver. TDC was divided into two parts – a content company and a technology company. In other words, Kirkby has already shown in action how she sees the telecom companies’ future vis-à-vis the media.

So what happens now? If one is allowed to speculate, Telia’s advisers will be given the somewhat ungrateful task of finding new owners for a traditional media company in 2021, and Telia will return to expanding its infrastructure instead.

But then, in a couple of years, it is conceivable that a new CEO will join Telia. They will find that it is difficult to differentiate yourself when you only have cables and technology to offer. And then they will – just like every other telecom company – start looking at buying media companies again.

This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2021.

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This determines the next GameStop

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This column was first published in SvD Näringsliv, in Swedish, on June 14th, 2021.

When the speculators on an online forum decide on a stock, things can move very fast. This week, companies such as Clover Health, Aethlon Medical and Geo Group got to experience what it is like to become a so-called meme stock. But what forces really affect what will be the next Gamestop?

The medical technology company Aethlon has just had a couple of very strange days. It started with the company published a study on the treatment of Covid-19, using one of their products. However, the research was preliminary, and the article had not yet undergone peer review. The whole thing was pretty normal and undramatic. Aethlon’s stock stood still after the announcement.

A couple of days later – when the online forum Reddit drew attention to the company – the stock suddenly soared 465 percent in a single day. Aethlon took advantage of the situation and quickly issued new shares for sale. Suddenly, they had received just over 12 million dollars – at a share price that was almost 300 percent higher than a few days ago.

It’s easy to feel that the stock market – and perhaps the world – is upside down when you read this type of event. But in some cases, there is more behind the big price fluctuations than it first seems. It is therefore interesting to look at what parameters come into play when a share goes from being virtually unknown to becoming a popular meme stock.

Slightly simplified, it can be said that there are two types of investors who invest and speculate in this type of stock. The first group – which we can call the “head” – does their research and presents their thesis like any other stock analyst. They seem to see an opportunity in the market, explain their thoughts publicly on online forums, and let others judge whether it sounds reasonable or not. This is a proportionately small group of people – but all the more influential. A typical example here is Keith Gill, the man who started the Gamestop rally.

The second group – which we call the “tail” – is more opportunistic and speculates mostly based on the reasoning of others. Or for that matter on pure humor – as in the case of the cryptocurrency Dogecoin, which started as a joke.

Buying shares based on someone else’s analysis is in principle no different than following a share tip in a daily newspaper. The big difference is the risk propensity and the scale at which this takes place. This tail of speculators is now so large that they can drive an entire market. Aethlon’s shares were traded 93.1 million times in recent weeks, despite the fact that there are only 827,000 shares available on the market.

The risks are enormous. Was there anything substantial in Aethlon’s new study? Perhaps. But reasonably, not all Reddit speculators can correctly assess this. And even if they are wrong, it may turn out that they are right in the end. The stock price goes up. But not because the study was important, but because everyone buys the share at the same time.

For investors, which we call the “head”, there is a special parameter that provides rocket fuel for share purchases. It is about finding stocks that are very heavily shorted, often by hedge funds. They have thus borrowed and sold shares on the assumption that they will fall in value.

If the share price goes up instead, these hedge funds can have problems, as they have to buy back the share at some point in order to be able to redeem their loans. If the amount of outstanding shares on the market is lower than demand, what is known as a short squeeze can occur – that is, buyers push up the price because they try to buy back the shares again. One of the most well-known examples of this happened in 2008, when Porsche speculated with Volkswagen shares. It was a financial maneuver that cost the hedge funds billions.

If we look at the present, we see clear similarities with both Gamestop and AMC. Both were heavily shorted shares, they managed to get the tail of investors, and then came the big ride in the form of all the shorters who quickly needed to buy back their shares.

So how should one look at the online forum stock pickers – are they risky speculators or geniuses? Both are well represented in the forums. But what they are above all, is dependent on each other. They need insight and they need the scale. If one fails, the other also loses its power.

