fortune--2020-01-14--What the Struggles of Pizza and Coffee-Making Robots Mean for Investors

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Robots that make pizzas and cappuccinos are having a tough new year.
In recent weeks, two high-profile robotics startups specializing in food preparation, have both significantly slashed costs. Automated coffee shop Café X shut down three San Francisco-based stores, laid off some staff, and is now focusing on two robotic cafes in airports, Axios reported. Meanwhile, Zume Pizza fired over 200 employees and has pivoted from pizza-making robots to creating sustainable packaging for food, Business Insider reported.
Both startups were reportedly attempting to raise additional funding.
The troubles at the two companies are noteworthy because they come at a time when expectations for cutting-edge robotics are high. The rise of machine learning and the declining cost of robotic components like actuators and sensors have led to startups more easily and cheaply building robots that can perform tasks like pick-and-grasp certain objects. Investors and businesses had high hopes that this dual rise of A.I. and cheaper hardware would usher a new robotics age.
So does the problems with these two startups mean that the robot industry is about to go bust?
No, said Remy Glaisner, an analyst at research firm International Data Corporation. The worldwide market for robotics, including sales and related services, will grow 17.8% year-over-year to $112.4 billion in 2020, according to IDC. Manufacturers such as auto makers and aerospace companies will spend more money on robots because advances in A.I. have made it possible for the machines to do more critical jobs, like recognizing which objects they need to pick up and which ones they should avoid, Glaisner explained.
Andra Keay, the managing director of industry group Silicon Valley Robotics, agreed that it’s the more boring uses of robots in industrial or warehouse settings that are on the rise. These kinds of robots can follow warehouse workers, helping them save time zig-zagging around buildings retrieving and restocking inventory.
But some venture capitalists, Keay lamented, like funding sexier robotic startups that they believe will generate news buzz, which they use to lift the valuation of the companies. Indeed, Zume Pizza was valued at $1 billion, according to deal-tracking service Pitchbook.
Keay is critical of the venture capital model, in which startups receive massive amounts of cash in order to grow quickly so that investors can cash out with massive returns after just a few years. This model, she believes, is generally ill-suited for robotics because it takes far longer to develop robots and a business model to go with them.
“Most startups think when they get funded they are getting married, but for most investors it’s just a hookup,” Keay said.
Keay said she urges robot startups to consider funding from universities or industry consortiums instead of venture capitalists. And if they do take money from venture capitalists, they need to “interview investors carefully and make sure that visions are aligned.”
“Sadly the stories so far have focused on robotics not being ready for the real world, when every ‘failed’ robotics company that I know has a story to tell of venture investors screwing them over,” Keay said.
Jonathan Vanian
@JonathanVanian
jonathan.vanian@fortune.com
A.I. IN THE NEWS
Dating A.I. avatars? The rise of deep fakes—or A.I.-generated fake, but realistic images—has led to some companies using the tech “to create imaginary models and ‘increase diversity’ in their ads,” The Washington Post reported. The article said that an unnamed dating-app company plans to use deep fake images “in a chatbot” for unspecified purposes.
Walmart’s new robot helpers. Walmart, through the startup Alert Innovation, has been testing a robotic picking-and-packing system called Alphabot in its Salem, NH store’s warehouse, CNBC reported. “Ultimately, Walmart says Alphabot will cut the time it takes to pick and pack an online grocery order, thereby allowing shoppers to order even more at the 11th hour,” the article said.
A.I.-powered hypochondria. Wired probed cancer-screening technology in the wake of a recent Google research paper that described an A.I. system that performs better than humans at discovering cancer in mammograms. The article describes the limitations of some cancer-screening technology and the possibility that A.I. could exacerbate current problems with cancer-screening tech.
Voluntary regulations. The White House debuted voluntary guidelines for automakers to follow as they develop self-driving vehicles, the Associated Press reported. The article said that some auto-safety experts and the National Transportation Safety Board were disappointed in the voluntary guidelines and “condemned a lack of state and federal regulation for testing autonomous vehicles.”
THE WORST IDEA?
Garry Kasparov, the chess grandmaster who was defeated by IBM’s Deep Blue technology at chess, has harsh words for Hollywood studios using A.I. to help greenlight movies to make, among other feats. “The worst idea since they taught them to play chess!” Kasparov tweeted in response to Warner Bros. using the startup Cinelytic’s predictive analytic technology as part of the studio’s movie-development process. Kaspraov then retweeted a snarky comment about Warner Bros. that said “I’m sure the AI audiences will love the chosen films.”
EYE ON A.I. RESEARCH
A.I. to predict the stock market. Researchers from the Chinese University of Hong Kong and Hebrew University of Jerusalem published a paper that examined deep learning’s performance at predicting stocks. Although the paper describes some of the limitations of A.I., the authors wrote that “machine learning-based investments hold considerable promise for asset management.” A Wall Street Journal article about the paper described how “machine-learning techniques largely failed to live up to their promise of finding previously hidden patterns in the stock market,” but A.I. still has potential despite the enormous amount of hype over the past few years.
FORTUNE ON A.I.
Pharma Needs to Stop Chasing Shiny Objects and Start Embracing Practical Technology—By Paul Hudson
Chip Wars 2020: What AMD, Intel, Nvidia, and Qualcomm Announced at CES—By Aaron Pressman
Facebook Deepfake Video Ban May Set Off ‘Cat and Mouse’ Game—By Alyssa Newcomb
BRAIN FOOD
Feel the chill. The BBC examines the current state of A.I. and the possibility of an upcoming A.I. winter, a period in which expectations and interest in A.I. are low after years of hype. There are some of signs that A.I. is reaching a plateau, as many current A.I. techniques like deep learning are only good at a few, “narrow” tasks, like helping Google’s DeepMind unit create software that defeated human players in the board game Go. But some researchers believe that more A.I. breakthroughs will occur during the next decade, and prefer the term “A.I. autumn” as a description of the state of A.I.


fortune--2020-01-15--Rupert Murdoch’s son slams family newspapers’ ‘ongoing denial’ of climate change role in Australian

Rupert Murdoch’s son slams family newspapers’ ‘ongoing denial’ of climate change role in Australian wildfires

What we can learn about modern financial scams from the man who tried to sell the Eiffel Tower—twice

James Murdoch criticized the coverage of Australia’s wildfires by his own family’s news outlets, exposing a rift in the media empire built by his billionaire father, Rupert Murdoch.
In a statement originally reported by the Daily Beast, a representative for James said that he and his wife, Kathryn, have taken issue with climate coverage by the family’s businesses, including News Corp. and Fox Corp. Stories on the fires in particular have promoted the denial of climate change, the statement suggests.
“Kathryn and James’s views on climate are well established and their frustration with some of the News Corp. and Fox coverage of the topic is also well known,” the representative said. “They are particularly disappointed with the ongoing denial among the news outlets in Australia given obvious evidence to the contrary.”
James, 47, stepped down as chief executive officer of 21st Century Fox Inc. after it sold the bulk of its operations to Walt Disney Co. last year. The remaining business, now called Fox Corp., is run by his older brother, Lachlan.
James remains on the board of News Corp., which split from Fox in 2013 and owns newspapers such as the Wall Street Journal, the Australian and the New York Post.
News Corp. declined to comment to Bloomberg News. The company said on Monday that it would donate A$5 million ($3.1 million) to Australian fire relief.
James has set out to build his own collection of businesses through an investment firm called Lupa Systems. He’s acquired stakes in varied companies, including Vice Media and the Void, which focuses on virtual-reality entertainment.
Along the way, he’s increasingly shown independence from the family business, including Fox News, which is known for its conservative commentary. At a conference in October, he praised Democratic presidential contender Pete Buttigieg and said he doesn’t watch Fox News.
The Australian drew outcry for reports blaming the fire crisis on arsonists, rather than the effects of climate change. In an editorial last week, the newspaper said its coverage has acknowledged global warming and has been misinterpreted by publications such as the Guardian and New York Times.
“Right now, social media is driving a campaign of outrage in which an alleged right-wing conspiracy of climate denialism is framed as the key obstacle on the path to a better future,” the editorial read. “For all the clicks, this represents few people and no constructive ideas. We should not allow noise to deafen us to this opportunity for a serious conversation.”
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—U.S.-Iran standoff pushes Saudi Aramco shares into correction territory—and analysts expect it to drop further
—Greenpeace ranks China’s tech giants on renewable energy
—2020 Crystal Ball: Predictions for the economy, politics, technology, and more
—Climate change is hitting the insurance industry hard: How Swiss Re is adapting
—The Future 50 sustainability all stars
Subscribe to The Loop, a weekly look at the revolutions in energy, tech, and sustainability.