This column was first published in SvD Näringsliv, in Swedish, on June 14th, 2021.

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Free popcorn made the AMC stock soar

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This column was first published in SvD Näringsliv, in Swedish, on June 3rd, 2021.

By enticing with free popcorn, the cinema chain AMC’s share soared by 95 percent – in one day. The incident reveals a change of attitude towards speculators from internet forums. From skepticism to addressing them directly.

Fund manager Mudrick Capital made probably the worst stock market trade of the week.

On Tuesday, they began by buying newly issued shares for over 230 million dollars in the American cinema company AMC Entertainment. The price immediately jumped 23 percent. On the same day, Mudrick announced that they would instead sell their entire holding at a profit. They suddenly thought the stock was overvalued, according to a Bloomberg source.

But what at first looked like a quick and good deal took an unexpected turn instead. The next day, the AMC share soared by as much as 95 percent.

The price was driven by extreme activity from individual speculators, and during the day the stock was the most traded on all US stock exchanges. To put it in context, the trading volume of AMC was higher than Amazon ever had in a single day. And the valuation was one day higher than it is for half of the companies on the S&P 500. This for an extremely hard-pressed American cinema chain.

An optimistic interpretation of this sudden interest in cinemas could be that the sale of cinema tickets actually had its best weekend in the United States since the beginning of the pandemic.

But it is probably not ticket sales that are behind the sharp rise. Instead, the price increase is more similar to Gamestop, which was driven by a huge number of speculators from the internet forum Reddit in February. AMC was one of the stocks that joined the rally, but has been fairly stable until now when it reached a new all-time high.

However, there is a bio-related news that can be linked to both the price rush and the Gamestop phenomenon. AMC, which has about 30,000 Swedish investors via Avanza, launched a new platform for its shareholders on Wednesday which would – believe it or not – give free popcorn to its shareholders.

While Gamestop stood rather paralyzed and surprised when their stock suddenly soared, AMC seems rather to have decided in advance to use this to its advantage. The reasoning seems to be that if the share is still only traded in pure speculation – without connection to the underlying business – then why not appeal directly to the speculators? And to do it with the same kind of humor that drove the whole phenomenon from the beginning. There may be something reasonable in this complete unreasonableness.

If shares on the stock exchange are completely decoupled from the company’s operations, we leave the image of a trading venue and instead approach what can be compared to a casino. And as in all gaming-related businesses, it is important to get to know your customer. If traditional investors might be looking for generous stock dividend policies, speculators are looking for signals that will make more people hang on and continue to push up the price. And that’s where we seem to be now. In the situation where you buy a share, to get free popcorn.

The drama also continued on Thursday. At that time, the AMC share fell by more than 30 percent after the announcement that the company would take advantage of the current rise and issue new shares.

In the accompanying material, however, they themselves warned of the fluctuations in the price and wrote that “our current market price reflects a market and trading dynamic that is not related to either our underlying business, or macro and fundamentals, and we do not know how long this dynamic will hold up. ”

This column was first published in SvD Näringsliv, in Swedish, on June 3rd, 2021.

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Uncertain win for Apple even in victory against Epic

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This column was first published in SvD Näringsliv, in Swedish, on May 31st, 2021.

In the recently concluded trial against the gaming giant Epic, it looks promising for Apple. But even a possible win would be less significant than one might think. And Apple’s legal problems are far from over.

Wearing a white shirt, a slim gray tie, and a white face mask, one of the main characters stepped out of an elevator the other day and straight into the biggest tech lawsuit of the year. Apple CEO Tim Cook looked confident and victorious. With his fingers he made Winston Churchill’s historic V sign – “V for victory”.

However, the trial, which ended this week, was not really that simple, either for the favorites Apple or their counterpart, the gaming company Epic. Judge Yvonne Gonzales Rogers clearly signaled during the trial that she did not buy either side’s argument in full. At the end of the trial, she suggested that her upcoming verdict could make both parties dissatisfied.