fortune--2020-01-15--BlackRock CEO’s letter on climate change signals where finance is headed

Good morning.
BlackRock CEO Larry Fink is making a strong statement on climate change at the start of the new decade. In his letter to CEOs yesterday, the man who runs the world’s largest asset manager said: “We are on the edge of a fundamental reshaping of finance. The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
So what is BlackRock doing about it? Fink said the company will make “sustainability integral to portfolio construction and risk management,” exit “investments that present a high sustainability-related risk, such as thermal coal producers,” launch “new investment products that screen fossil fuels,” and strengthen “our commitment to sustainability and transparency in our investment stewardship activities.”
That’s a big deal. But it’s not as big as it appears at first blush. That’s because much of what BlackRock sells are index funds, which by definition, include all the stocks in the index. It can’t just remove an S&P 500 company from the S&P 500 index because it decides it’s not “sustainable.” Indeed, by virtue of its size and its passive method of investing, BlackRock will remain one of the world’s largest investors in fossil fuel companies.
Still, Fink’s letter is an important sign of where the world of finance is headed. An increasing group of investors wants to know their money is going to companies that contribute to solving the climate problem. And it sounds like BlackRock will create new products that enable them to do just that. Precisely what that means, how far it goes, how it gets done, how “sustainability” gets measured, etc., all remain to be seen. But the direction is clear.
On a separate note, today is a very big day at Fortune. This morning, we launched a redesigned website, and an immersive video hub featuring our exclusive executive interviews. Our next magazine issue will also feature a completely upgraded design that hails back to our founding 90 years ago, with an original art cover. New apps for iOS and Android are coming, too. We have also expanded our journalism, and we are putting up a registration wall that eventually will become a paywall. We believe that in business, it pays to know, and we will be asking our readers to contribute to the cost of our best journalism.
As we go down this path, we are committed to giving you, our readers, what you want and need. So more than ever, we want to hear from you. Send me your thoughts.
More news below. And you can watch the Fortune team ring the bell at the close of yesterday’s New York Stock Exchange trading session here.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Airbus Overtakes Boeing
Airbus is now officially the largest plane maker in the world, after Boeing announced Tuesday that 2019 saw the lowest number of orders and deliveries since 2008, following the grounding of its 737 Max jet. In fact, cancellations resulted in negative 87 orders for the year. The figures came a day after the company's new CEO, David Calhoun, assumed the job. FT
Big Bank Profits
The biggest U.S. banks fared well last quarter—so well, in J.P. Morgan's case, that the bank reported it had its most profitable year on record. "The U.S. consumer remains in very strong shape," said the company's CFO. Profits for the fourth quarter rose 21%. Citigroup also had a strong quarter, with profits rising 15%, while Wells Fargo's profits dropped on a legal charge. WSJ
Trade War Truce
The U.S. and China are set to officially halt their trade war on Wednesday, in the form of a "phase one" deal. It commits China to making $200 billion in extra purchases of U.S. goods, in exchange for a hold on further tariffs among other moves, but falls short of erasing the last two years of tit-for-tat tariffs and trade spats. FT
End of the Nuclear Deal
The deal to limit Iran's nuclear capabilities took another hit on Tuesday, as Britain, France, and Germany formally accused the country of breaking the 2015 agreement, opening the way to official UN sanctions being reimposed. That launches 60 days of negotiations with Iran about the deal. But it wasn't a surprise: the official move had been expected at the start of the month, but was delayed after the killing of the Iranian commander Qassem Soleimani. New York Times
AROUND THE WATER COOLER
Flybe Fallout
The bailout of Fylbe, a British airline that serves many regional routes in the country, has drawn the ire of competing airline bosses, including Willie Walsh, the chief executive of IAG, which owns British Airways. Walsh branded the bailout a "misuse of public funds." Meanwhile, politicians were debating whether cheaper domestic flights fits with the U.K.'s climate goals. BBC
The Ghosn Conspiracy Continues
Carlos Ghosn, the executive-turned-fugitive, claimed Wednesday morning from Lebanon that the French ambassador—Ghosn holds French citizenship—warned him after his arrest in Tokyo that Nissan was "turning against you." Nissan denies the accusation. Reuters
Amazon Lifts FedEx Ban
The retailer told its merchants that they could use FedEx's ground shipping networks for orders under the Prime membership program again on Tuesday, after a month-long ban amid a standoff between the two companies. Amazon said in December that the ban was because FedEx was not delivering Prime orders fast enough. WSJ
The Eiffel Tower Scam
In the years after the Eiffel Tower was constructed—not initially popular, it was once called "a truly tragic street lamp"—a career con-man named Victor "The Count" Lustig set out to sell it, not once, but twice. His audacious efforts hold lessons for why people continue to fall for scams again and again. Fortune
This edition of CEO Daily was edited by Katherine Dunn.


fortune--2020-01-15--Trump prepares to sign ‘beautiful monster’ Phase One trade deal with China

President Donald Trump is poised to sign a deal with China on Wednesday that leaves significant tariffs in place and for the first time would punish Beijing if it fails to deliver on pledges related to its currency, intellectual property and the trade balance.
But the question set to dog Trump the moment the ink dries is whether the pact will rewire the relationship between the world’s biggest economies. For many in Washington, U.S.-China economic ties have become an example of the evils of globalization, the tensions of 21st century technology and geopolitics, and the missteps of past presidents.
The “phase one” deal that Trump recently called a “big, beautiful monster” is by no means a standard trade agreement: At 86 pages, it’s thinner than most on substance and commitments. The U.S. agreed to halve 15% duties on $120 billion of imports and delay others in return for Chinese promises to make structural reforms and purchase an additional $200 billion in American goods and services over the next two years. The full text will be released Wednesday.
Still, it avoids major issues at the heart of China’s model of state capitalism, such as restraining industrial subsidies and state-owned companies, to future phases. Punitive tariffs are expected to remain on almost two-thirds of U.S. imports from China — some $360 billion in goods — until at least November’s election: Treasury Secretary Steven Mnuchin said Tuesday the U.S. would only consider more tariff relief if China signs a phase-two trade deal.
A customer picks oranges at a market in Beijing on Jan. 14, 2020. China’s trade surplus with the U.S. narrowed in 2019 as the world’s two biggest economies exchanged punitive tariffs in a bruising trade war. NOEL CELIS—AFP via Getty Images
“This is an enormous achievement for the president and the economic team,” Mnuchin told reporters in Washington, adding that no firm date was set for phase-two trade talks to begin. Vice Premier Liu He, China’s top trade negotiator and President Xi Jinping’s main economic adviser, will be leading the Chinese delegation at the signing ceremony.
Different By Design
The deal also embraces a level of Socialist-style central planning that would have made past American presidents wince.
While trade pacts traditionally set the rules and leave the details of actual commerce to markets, the one that Trump’s team has negotiated includes a classified annex that details the $200 billion Chinese buying spree. That includes some $32 billion in additional purchases of American farm exports and $50 billion in natural gas and crude oil, according to people briefed on its contents.
The administration insists the different nature of the deal is by design and that it won’t need the approval of Congress. “This is not a free trade agreement,” it told supporters in a memo last month. “Its purpose is to rectify unfair trade practices.”
Still, its failure to address issues like industrial subsidies prompted some China experts to insist the deal falls short of Trump’s promises and raise questions over whether the economic pain it has yielded in some sectors of the U.S. economy was worth it.
“I’m prepared to be disappointed by underwhelming details, but I’d love to be surprised with previously unreported major Chinese concessions that would make this long and windy trade conflict feel worth it,” said Scott Kennedy, an expert on U.S.-China economic relations at the Center for Strategic and International Studies.
Supporters of the president and former aides argue Trump has been able to accomplish many of the goals he set when he began to push China to embrace a new round of economic reforms in 2017.
Victory for Trump, Xi?
“It’s a major victory for the president,” said Stephen Vaughn, who until last year helped oversee Trump’s trade policies as the general counsel and right-hand man to U.S. Trade Representative Robert Lighthizer. “He has gotten China to make stronger commitments than it has made in previous agreements.”
For Xi, the deal stops the bleeding on a nearly two-year trade war at a time when he’s facing an economy growing at the slowest pace in three decades and unprecedented protests in Hong Kong. He struck an optimistic tone at the start of 2020, touting “extraordinary Chinese splendor and Chinese strength.”
“In the face of severe and complex domestic and foreign situations and various risks and challenges, we have been able to move forward firmly,” Xi told party leaders last week.
But a host of complications remain. The U.S. and China are poised for heightened confrontation on industrial policies, geopolitical hot spots like Taiwan and the South China Sea, and Beijing’s detention camps for ethnic Uighur Muslims in China’s far western region of Xinjiang — all areas that Xi’s critics say could’ve been handled better.
The most likely immediate flash point is the future of 5G and the fate of Huawei Technologies Co., China’s flagship tech company. The Trump administration is considering steps to further limit the ability of U.S. companies to supply Huawei, in addition to pressuring countries around the world to avoid using its equipment for 5G mobile networks.
Trump Economy
Trump, meanwhile, is marching defiantly into an election year despite his impeachment by focusing on an economy that is continuing to grow robustly, albeit at a slower pace. A majority of Americans – 51% – for the first time credited Trump for having either “strongly” or “somewhat” helped the U.S. economy, according to results of a survey released last week by the Financial Times and the Peter G Peterson Foundation.
That represents a seven-point jump from the same survey conducted in November, ahead of the Dec. 13 announcement of a finalized trade deal. The survey also showed voters were attuned to the trade war, with more than three-quarters of Americans saying it had a “very strong” or “somewhat strong” impact on the economy.
The president has also used the deal as a cudgel to attack Democratic rivals, frequently arguing that the Chinese got the better of former President Barack Obama when leading Democratic presidential candidate Joe Biden served as his vice president. During the same campaign rally last week in Toledo at which he hailed his “beautiful monster”, Trump mocked South Bend mayor Pete Buttigieg as unable to confront China.
“Can you believe Mayor Pete? This is going to be the President of the United States? How would he be against negotiating against President Xi of China?” Trump said. “And we just made one hell of a deal.”
More must-read stories from Fortune:
—Geopolitical events just don’t bounce oil prices like they used to
—The Carlos Ghosn affair: A look inside the motivations of a fugitive CEO
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—Laws meant to close down tax havens and shut loopholes could have opposite effect
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Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-15--Ford and GM take a hit in China as German carmakers thrive