In short, the case is about Epic claiming that Apple is using its power over the App Store in an unfair way. For example, developers are prevented from informing their users that their products can be purchased elsewhere than through the App store. This makes Apple make more money than they would otherwise have done.

Apple, for its part, claims that they have the right to set their own rules in a store that they own. They see the entire ecosystem with the iPhone hardware, the iOS operating system, and the App Store as one and the same experience. And to ensure that it is both secure and easy to use, Apple itself needs to dictate the terms.

The key issue in the case is the definition of the market. If you look at it as a large gaming market overall – with all consoles, mobile phones and computers included – it is difficult to claim that Apple has made any major control of the market. Epic’s game Fortnite, which Apple shut down from the App Store after breaking their rules, is still available on Xbox, Playstation and Nintendo, among others.

If, on the other hand, you see the market as software distributed to mobile phones, then Apple’s actions will be more controversial. Apple is one of many companies in the gaming market, but is basically one of only two players in the mobile market. Android, and the Google Play store, is the other. Epic has also sued Google Play for similar issues, but that process has not started yet.

All arguments aside, Epic is anything but a perfect representative of the world’s game and app developers. The company has portrayed itself as David in the fight against Goliath, but a more accurate description is rather Goliath against Goliath. Epic had sales of more than five billion dollars in 2020. Certainly significantly less than Apple, but considerably more than almost all other app developers.

Epic is also half owned by the Chinese internet giant Tencent. It would probably have been easier to get sympathy for a smaller developer affected by Apple’s strict rules, than a billion-dollar company that wants to make even more money.

Even if Epic loses this fight, they may still win in the long run. What they have succeeded in doing is shed light on these issues. It will increase the political pressure on legislation in the United States. Both Republicans and Democrats have expressed concern about the increased concentration of power among tech companies, and when this issue becomes relevant again, it may be an appropriate opportunity to implement reforms.

Apple also has legal concerns in Europe. The European Commission is looking at a similar issue regarding payments in the App Store in the music market, with Spotify as a counterpart. This will be even harder to justify for Apple, as their own service Apple Music competes directly with other music services.

The preliminary conclusion from the European Commission is that Apple has abused its dominant market position. Apple will now respond to their comments.

The lawsuit in the US between Epic and Apple is now in the hands of Judge Yvonne Gonzales Rogers. The verdict is not expected until after the summer. A sure tip is that it will be appealed – regardless of the outcome.

This column was first published in SvD Näringsliv, in Swedish, on May 31st, 2021.

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Elon Musk – the Jerome Powell of crypto

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This column was first published in SvD Näringsliv, in Swedish, on May 24th, 2021.

$1 trillion went up in smoke in last week’s cryptocurrency crash. Elon Musk and China got most of the blame, but the problem showed a deep contradiction among the proponents of cryptocurrencies.

When Tesla’s CEO Elon Musk tweets about cryptocurrencies, the market moves.

Mostly upwards, as in the case of dogecoin – the joke that became one of the world’s ten largest cryptocurrencies, much based on the support of Musk.

This week we also saw examples of the opposite, when Musk somewhat dizzily expressed concern about the environmental impact that bitcoin has. The cryptocurrency fell sharply, and many wondered why his environmental analysis came now. It is no secret that the production of new cryptocurrencies is an environmental culprit, and what’s more – Tesla only bought bitcoin for $1.5 billion months earlier and announced it would accept it as a means of payment.

Bitcoin took another turn when the Chinese central bank warned financial institutions of accepting cryptocurrencies. The statement was not noticeably different from the stance expressed by Chinese authorities in both 2013 and 2017, but nevertheless contributed to concerns about increased regulation.

The above movements in the market would not have been so strange, if they had been about a more normal asset. Sure, volatility is unusually high, but there are other financial products that can have similar movements.

But cryptocurrencies are not normal in this regard. The whole idea behind everything is called decentralized finance (defi). With defi, there are no central platforms that govern either monetary policy or economic measures. It is an economy that is network-based and managed from node to node, and which together creates an economy where everyone can participate.