Car sales in China have skyrocketed over the last few decades. Since 2009, China has been the biggest auto market in the world.
But growth has dwindled over the last two years, with overall car sales dropping 8% last year amid a general economic slowdown and cutbacks on government subsidies for electric vehicles.
China’s auto market contraction has not hurt all foreign brands equally, however.
European luxury carmakers have continued to thrive while American entry level mainstays have borne the brunt of the pain, suggesting a new stage in the Chinese market’s development—and the need for U.S. brands to change strategy to keep pace with the times.
Subsidies
Legacy American brands like General Motors and Ford Motor have felt the brunt of China’s shrinking car market.
General Motors’ China sales dropped 15% in 2019, the company’s biggest sales decrease yet in its biggest market in the world, and Ford’s sales slid 26% in 2019 compared to the previous year.
Ford peaked in 2016 when it sold 1.3 million vehicles in China. That peak was followed by three years of dropping sales numbers, ending with 570,000 vehicles—less than half the 2016 sales figure—sold in 2019, out of a total 25.8 million vehicles sold in China that year.
BMW, Mercedes-Benz, and Audi, on the other hand, all reported record sales figures for China in 2019. BMW sales in China rose 13.1% compared to the year before, while Mercedes’ sales rose 6.2% and Audi’s rose 4.1%.
Ivan Su, an equity analyst at Morningstar who researches China’s auto market, points to the 2018 phaseout of government tax incentives on automakers that had been keeping car prices 5-10% lower.
The phaseout, Su says, disproportionately affected mid- and lower-range carmakers, whose customers were more likely to be discouraged by a higher sticker price than buyers of luxury brands like Audi, Mercedes, and Tesla, one U.S. brand that has not suffered the same drop in sales as GM and Ford in China.
Chinese consumer desires
However, Su says a bigger reason for Ford and GM’s sales slump is an issue of strategy.
“I think really the core issue with Ford and GM is they’ve not really paid attention to what Chinese consumers want,” Su says. “They appreciate innovation, they want something new, some features they’ve not seen before, and this is something that I think [Ford and GM] are not very good at.”
Su points to a lack of brand localization in China, and contrasts the American automakers’ performance there to Japanese brands, many of which introduce China-exclusive car models. Toyota Motor and Honda Motor both reported 9% sales increases for China in 2019.
“Brands, in general, are important in China, especially when people pay a higher price than what they usually do, then brands will have a higher impact,” says Yuwan Hu, chief operating officer at market research firm Daxue Consulting.
The head of Ford’s China business told the Wall Street Journal that Ford plans to focus on “more customer-centric products and customer experiences” to bring sales numbers back up.
Though China’s auto market saw its second straight year of decline in 2019, the rate of decline is slowing down.
“I think we are on track for recovery in 2020,” Su says. “Given that China’s auto market has fallen for two straight years, it’s very easy for us to have a positive growth year in 2020, just because the base is so low.”
Su also sees room for growth. The auto ownership per capita ratio in China is 0.18; the U.S.’s, by comparison, is around 0.9; Argentina’s is 0.3. “China is a very under-penetrated market for autos.”
More must-read stories from Fortune:
—Geopolitical events just don’t bounce oil prices like they used to
—The Carlos Ghosn affair: A look inside the motivations of a fugitive CEO
—How the re-election of Taiwan’s president could reshape Asia’s economic landscape
—Laws meant to close down tax havens and shut loopholes could have opposite effect
—7 M&As that defined a decade of dealmaking and reshaped the economy
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.


fortune--2020-01-15--What we can learn about modern financial scams from the man who tried to sell the Eiffel Tower—twice

Ford and GM take a hit in China as German carmakers thrive

The Eiffel Tower is one of the most recognizable and well-trafficked monuments in the world. It’s estimated that each year more than 6 million visitors wait in long lines to experience this gorgeous landmark. It may be hard to believe, but when it was built the tower was subject to ridicule and was only supposed to stand for 20 years before being disassembled.
Gustave Eiffel designed his namesake tower for the 1889 World’s Fair in Paris. No one had ever built a structure so tall before, so the fact that it was erected in just over two years is a technical feat that was unparalleled at the time. Naysayers told Eiffel the tower would be impossible to build. The wind would make it too dangerous for people to ascend to such heights, and the government wasn’t keen on spending an estimated $1 million on the project. Eiffel’s contract stipulated that the tower would be allowed to stand for 20 years to be able to earn enough of a profit to make it worthwhile, at which point the erector set–like structure would be taken down piece by piece.
The engineering and construction involved required an incredible amount of precision. The iron plates used to build the tower would have stretched 43 miles long if they were laid end-to-end and called for over 7 million holes to be drilled into them. The iron used to construct the tower weighed over 7,000 tons and required more than 60 tons of paint. Each piece was traced out to be accurate within a tenth of a millimeter. Including the flagpole at the top, the Eiffel Tower reached 1,000 feet in height when it was finished.
Although the tower was more beautiful than most could have imagined, it was initially panned by critics. Many of France’s leading artists and intellectuals derided the tower, calling it “a truly tragic streetlamp” and an “iron gymnasium apparatus, incomplete, confused, and deformed.” The Americans and Brits weren’t fans either, mostly because they were jealous. The New York Times called it “an abomination and eyesore.” Editors at the Times of London referred to it as a “monstrous erection in the middle of the noble public buildings of Paris.” Americans didn’t appreciate how the Eiffel Tower surpassed the Washington Monument as the tallest man-made structure at that time. Once it was completed even the most ardent critics eventually came around to the fact that it was a masterpiece, yet the government still wasn’t positive it would keep the structure in place forever. In the years after the tower was built it began to fall into disrepair. It was costing the city a fortune in maintenance and upkeep.
A man by the name of Victor “The Count” Lustig saw this situation as an opportunity to profit from the uncertainty surrounding the future of this magnificent monument. Lustig decided he would sell the Eiffel Tower to the highest bidder, not once but twice.
The plan to sell the Eiffel Tower
Lustig was a career con artist who had up to 45 different aliases. No one knows what his real name was or even where he was born. Following a short career as a gambler, Lustig transitioned into full-time scam artistry after getting to know how the wealthy class operated. His main scams centered on counterfeiting money, but he even took notorious gangster Al Capone for $5,000 in a financial fraud involving overgenerous promises of an investment opportunity that didn’t exist. After the authorities were on his trail in the U.S., Lustig went to Paris to pull off his pièce de résistance.
When he arrived, there were many stories in the local papers about the dilapidated state of the famous Eiffel Tower. A light bulb went off in Lustig’s head. He set about creating a fake government role for himself, complete with his own stationery and business cards done up with an official French seal. There was even an official-sounding, yet completely made-up title: “Deputy Director General of the Ministry of Posts and Telegraphs.” He set up shop at the Hôtel de Crillon, a stone palace on the Place de la Concorde. The biggest scrap metal dealers in town were summoned to the luxurious hotel for a secret business proposal.
“Because of engineering faults, costly repairs, and political problems I cannot discuss, the tearing down of the Eiffel Tower has become mandatory,” he reportedly told this group in a quiet hotel room. The Count then shocked the small group of metal dealers by announcing the Eiffel Tower would be sold to the highest bidder. Many at the table were in disbelief, but Lustig assured them if the government was able to turn a profit on the deal, it would minimize the protests from citizens. There were 2.5 million rivets used in its construction. The 1,000-foot-tall structure contains more than 7,000 metric tons of iron, along with 2.5 million rivets that hold it together, so these scrap metal dealers could calculate the sale of this amount of metal would net a fortune for those who tore it down and sold off the parts. To make the process more believable, the dealers were even taken on a tour of the monument to give them a better sense of the scale of the operation.
Bids were due by the next morning along with the promise of complete secrecy from those involved. Lustig told his marks the government didn’t want word to get out for fear of a public outcry against tearing it down. Although he took bids from all interested parties, the patsy was picked out well in advance. Andre Poisson was relatively new to the area and trying to make a name for himself. What better way to make a name for yourself than by winning the biggest scrap metal project in the country’s history? A few days later Lustig informed Poisson his offer of 250,000 francs (roughly $1 million today) was in fact the winning bid. Once he learned he had won, Poisson grew wary of the whole operation. So to seal the deal, Lustig demanded a bribe for securing the transaction. Everyone assumed all Parisian government officials were corrupt, so the bribe was the final nail in the coffin to make it seem legit. Poisson was in.
Lustig secured the cash and handed over the “official” paperwork to finalize the sale. After a number of failed attempts to claim possession of the Eiffel Tower, Poisson finally realized he’d been swindled. By this point, Lustig had already fled the country. But a funny thing happened as he awaited a news story about the man who tried to sell the Eiffel Tower—the story never came. Lustig was initially befuddled, but eventually realized Poisson was so embarrassed about being taken advantage of that, to save face, he’d never bothered telling the authorities. Never one to rest on his laurels, Lustig decided to test his good fortune by going back to Paris to try selling the Eiffel Tower a second time! This time he wasn’t quite so lucky. The potential buyer went to the police before handing over the money, and Lustig was forced to flee the country yet again.
Everyone is in sales
Victor Lustig talked people into things because he was a master manipulator with a huge ego. But he also understood people and utilized the soft skills of trust and persuasion as well as anyone. Never one to be shy about his own accomplishments, Lustig even penned a list: the Ten Commandments of the Con. Numbers three and four on the list show how eager he was to get in the good graces of his marks:
Wait for the other person to reveal any political opinions, then agree with them.
Let the other person reveal religious views, then have the same ones.
Trust is a huge component of the sales process because we prefer doing business with likable, trustworthy people. When our ancestors were in small tribes and villages, the people around us were those we trusted the most, so our brains are hardwired to be more comfortable with people who seem trustworthy. Unfortunately, this is a double-edged sword as the people who often seem the most trustworthy are also the ones who possess the ability to take advantage of you.
The business world or financial markets would never function as smoothly as they do if there wasn’t an element of trust involved. Those with good people skills and the ability to sell will almost always have a leg up on the competition because they can use their persuasive powers. However, those powers can be used for good or evil.
Trust, but verify.
This piece was adapted from the book Don’t Fall for It: A Short History of Financial Scams by Ben Carlson.
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fortune--2020-01-15--Millions of Americans have been purged from voter rolls—and may not even realize it