In a decentralized financial world, it is therefore strange that Elon Musk’s statements are carefully analyzed in the same way as they are with Jerome Powell, the chair of the US Federal Reserve. The slightest indication of a change in course creates immediate surges. It was precisely this type of institution that this new world would avoid. How could we end up in a place where Elon Musk became something of a dictatorial central bank chair – one that no one asked for?

The answer lies in the immature market that cryptocurrencies still consist of. In simple terms, its participants can be divided into two distinct groups: the enthusiasts who believe in a decentralized financial world, and the investors and speculators who agnostically see an opportunity for good and immediate returns. Possibly you could add a third group – the professional criminals who use crypto to anonymously launder and transfer money. The latter group, however, may get a little sweatier in the future when the US Treasury Department just proposed that all crypto transactions over $10,000 needs to be registered with the US Internal Revenue Service. A clear indication that more regulation is on the way.

The first two groups do not have much in common other than that they are in the same market. But where enthusiasts see an emerging new financial infrastructure, investors see fast money. More hype gives higher prices and better returns. This also applies to the enthusiasts where many quickly became millionaires on their early insights about cryptocurrencies, whether it was their intention or not.

When Elon Musk tweets positively, everyone with cryptocurrencies gets richer. But that effect has been treacherous for the enthusiasts. You can not cheer on when an individual increases the value of your portfolio by thousands of percent, and at the same time think that it is problematic when the opposite happens. But of course it’s easy to be idealistic – until you see how rich you have become on his latest tweet.

For the cryptocurrency world to reach its full potential and approach the decentralized financial world, it might be most appropriate to look at the relationship with Elon Musk. Should one simply end it?

As the situation is today, he acts as central bank governor in a market that says it does not need one.

This column was first published in SvD Näringsliv, in Swedish, on May 24th, 2021.

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After the hoarding of toilet paper – here comes gas in plastic bags

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This column was first published in SvD Näringsliv, in Swedish, on May 17th, 2021.

Residents who bunkered gas in plastic bags. Oil prices rose. The hacker attack in the US not only acts as an eye opener on how vulnerable society is to cyber attacks – but above all on how unprepared many people seem to be.

“Software is eating the world”. That’s how the venture capitalist Marc Andreessen began a now legendary essay in the Wall Street Journal in 2011. Not a day goes by in Silicon Valley without the expression being repeated in some context. His point was that basically all areas of the world would be affected – and in some cases revolutionized – with the help of software. The last ten years has in many ways proved him right. Last week it happened again.

In the city of Alexandria, Virginia, gasoline suddenly ran out after residents began stockpiling fuel, much like many people did with toilet paper at the beginning of the pandemic. It is easy to laugh at the fact that American authorities officially stated that “plastic bags should not be filled with petrol”, but in fact this was just another proof of Andreessen’s thesis. The indirect reason why the situation arose was, in fact, software.

The company that operates the Colonial Pipeline, the largest oil pipeline in the United States, had been subjected to a cyber attack, which stopped the supply of gas for six days and made the price of oil rally. A wake up call for how vulnerable the United States is, according to the US Minister of Transportation, Pete Buttigieg.

The Colonial Pipeline is not alone in being hit. The number of ransomware attacks – the type of attack that locks a computer or IT system and requires an unlocking fee – has doubled in just one year.

Like the security policy expression “we do not negotiate with terrorists”, it is sometimes said that one should not negotiate with hackers either. But the numbers speak a different language. By 2020, hackers are estimated to have earned at least $350 million through extortion – an increase of 311 percent in just one year. The real figure is also probably much larger, not everyone wants to publicly acknowledge that it has happened to them.

The reason why the attacks increase so much is simply because they are profitable. Colonial Pipeline paid $5 million to reopen.

One can wonder why authorities and companies have not gone further in preventing these attacks from hackers. There are many factors to consider, but here are three possible explanations:

Firstly, it may be that large parts of the business community are increasingly using software, but lack any real experience of managing IT security. Inadequate routines, albeit temporary, can be all that is needed to make oneself vulnerable.