Millions of Americans have been purged from the voter rolls in recent years, as state governments seek to remove the names of individuals who have died, relocated, or otherwise become ineligible to vote.
But such purges have been widely criticized owing to instances in which states have relied on bad information, removing eligible voters, who are often unaware until they attempt to cast their ballots on Election Day.
“The most important thing people get wrong is they forget that purges are a necessary and important part of administering our elections,” Myrna Pérez, director of the Brennan Center’s Voting Rights and Elections Program, told Fortune. “We all benefit when our rolls are clean, and sometimes we forget that purges—when done properly—are a good thing.”
But large-scale systematic purges that remove hundreds of thousands of names at a time are more likely to round up individuals who should not be removed from the rolls.
“By virtue of their size and by virtue of their reliance on third-party information, they are prone to errors,” Pérez said. “And because these purges often happen behind closed doors with someone at the keyboard, a voter can find out that they’ve been purged too late.”
Purging errors can happen for reasons as simple as not responding to an election mailing or having an old address on file—and not all states require that voters be informed they are no longer registered to vote.
Purges gone wrong
In the years leading up to the 2018 midterm elections, the State of Georgia purged 1.4 million voters from its rolls. A report from the Atlanta Journal-Constitution found that 500,000 Georgia voters were purged in one night in 2017, and nearly 10% were removed that year.
Georgia is one of a few states in the U.S. that doesn’t just remove voters who are inactive, but also those who don’t have “contact” with the election system. This can include not updating a registration or failing to respond to mailings from county election offices.
In many states, election officials will send postcards to individuals who haven’t voted in a while. Those who don’t respond are purged and usually never informed about it.
“The information flow to let you know that you’ve been purged is not good,” explained Page Gardner, founder and president of the Voter Participation Center (VPC), which acquires lists of individuals who have been, or will be, purged and seeks to inform them before they head out to vote.
Gardner said VPC often needs to send a voter registration card to an individual as many as four to five times to get a response—so sending just one notice is inadequate.
“What’s going on is frankly insidious,” she said. “Just because you don’t exercise a right doesn’t mean you don’t have a right. And there’s a right to vote in this country that needs to be safeguarded.”
Last year, another purge list was created in Ohio featuring 235,000 names of those the state said had either died, moved away, or, more often than not, had simply not voted in the past several elections.
Approximately 6,800 names were found to be listed in error, but were removed before any purge took place, according to Ohio Secretary of State Frank LaRose’s office.
“Ultimately, we need to remember that humans make mistakes, and our voter registration system is managed by humans,” said Jen Miller, executive director of the League of Women Voters of Ohio. “With our voter registration system largely the same as it was decades ago, it is up to individual voters to make sure their registration is in order ahead of each election in which they hope to participate.”
And there are simple ways for eligible U.S. citizens to verify their registration status to avoid any unwelcome surprises come Election Day.
Are you still registered to vote?
To determine your voter registration status, vote.org, usa.gov, rockthevote.org, headcount.org, and the National Association of Secretaries of State all have tools that enable voters to check their status or update their information.
The 37 states and Washington, D.C., that offer online registration also have these functions available within their online portals.
“It is important for every voter to verify that they are on the voter rolls and that their info is correct,” said Miller. “And they need to do that before the registration deadline in their state.” To avoid being purged, Miller advised that voters make sure they are registered to vote under the correct address.
But if you have been purged from the voter rolls, getting back on is usually as simple as reregistering, Miller said. Still, it is important to check your registration often—and find any problems before it’s too late.
“Make sure your records are up to date, and start checking more than 30 days before an election,” Pérez said. “If they’re not accurate, then call your local election office.”
Because voter registration deadlines vary from state to state—and registration cutoffs are 29 days before an election in some states—checking your information early is vital.
“The fact that in most states across the U.S. the registration deadline is so far in front of the election is disenfranchising in and of itself,” Gardner said.
You can review the voter registration rules for your state at vote.org. A list of primary dates and registration deadlines for the 2020 presidential primary and election is posted below.
2020 primary dates and registration deadlines
Alabama March 3 primary Fifteen days before an election. Alaska April 4 (D) party-run primary, none (R) Thirty days before an election. Arizona March 17 primary (D), none (R) Twenty-nine days before an election. Arkansas March 3 primary Thirty days before an election. California March 3 primary Fifteen days before an election. Same-day registration is permitted 14 days before an election and on Election Day. Colorado March 3 primary Eight days before an election. Same-day registration is permitted during early voting and on Election Day. Connecticut April 28 primary Seven days before an election. Same-day registration is permitted on Election Day. Deadlines for primary elections are different. Delaware April 28 primary Twenty-four days before an election. Deadlines for special elections are different. Florida March 17 primary Twenty-nine days before an election. Georgia March 24 primary Twenty-nine days before an election. Deadlines for special elections are different. Hawaii April 4 (D) party-run primary, March 10 (R) caucus Twenty-nine days before an election. Same-day registration is permitted during early voting and on Election Day. Idaho March 10 primary Twenty-five days before an election. Same-day registration is permitted on Election Day. Illinois March 17 primary Twenty-eight days before an election; 16 days before if registering online. Same-day registration is permitted from 27 days before the election and on Election Day. Availability and locations of same-day and Election Day registration vary by county. Indiana May 5 primary Twenty-nine days before an election. Iowa Feb. 3 caucuses (both parties) Ten days before an election; postmarked 15 days before an election for mail registrations. Same-day registration is permitted during in-person absentee voting and on Election Day. Deadlines for primary and other elections are different. Kansas May 2 (D) party-run primary, none (R) Twenty-one days before an election. Kentucky May 19 (D) primary, March 21 (R) caucus Twenty-nine days before an election. Louisiana April 4 primary Thirty days before an election; 20 days before if registering online. Maine March 3 primary Twenty-one days before an election. Same-day registration is permitted on Election Day. Maryland April 28 primary Twenty-one days before an election. Same-day registration is permitted during early voting and on Election Day. Massachusetts March 3 primary Twenty days before an election. Michigan March 10 primary Thirty days before an election. Same-day registration is permitted during early voting and on Election Day. Minnesota March 3 primary Twenty-one days before an election. Same-day registration is permitted on Election Day. Mississippi March 10 primary Thirty days before an election. Missouri March 10 primary Twenty-seven days before an election. Montana June 2 primary Thirty days before an election. Same-day registration is permitted after the deadline through Election Day. Nebraska May 12 primary Eleven days before an election; 18 days before if registering online. Nevada Feb. 22 (D) caucus, none (R) Twenty-one days before an election in-person; postmarked 28 days before if registering by mail; 19 days before if registering online. Deadlines for special elections are different. Same-day registration is permitted during early voting and on Election Day. New Hampshire Feb. 11 primary Six to 13 days before an election, depending on local supervisors of the checklist. Same-day registration is permitted on Election Day. New Jersey June 2 primary Twenty-one days before an election. New Mexico June 2 primary Twenty-eight days before an election. Same-day registration is permitted 28 days prior to the election until the Saturday prior, and will be offered on Election Day beginning in 2021. New York April 28 primary Twenty-five days before an election. North Carolina March 3 primary Twenty-five days before an election. Same-day registration is permitted during early voting. North Dakota March 10 (D) party-run primary, TBD (R) caucus North Dakota does not have voter registration. Ohio March 17 primary Thirty days before an election. Oklahoma March 3 primary Twenty-five days before an election. Oregon May 19 primary Twenty-one days before an election. Pennsylvania April 28 primary Fifteen days before an election. Rhode Island April 28 primary Thirty days before an election. South Carolina Feb. 29 (D) primary, none (R) Thirty days before an election. South Dakota June 2 primary Fifteen days before an election. Tennessee March 3 primary Thirty days before an election. Texas March 3 primary Thirty days before an election. Utah March 3 primary Thirty days before an election; seven days if registering online. Same-day registration is permitted during early voting and on Election Day. Vermont March 3 primary Same-day registration is permitted through Election Day. Virginia March 3 primary (D), none (R) Twenty-two days before an election. Deadlines for special elections are different. Washington March 10 primary Eight days before an election; 29 days if registering by mail or online. Same-day registration is permitted during early voting and on Election Day. West Virginia May 12 primary Twenty-one days before an election. Wisconsin April 7 primary Twenty days before an election. Same-day registration is also permitted on Election Day. Wyoming April 4 caucus, (R) TBD Fourteen days before an election. Same-day registration is also permitted on Election Day.
*This list was compiled by Fortune using data from the National Conference of State Legislatures
Correction, Jan. 15, 2020: An earlier version of this story misstated the number of Ohio voters who were erroneously included in a 2019 purge list. Approximately 6,800 registered voters were affected.
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fortune--2020-01-15--3 things investors can bank on in the uncertain 2020s

Looking back at what happened during the last decade can help provide context and lessons for what happened in the past. But most investors prefer to quickly move past those lessons to gauge what it means for the future.
Predicting what will happen next in the markets over any time frame is a challenge. So setting the right expectations is more important than trying to accurately guess what comes next. You’re better off preparing than predicting when it comes to the markets. With that in mind, here are a few things investors can prepare for in the coming decade.
The stock market will fluctuate
Depending on your starting point, the stock market has a long-term average return of somewhere around 9%. But the typical year in the stock market is rarely ever close to those long-term averages.
Most of the time, stocks are either up big or down big in a given year. For example, just 27 out of the past 92 years have seen a single-digit gain or loss in the S&P 500. The majority of the time, the stock market is either up or down double digits during a calendar year. Going back to the 1930s, the S&P 500 has never experienced fewer than seven double-digit gains or losses in a decade:
And these double-digit returns can be much higher (or lower) than most would assume. In fact, since 1928, the S&P 500 has either been up or down by 20% or more 2 out of every 5 years. That works out to 32 years of 20% or higher gains versus 6 losses of 20% or worse.
The normal state of affairs for the stock market is abnormal returns from year to year. We just don’t know if those returns will be abnormally high or abnormally low.
Bond returns will likely be lower than past decades
The stock market is difficult to predict because it’s not only a game of fundamentals but also guessing how investors will feel at certain points in the cycle. It’s difficult to predict how people will feel next week, let alone 10 years from now.
But the bond market is more grounded in fundamentals than stocks. This is especially true in high-quality bonds like U.S. treasuries where you don’t have to worry about credit risk (the U.S. government can always print more money). While there can and will be fluctuations in the meantime because of changes in interest rates, the best predictor of long-term returns for the overall bond market will always be the starting yield. The following table shows the starting yield for 5 year treasuries going into the past 5 decades along with the subsequent annual returns for each 10 year period:
Returns can always be higher or lower than the initial rates because these markets are fluent. But you can see the starting yield was a fairly accurate predictor of the future returns for bonds every decade since the 1970s. This is what makes the current situation so difficult for fixed income investors. Investors of today would kill for yields seen in the 1970s, 1980s, 1990s or 2000s. Even the start of this decade, low by historical standards, were much higher than current levels.
The current yield on 5 year treasuries is 1.6%. The 10 year is yielding 1.8% while the 30 year bond is a minuscule 2.3%. You could go further out on the risk curve to increase your yield in sectors such as corporate bonds, mortgage-backed securities or other asset-backed bonds. But even high yield bonds are yielding just 5% at the moment. That sounds juicy on a relative basis but that’s a number which is lower than intermediate-term treasuries yielded for the majority of the past 50 years (and high yield debt is much riskier in terms of drawdowns, volatility, and credit risk than U.S. government bonds).
Investors need to learn to live with volatility
When you add up low interest rates in the bond market to the inherently volatile nature of the stock market, investors who expect to earn a return over and above the rate of inflation are going to be forced to accept volatility in their portfolio. Volatility alone does not guarantee you profits in any investment but investors are going to need to be more thoughtful about how they allocate their assets going forward. There are no easy places to stash your cash and live off the interest in today’s investment landscape.
Ben Carlson, CFA is the Director of Institutional Asset Management at Ritholtz Wealth Management. He may own securities or assets mentioned in this piece.
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fortune--2020-01-15--In a blindfold test, what would investors think of Tesla?

Imagine that a billionaire value investor wants to show that Wall Street money managers are swayed more by glamor and group-think than the rooting out bargains. Say this fellow, whom we’ll call Mister Waldorf for his walrus mustache and old-school manner, invites half of dozen of these hotshots to lunch at his stuffy private club requiring jackets and ties, asks them to take a brief exam for a mystery enterprise he calls “Blindfold Inc.”
On Mister Waldorf’s direction, the investors all decline cocktails, and after lunch, their host hands them a one page summary for an unnamed company that he identifies only as a fast-grower and master of innovative technology. “My friends,” intones Waldorf, “please study these numbers for 15 minutes, and tell me, whether you’d buy this stock.”
Separating the winners from the dogs is what Waldorf’s guests pride themselves on, so they dig in with gusto. The bullet points reveal that Blindfold Inc. posted net losses of $1 billion over the past four quarters, but that revenues have more than tripled since 2016 to around $30 billion last year. Its market cap is now $110 billion. Waldorf doesn’t make any assumptions about the returns his guests would expect from Blindfold, but notes that for the shares to rise at 10% a year, its market value would need to reach $220 billion in the 7 year period through the close of 2026.
The summary notes that for the stock to achieve a common a P/E ratio of 30 in 2026, it would need to generate over $7 billion in net earnings. An excellent return on sales—net profits as a percentage of revenues—for the industry is around 7%, and that most of Blindfold’s competitors fall in the 5% to 6% range. Achieving a 7% margin requires expanding revenues to over $100 billion. That’s a three-and-a-half times its current sales of $30 billion.
The bullet points further note that Blindfold would need to grow the units it sells four-fold, and in doing so, capture 35% of the total increase in units sold worldwide, despite competition from entrenched competitors.
The fifteen minutes are up. “So is it yes or no?” queries Waldorf. “I just can’t bet on a company that needs to achieve those kinds of growth rates for that long. That hill is just too steep to climb,” grouses one guest. “It’s a no.” “What if they’re successful, meaning they grow decently but not at the astounding rate required?” says another. “Then the stock collapses, and it’s doing pretty well, but my folks in my fund are furious cause they’re not!” “I need a brandy,” says a third guest. “Are the players in this business that are a lot bigger than Blindfold really going to let it take one-third of tomorrow’s market away from them? It’s a fantasy.”
All six guests vote “no.” Then Waldorf rips the blindfold from “Blindfold Inc,” and reveals that it’s Tesla. The invitees didn’t guess, because Waldorf disguised his subject by adding 20% to all of Tesla’s real numbers. A couple of guests sheepishly acknowledge owning the electric vehicle-maker’s shares. “It’s special, it’s the future,” says one. “Tesla was one of the great stocks of 2019,” says another. “If we’d have bolted, we’d have missed a 35% gain!”
“I acknowledge that Tesla has lots of panache,” allows Waldorf. “But I don’t pay for panache. My blindfold test shows that when the panache is stripped away, and you’re faced with the pure numbers and hurdles, all of you judge that Tesla as a nameless, robo-stock is a lousy buy.” Waldorf gets nods from two investors who shunned Tesla because they too followed the numbers and shunned the glamor, and polite handshakes from the believers. For them, Waldorf is as hopelessly old fashioned as the ivy adorning the walls of his club.
In reality, Tesla’s market cap is $89 billion—by the way, closing in Volkswagen’s valuation—so that delivering 10% returns would hoist its value to $180 billion by the end of 2026. That can only happen if its sales surge from $25 billion to over $80 billion. Reaching those targets mandates capturing one-third of the projected increase in all luxury car sales, leaving Volkswagen’s Audi, Daimler-Benz, BMW and the other premium manufacturers to divide up what’s left, and struggle with paltry growth while Tesla flourishes.
Whenever you get intoxicated by Tesla’s glamor and daring, remember Mr. Waldorf’s blindfold test.
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fortune--2020-01-15--Direct listings don’t allow for companies to secure new funding—but that could soon change

For all the talk about so-called “direct listings” and their potential to transform the capital markets, the fact is that—other than the stock market debuts of Spotify in 2018 and Slack in 2019—such deals have remained few and far between.
One major reason why? It’s all about the Benjamins—and, specifically, the inability of companies to raise them through direct listings.
Yes, the new paradigm provides companies and their private equity investors with another avenue to the public market that avoids some of the more inconvenient trappings of an initial public offering. Unlike traditional IPOs, there are no sprawling consortiums of underwriters who command hefty fees, nor customary “lockup” periods during which existing shareholders are prohibited from cashing in their stock.
But direct listings also don’t allow companies to raise fresh capital through the issuance of new shares; instead, it is existing investors whose “secondary” shares are being floated on the public market. While that helps the issuers avoid further dilution of their stock, it also limits the pool of companies that would consider a direct listing. For most firms, going public is still about tapping new capital from public investors—and in that regard, direct listings remain inadequate.
“There are sectors, like life sciences, where companies are going to be hesitant to forgo the opportunity to raise money [via a public issuance].” says David Peinsipp, a partner at law firm Cooley and co-chair of the firm’s global capital markets practice. “It’s been the most obvious limitation of direct listings; super balance sheets like Spotify and Slack have done it, but 90% of companies are still going to want to raise money if they can.”
The major stock exchanges and investment banks are well aware of this dynamic, and are now making an effort to address it. Last month, it emerged that the New York Stock Exchange filed a proposal with the U.S. Securities and Exchange Commission that sought to allow companies to raise new capital via direct listings, rather than only offering existing investors’ secondary shares for trading.
The SEC, however, promptly rejected the NYSE’s proposal. Though it’s unclear what specific issues the federal agency wants the exchange to address, multiple sources told Fortune they believe the SEC has reservations over whether the direct listings model offers investors with the requisite regulatory protections that traditional IPOs provide.
“The SEC has to make sure that what the [NYSE] wants to do is allied with the existing rules that the SEC has, and that it is in the best interest of public shareholders,” says Linda Killian, principal at institutional research firm Renaissance Capital.
Jay Ritter, a professor of finance and eminent scholar at the University of Florida’s Warrington College of Business, notes that the SEC will be concerned about potentially providing companies with “a backdoor way of getting around some investor protection regulations.”
“The SEC has been somewhat careful to make sure they’re not opening a door where, two years from now, there are [instances of] fraud that are going to cause some embarrassment,” Ritter says.
Despite the SEC’s initial rejection, the NYSE continues to be in discussions with the regulatory agency over a framework allowing primary capital raises through direct listings. The exchange wasted little time in filing an amended proposal to the SEC that lowered the minimum amount of stock that companies would have to sell in a direct listing to $100 million (from $250 million in its initial proposal).
“The NYSE is the home of direct listings, executing the first two ever completed,” John Tuttle, vice chairman and chief commercial officer at the NYSE, says in a statement to Fortune. “We now have a proposal before the SEC to evolve our innovative offering, which leverages the power of the NYSE trading floor and established processes similar to those seen in an IPO.”
Nasdaq is also exploring its own proposal to the SEC on direct listings. In a statement, a Nasdaq spokesperson says the stock exchange has “had extensive conversations with potential issuers and their advisors, financials institutions, and the SEC about the possibility and mechanics of a direct listing with a primary capital raise, and we intend to file changes to our rules that would allow direct listings with a primary capital raise.” (Interestingly, Nasdaq adds that it does “not believe that the proposed rule change filed by the NYSE fully considers the complexity of the issue.”)
Representatives for the SEC declined to comment. But how the SEC decides to proceed in the coming months could determine whether direct listings are here to stay—or end up consigned to the Wall Street history books as yet another brief fad.
Investment banks remain key
As evidenced by the Spotify and Slack issuances, the direct listing model has gained traction among tech unicorns and the private investors that helped them attain $1 billion-plus valuations. These days, such companies are often awash with privately raised capital and have little need for fresh funds via their public market forays. Rather, they’re more attracted to the prospect of allowing investors and shareholders (including, in many cases, their own stock-holding employees) reap the benefits of their positions by liquidating some, or all, of their equity stakes.
“High-growth tech companies are in the business of change and doing things in new and innovative ways,” according to Goldman Sachs managing William Connolly, who heads technology equity capital markets for the investment bank. “To some extent, there’s a natural affinity towards exploring a better way of doing something, and a willingness to try something different.” In a market where many tech firms have delayed going public in favor of staying private, Connolly notes that direct listings are an interesting route for those who care more about a path to liquidity than raising new capital on the stock market.
But for some, the fact that direct listings eschew many of the procedural, would-be safeguards of the traditional IPO process—such as underwriter-helmed roadshows that familiarize investors with companies, as well as the role of investment banks as “stabilization agents” able to buy excess shares and keep a stock’s price in check—elevates the risk for companies and public investors alike.
While Spotify and Slack are large, highly visible firms recognized by many investors, Killian believes the direct listing process “may work less well for companies that are not so well-known.”
“Think about a smaller tech or consumer company: the book-building process that underwriters do is very important to introducing a small company, getting the name out, having a roadshow, and generating [investor] interest,” she says. “Yes, [advisory fees are] cheaper—but at what cost?”
Some observers have speculated that direct listings pose a threat to investment banks’ traditional capital markets advisory businesses, since they break up the need for large teams of underwriters who can command tens of millions of dollars in fees for shepherding an IPO to fruition. With no need for underwriters, companies instead work with a much smaller team of advisors who, on aggregate, command significantly lower fees.
But multiple banking and legal sources who spoke with Fortune say the big banks have embraced direct listings as a welcome evolution of the public markets—one providing them with a new path to take companies public and develop long-term relationships with would-be issuers. Goldman Sachs’ Connolly notes that investment banks “continue to play an incredibly important role” in advising issuers on direct listings, including helping the company “tell its story” to investors and present its financials.
“I think the investment banks are genuinely excited about direct listings overall; they understand that the market changes, and they have to change with the market,” according to Daniel Forman, a partner at law firm Proskauer’s capital markets group. “Having a smaller group of advisors working more closely with an issuer can help banks build and maintain relationships resulting in additional opportunities to work with that issuer.”
Not everyone agrees. Ritter says he doesn’t buy the idea that Wall Street banks are thrilled about their altogether diminished role in direct listings—since they’re not able to “allocate underpriced shares to clients like hedge funds, who are willing to pay high brokerage fees to get those allocations,” he notes.
To lockup, or not to lockup?
Complicating any designs on allowing companies to raise fresh capital via direct listings is the matter of lockups. A customary feature of IPOs, they’re meant to control the supply of shares in the wake of a company’s offering by prohibiting existing investors from dumping their stock on the market, usually for up to six months after an IPO.
Since direct listings exclusively consist of secondary shares owned by existing investors, they render lockups moot. But it is worth asking how a direct listing featuring the issuance of primary shares would fare without a construct long used by underwriters to keep IPOs on course.
It’s unclear whether the absence of lockups in direct listings is a sticking point in the SEC’s deliberations over the NYSE’s proposal. But the very question about what to do with lockups—and the extent to which their unpopularity among existing investors has spurred the relevance of direct listings—has led some to suggest that a rethink is in order.
“It’s tough for an investment bank to do a normal IPO and tell their clients on the buy side that they should buy this stock, but not protect them from a large delude of capital for some period of time,” says Greg Rodgers, a partner at law firm Latham & Watkins. “That said, six months [for a lockup] seems way too long in this day and age.”
Rodgers predicted that the rise of direct listings could result in “more creativity around partial [lockup] releases” in traditional IPOs, whereby different investors are gradually allowed to sell their shares on the public market in an altogether shorter timeframe. Ritter agreed, noting that “the idea that every company should have a one-size-fits-all, 180-day lockup [period] isn’t necessarily all that appropriate.”
Whether direct listings establish themselves as a mainstay on the capital markets, or eventually fade into obscurity as a temporary trend (like the “Dutch auction” model that Google used to go public in 2004) remains to be seen. Santosh Rao, head of research at Manhattan Venture Partners, says direct listings have been primarily driven by an “abundance of liquidity in the private markets,” and predicted that when the private funding markets dry up, direct listings will go “out the window.”
But what seems apparent is that, more than ever, companies, investors, bankers and attorneys alike are considering more varied ways to make money on the public markets—and, with the SEC’s blessing, that could significantly change the way business is done on Wall Street in the years to come.
“Going forward, we’ll see more bespoke approaches and variations on the direct listing model, and traditional IPOs could look very different as well,” according to Proskauer’s Daniel Forman. “We’ll see a shifting landscape about what it looks like to go public.”
Updated, Jan. 16, 2020: This story has been updated to include comment from the NYSE.
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fortune--2020-01-15--No more ‘chicken or fish?’ on wedding invites. Now on the menu: Plant-based entrées