It may also be because many companies have old and outdated systems that are expensive to administer – that they have a so-called technical debt. These systems can be vulnerable only by the way they are designed, and would preferably need to be replaced completely.

In addition, hackers, like cybersecurity, have become much more sophisticated than before. An example of this is the emergence of EKANS, a ransomware virus from 2019 that was created specifically to attack industrial systems.

However, the intentions between different hackers differ. Darkside, the group behind the software used in the attack on Colonial, apologized, saying “our goal is to make money, not create problems for society” and that they are apolitical. This naive view of one’s own actions paints a picture that is more of an opportunist than a terrorist.

However, a lot of hacking is very much political. Both performed by individual states, but also protected by them.

Perhaps the big question that authorities, companies and individuals should ask themselves is not when it happens again – but when it happens to them? There is no indication that the attacks will decrease or disappear in the future.

In ten years, the number of IT attacks increased from 12 million to over 800 million, and Sweden is of course no exception. In November 2020, there was an extensive attack on several large Swedish companies, in addition, for example, Swedbank has had countless problems that have caused their services to be down. This doubles the exposure – you can be affected both by a careless push of a button in an email, or by the services you use.

What is needed going forward is an approach that assumes that companies and institutions will be attacked, rather than being surprised when it happens. Many companies are already there today. But when socially critical infrastructure can be knocked out – as in Alexandria, Virginia – it clearly illustrates that there is a long way to go before these risks are properly managed.

This column was first published in SvD Näringsliv, in Swedish, on May 17th, 2021.

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The $2 billion deli

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This column was first published in SvD Näringsliv, in Swedish, on May 10th, 2021.

It has a turnover of a few thousand dollars but has a multi-billion valuation on the stock exchange. This is what happened when a small restaurant in New Jersey ended up at the center of the debate about how the financial market is really doing.

The American flags are flying outside a gray, anonymous room in Paulsboro, New Jersey. The sign outside promises Italian delicacies. The Hometown Deli restaurant looks like it was taken from any American suburb. But it stands out on an important point. It is the primary asset of a listed company that with warrants – a leveraged instrument with long call options – included is valued at over two billion dollars.

Hometown Deli – and the parent company Hometown International – have quickly come into focus when analyzing the current market conditions. The debate started when hedge fund manager David Einhorn from Greenlight Capital described the market as “quasi-anarchy” and sourly commented on Hometown Deli that the “pastrami must be fantastic”.

It is easy to understand Einhorn’s criticism. The cryptocurrency dogecoin, which started as a joke, currently has a market value that is three times higher than the tech company Slack, and so far this year, as many as 314 new spac companies have been listed in the USA. The Gamestop share, which was temporarily pushed up to astronomical heights after an internet forum united to buy it, is still up over 800 percent since the beginning of the year.

When you, like Einhorn, belong to a more kind of traditional player in the market, it is easy to look what is happening as both strange and threatening. When individual stock holders succeed in influencing the market in the same way as established banks and funds, a transfer of power takes place which is to the detriment of the establishment.

In the case of Hometown International, however, it is not the individual stock buyers that have had another run, even if at first glance looks like the next Gamestop rally. Instead, it is investors from Hong Kong with a background from hedge funds that are behind the sky-high valuation. The assets mainly consist of Hometown Deli (which only had sales of a few thousand dollars last year), but it would be wrong to see this as a future restaurant empire. A better parable is rather a SPAC, but in a miniature format. Or as John Coffee, a professor at Columbia University, put it: “a parody of a SPAC”. He also added that “this is what I would expect in the final stages of a bubble”.

Hometown International is thus rather a shell company, where the value mainly lies in the position as an American listed company. After that, you can merge the company with an unlisted company and thus get directly to the American stock exchange. It’s cheaper than a SPAC, which can cost millions of dollars in administrative fees alone. The restaurant thus becomes a way to avoid being classified as just a shell company, which means different regulation by US authorities.