Robin Selden of Marcia Selden Catering recently designed and executed a vegan menu for a 300-person wedding in Connecticut. The bride, who is vegan, insisted on plant-based food for her wedding day. Her father, however, is a bit “steak and potatoes type of guy,” Selden says, and was skeptical of his daughter’s choice of cuisine.
“At the end of the night, he was hugging us,” Selden says. “He could not believe how nobody—including him—missed the meat. He said numerous times that the guests were blown away by it.”
It’s an occurrence that wedding catering companies are experiencing more and more. Whether it’s catering to the dietary restrictions of friends and family or a reflection of their own eating habits, plant-based foods are on the rise for the wedding day. Couples strive to customize their nuptials in every possible way, from the venue to the afterparty. With that, of course, comes food, one of the biggest touch points of any large-scale event. As couples think about the guest experience for their weddings, specialty diets inevitably come up: vegetarian, vegan, gluten-free, and dairy-free, among others.
These caterers collaborate with couples to offer meat-free and dairy-free menus (also nut-free and gluten-free), not only for a few vegan guests but for the entire wedding guest list. Courtesy of Marcia Selden Catering
While many venues and catering companies are sticking to the classic steak, fish, and pasta, there is a movement among a growing number of wedding-focused businesses to offer plant-based menus that are delicious, high-end, and creative. These caterers collaborate with couples to offer meat-free and dairy-free menus, not only for a few vegan guests or vegan couple, but for the wedding guest list as a whole.
“People are more conscious about making healthy choices for their guests,” says Selden, who caters approximately 40 weddings a year as well as more than 900 social and corporate events. “They live a healthier lifestyle, and they want their weddings to reflect their style of eating too.”
It’s what inspired Selden to partner with Matthew Kenney Cuisine last summer to launch Naked Fig Catering, an entirely plant-based catering company that elevates vegan cuisine to that of luxury hospitality establishments. For them, eating plant-based isn’t a fad; it’s a way of life.
“This is a global movement that I don’t see regressing,” Kenney says. “It’s about learning how to use plants in a way that chefs have not historically used plants. People are more interested in the planet and in person health than ever before, and these are two things that will never be unimportant.”
With Naked Fig Catering, Matthew Kenney says the vendor marries a plant-based culinary art with ultimate nutrition. Courtesy of Phillip Van Nostrand
The plant-based food industry is now worth $4.5 billion, an industry that has grown 11% in just one year, according to a report from the Good Food Institute and Plant Based Foods Association. And it’s a sector that’s growing at an extremely fast rate. The alternative protein market is on track to capture 10% of the meat market (worth $19.5 billion) and plant-based milks make up 13% of the entire milk category. “Plant proteins will continue to dominate media, diet trends, and social media in 2020,” says Suzy Badaracco of Culinary Tides, a food industry trend forecaster. The Golden Globes, for instance, made headlines for serving an entirely vegan menu at the awards this month.
It’s not surprising that would extend to weddings. Sustainability can be difficult to achieve in many wedding-related line items, such as flowers and fashion, but is easier to realize when it comes to food. Henry Rich, managing partner of Purslane Catering in New York City, oversees a team that not only creates plant-based menus but is also the first zero-waste and carbon-neutral catering company in the world. It is now part of Oberon Group, the first carbon-neutral hospitality group in New York. “Cooking with plants is one of the most straightforward ways to limit carbon output from an event,” Rich says.
Marcia Selden Catering, known for its high-end work in weddings and with major brands like Disney, believes veganism isn’t a trend but rather a way of life. Courtesy of Marcia Selden Catering
Rich explained that wedding food traditionally has had a bad reputation as a one-size-fits-all approach to serving the meal. The traditional American wedding still serves a pasta dish, chicken dish, and red meat dish. In the past five years, though, he has seen a shift toward the elevation of catering to a restaurant-caliber experience. With that, he notes, comes a focus on dietary restrictions. “We live in a world where once niche dietary requests are becoming mainstream,” he says, adding that he would be surprised if caterers in major cities didn’t address this with basically every client. “When you’re making food with intention, offering tailored specifications is not difficult.”
Hosting a plant-based menu at your wedding includes the cake, too. Traditional bakeries still claim that nothing is as good as eggs, flour, and chocolate, but vegan bakers will politely disagree. “We can not only create an edible masterpiece, but also make it vegan, gluten-free, dairy-free, you name it,” says Carolyn Van Buskirk, chef and owner of Half Baked Co. in Burbank, Calif., which supplies cakes to 200 weddings each year. “We don’t just do vegan vanilla or chocolate; we do every single flavor on our menu in vegan and gluten-free options.” That includes popular choices like cookies and cream, salted caramel, and vegan honey and lavender.
Van Buskirk explains that it makes a big impact, not just on the bride or groom who may have a dietary restriction or preference, but likely one or more of the guests will too. “You want to make sure everyone can partake and be part of the party,” she adds.
A Marble Mood wedding cake by Lael Cakes. Courtesy of Lindsey Roman Photography
Emily Lael Aumiller, pastry chef and founder of Lael Cakes in Brooklyn, makes only plant-based desserts with dyes extracted from the natural pigments of fruits and vegetables. Her sculptural cakes could easily stand next to a traditional wedding cake, and most guests would never know the difference from sight alone. As for flavor, Aumiller has spent a decade perfecting her recipes, including a beet red velvet cake and a carrot caraway seed cake with orange blossom ginger icing.
“Subtracting the traditional basics—gluten, eggs, dairy, and refined sugars—can be intimidating,” Aumiller says. “I still have clients that won’t tell their guests about the ingredients because of the vegan and gluten-free faux pas. That’s their prerogative. Our work is delicious because of our ingredients, not in spite of.”
It’s not easy-breezy, though. Beyond skeptical clients and guests, Selden noted that many plant-based foods include nuts, which is challenging for those with relevant allergies. To appeal to carnivores in the crowd, it takes creativity with unexpected flavors, textures, and presentation to really “wow” the guest. Lael says that developing plant-based recipes is no small task—it can be quite time-consuming with a lot of trial and error—and Rich admits he has encountered the occasional guest who feels entitled to eat meat at a wedding. (“They seem to be confused as to why meat is not a baseline offering,” he says.)
However, the future looks bright for those working with vegan dishes. “The increasing inclusion in the wedding industry over recent years has allowed for a wider definition of what can be amazing wedding food,” Rich explains. “Plant-based menus are naturally more dietary inclusive, have a significantly lower carbon footprint, and are better for our bodies. Weddings are an opportunity for a couple to share with their closest friends and family who they are and what they stand for; we believe more and more couples will put their values first.”
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fortune--2020-01-15--This former D.C. insider is building a bank for ‘forgotten Americans’