New forms of investment such as cryptocurrencies and SPACs are both volatile and complicated to understand, even for the most experienced investors. However, this does not mean that the people behind it necessarily have a bad intentions. In Einhorn’s letter, he writes that “it is as if there are no prosecutors in financial crime”. Although Einhorn exaggerates, his concerns can be understood. Given that interest in the stock market and investments has increased so much, those who want to make quick money at the expense of others are also attracted. The combination of new types of investors and new forms of investment quickly risks leading to costly misunderstandings.

At the same time, it is difficult not to see Einhorn’s letter as a desire to stick to the old view of the market – the one where Wall Street’s most powerful institutions sit in the driver’s seat and make billions. It would be easy to write off Gamestop, for example, as an anomaly, but Hometown International shows that the changes come from all sides – both from private individuals and institutions. It is a transfer of power and influence from the establishment to new, risk-averse, players. What remains to be seen is how many of these individual investors dare to entrust them with their savings.

This column was first published in SvD Näringsliv, in Swedish, on May 10th, 2021.

“Tiger King” devours the stars of the tech world

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This column was first published in SvD Näringsliv, in Swedish, on May 3rd, 2021.

The offer is simple: cash on the table – fast. The success is enormous. The hedge fund Tiger Global is turning the venture capital world upside down. It is only a matter of time before the aggressive Spotify investor enters Sweden again.

Venture capitalists like to emphasize their ability to identify and invest in disruptive companies earlier than others. All with a methodology that, somewhat simplified, is about building relationships with entrepreneurs, discussing the business idea with colleagues, spending weeks in different phases of due diligence and then offering a first term sheet to negotiate.

That approach, the very standard model for how business is conducted, has been torn apart by the hedge fund Tiger Global (sometimes called “Tiger King” with reference to the popular Netflix series). Away with slow processes and due diligence. Away also with the ambition to only do a handful of deals per year. And in with a strategy that is more about going wide – four investments in just one week and often under much more loose conditions.

When Tiger Global invested in Innovaccer, a cloud healthcare company, it only took three days from the first call until there was a signed letter of intent. The deal meant that the company’s value increased to $1.3 billion, which can be compared with $305 million a year earlier. As investor Everett Randle of the Founders Fund put it – “Tiger is eating your lunch (& your deals)”.

The explanation why Tiger Global act like they do can be found in how they view their capital. In normal cases, venture capitalists invests the money fairly evenly over the life of the fund, which is usually several years. Tiger has instead decided to invest as much as possible, as quickly and as early as possible.

This means that the companies in which the hedge fund has invested develop longer before the fund’s maturity ends. Or – as is often the case with companies that are financed by venture capital – they go up in smoke altogether. But as Tiger Global often enters later phases, accuracy is high. The fund’s investments include Coinbase, Square, Alibaba and Spotify, which they owned around 7 percent of at the IPO in 2018. It is only a matter of time before they invest in a Swedish company again. There is plenty of capital and they have become increasingly aggressive.

Tiger Global has 13 funds with assets of $65 billion. The latest fund, which closed in early April, is one of the world’s largest to date with a value of $6.5 billion.

More investments provide increased transparency in the companies, which in turn makes it easier to be able to invest even more in the companies that are doing well. Those who do not do well are ignored – this is how the model works for the entire venture capital industry. This gives Tiger Global a larger selection to evaluate, and expects that the success of the companies that are doing well will compensate for those who drop out.

By acting quickly, they also turn another accepted truth upside down: that there are methods and skills around how to identify which companies can be successful. Tiger Global’s new model thus seems to be about the opposite – that you do your best to invest in as much as possible, with large positions in late stages and at high valuations. For entrepreneurs, this means more capital at a lower dilution.

The speed of the investments raises some critical questions. To almost completely skip ordinary due diligence leads to an increased risk of irregularities. It is conceivable that the investors in Tiger Global have temporarily let this slide, but the risk is still latent. In addition, having such a large portfolio of investments also means that it is not possible to spend very much time with each one. Tiger Global solves this by offering the companies services from Bain, one of the world’s largest management consulting firms. It is almost the opposite of the established trend where you help your investments with everything from strategy to recruitment. Tiger Global also does not want any board seats. The company gets fast money that it can use to grow, but gets no help in doing so.

As with all funds of this kind, it takes many years before you see the outcome of a change in strategy. On the other hand, it is quite clear that Tiger Global has garnered a great deal of astonishment and concern in venture capital circles.

Last week, a Swedish investor was asked about their view of Tiger Global and cautiously replied that they hoped that personal relationships also weigh in when an entrepreneur chooses who they want to work with. The question that the entire industry is now asking itself is whether these relationships weigh more heavily than a fast process – and a higher valuation.

This column was first published in SvD Näringsliv, in Swedish, on May 3rd, 2021.

Dogecoin – the world’s most expensive joke

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on April 26th, 2021.

It started as a parody of cryptocurrencies – and recently became as valuable as Spotify. The cryptocurrency Dogecoin captures the present in a very clear way. Now the success risks undermining confidence in the entire market.

Not many people thought that the cryptocurrency Dogecoin would be anything other than what it was intended to be – a joke. The new financial world wanted something else.

The creation that the American engineer Billy Markus and his friend launched in December 2013 was based on a meme about the dog breed Shiba Inu. The joke is that the dog, who looks a bit lost, can hardly spell anything – not even his own name. Doge therefore becomes a misspelling of the English word “dog”.

Under normal circumstances, this meme had quickly been transferred to Internet history. But what happened is anything but normal. This week, the value of all Dogecoins temporarily exceeded $50 billion – surpassing the value of companies such as Ford, Twitter and Spotify.

How could this happen? To understand the underlying mechanisms, we do not have to go very far back in time. It is enough to take a closer look at the Gamestop hysteria at the beginning of the year.

Then, just like now, the rise has been driven by feverish activity on internet forums such as Reddit and Discord. The success there, as well as the fact that Bitcoin has skyrocketed in value, seems to have given many confidence that they’ve found the next shortcut to fast money. Because even if Gamestop fell after the worst hype, the share is still up over 800 percent since January 2021.

The method of talking up assets on forums works. The problem arises when the same people want to realize their profits and sell their assets. It requires an influx of new buyers that you can sell to. This is called “the greater fool theory” and is the investment world’s equivalent of the Swedish card game Svarte Petter – you do not want to be “the greater fool” when the game is over.

And it’s just like a game you should see the rise of Dogecoin. This is not about an analysis of economic fundamentals or an insight that the rest of the market lacks. Instead, it is more like a casino where you think you have found a trick to win more often. The fact that it is a cryptocurrency also makes it easier to justify extreme volatility. The much more established Bitcoin, for example, has increased over 80 percent during the year, from an already high historical level.

The rise in Dogecoin, which has accelerated around 18,000 percent in one year, is now creating problems for the entire crypto world. Companies like Tesla, WeWork and Time Magazine accept Bitcoin as a currency when you shop with them. Mastercard will also start accepting bitcoin in their network. The professionalization and acceptance of cryptocurrencies as legitimate means of payment that has taken place over the past year gets damaged by the association with Dogecoin.

The image that the crypto market is a financial playground for speculation is exactly the one that Bitcoin enthusiasts are trying to distance themselves from. In that context, a market value of $50 billion for Dogecoin, which later quickly fell to $35 billion, will not be an asset for the cryptocurrency world – but rather a burden.

The difference in maturity between cryptocurrencies makes it increasingly difficult to describe them all as a single market. Is it an emerging global currency? Is it a digital asset class? Is it the penny stocks of the digital age – a way to make quick money based on nothing?

The answer is yes to all of those questions.

It would therefore be wrong to let Dogecoin represent all of these strains. It is both a digital tulip field and an ongoing financial revolution.

This column was first published in SvD Näringsliv, in Swedish, on April 26th, 2021.

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