Having just finished a wonky panel discussion at Columbia Business School, Andrei Cherny is enjoying a slightly trashy Tex-Mex dinner at a local college dive. The topic of the B-school event was the future of fintech and banking, which are, paradoxically, intimately related and worlds apart.
Banks, beset with myriad balance sheet issues following the financial crash, were slow to innovate elsewhere. That gave rise to a fintech boom of startups that behave like banks while doing everything in their power to avoid being regulated like them. In the Q&A session following the Columbia talk, a student had asked if Cherny was worried that Big Tech would buy fintech, or even buy banks somehow.
I ask him that again: The company he founded in 2014, Aspiration, wants the brand to communicate more than online banking and investing (which just happens to be its bread and butter). It bills itself as being built on high-minded ambitions for what spending, saving, and investing can be: conscientious capitalism that’s environmental, anti-gun, fair, accessible, and transparent. Maybe too transparent. Isn’t Aspiration eminently (even imminently) copyable?
“I think about Southwest Airlines,” Cherny says. “It debuted as something totally new: no first class, no seat assignments—all the jokes and warmth and personality. Do you remember that the big airlines tried to copy it? United had Ted and Delta had Song. They failed because they went for the market without going for the mission.”
His answer is both blithe and biting. Cherny believes banks lack a mission, and that, as much as anything, will lead to their downfall.
Maybe so, but what’s freaking bank executives out these days is how to survive in a world of low interest rates. On Tuesday, Wells Fargo reported an eye-popping 11% quarterly drop in net interest income—the fees part of the business that for years had been a huge profit driver. Every time the Federal Reserve moves to lower interest rates, banks like Wells Fargo feel it.
Aspiration’s business model is far less dependent upon fees, which benefits the startup and its customers. The company’s 1.5 million users are saving, on average, $545 a year in fees—a bottom-line calculation that may speak as much to their financial acumen as it does to their altruistic instincts.
“We’re not for everyone”
But before the conversation can get swept away by Silicon Valley’s unofficial motto—Will it scale?—Cherny pivots with the practiced polish of his pedigree (a Harvard grad who became the youngest speechwriter in White House history, under President Clinton, and, later, a kind of speech whisperer among the Democratic elite) and spins a yarn of a workaday anecdote: His wife recently forgot to pay their kid’s piano teacher. Could the next payment just be doubled? No, the piano teacher insisted; like 78% of working Americans, she was living paycheck to paycheck.
Cherny paid some piano lessons forward, but sighs in his retelling: “Most Americans are forgotten Americans. Why isn’t her bank there for her when she needs it?”
Cherny spoke at Fortune’s Brainstorm Finance conference in June 2019. Here he is making introductory remarks for a panel titled “Will Banks Matter in the Future?” Rebecca Greenfield—Fortune
He lays out an irony among banks: Their quest for ubiquity has come with a sad anonymity. By trying to serve everyone, they’ve distanced themselves from huge swaths of the public. “We’re not for everyone,” he says of Aspiration. “Some people want to fund guns. Some people want to fund coal or oil. Some people only care about cash back or rewards points or whatever. We’re not for them. We’re for people who want to ask: Can my bank do well while doing good?”
Lots of people are asking similar existential questions about banks. A recent McKinsey report found that because of low or negative interest rates, nearly 60% of banks are not generating enough returns on equity to survive a prolonged economic slowdown—in such an environment, the well-being of banks has never been so dependent on the well-being of its customers.
A coauthor of the McKinsey report calls it a “do or die” moment. The McKinsey wake-up call came on the heels of a PwC report that was more prescriptive. It urged the “Amazonization” of banking and wealth management into online platforms, aggregating products and services with fintech-style agility.
Those tensions have been further exacerbated by a presidential election in which two leading Democratic candidates—Sen. Bernie Sanders and Sen. Elizabeth Warren—have made fixing income inequality and forgiving debt on a grand scale central pillars of their campaigns.
On the campaign trail and off, banks are increasingly discussed more as a necessary evil than a necessary good. In these uncertain times, what’s a bank like Wells Fargo to do?
“About damn time”
Scandal-ridden Wells Fargo went quickly from being banking’s golden child to its piñata when it got busted for opening up millions of accounts in its customers’ names without their permission. The world’s fourth-largest bank by total assets, it came under considerable heat when Tim Sloan, its then CEO, offered Senate testimony in 2017 on the matter. Warren told him, “At best, you are incompetent. At worst, you are complicit. Either way, you should be fired. Wells Fargo needs to start over and that won’t happen until the bank rids itself of people like you.” (When he quit in March last year, Warren tweeted, “About damn time.”). In her presidential run, in a Medium post laying out her “economic patriotism” plan, she wrote, “Past a certain point, the growth of the financial sector undermines the rest of the economy by extracting from it without producing any real value.”
Yet despite calling for breaking up both big tech and big banks, Warren has been far quieter about the partnerships developing between those giant foes—or the seismic shifts in banking being led by fintech startups like Aspiration and its rivals Betterment, Chime, and Robinhood. Through a spokesperson, Warren declined Fortune’s interview requests.
About damn time. Tim Sloan should have been fired a long time ago. He enabled Wells Fargo's massive fake accounts scam, got rich off it, & then helped cover it up. Now—let's make sure all the people hurt by Wells Fargo's scams get the relief they're owed. https://t.co/l7dYmBWRBo — Elizabeth Warren (@ewarren) March 28, 2019
“People will pay for cage-free eggs with a Wells Fargo debit card and either not put two and two together, or not feel like they have a better option,” says Cherny. “Our opportunity is in saying, actually, it doesn’t have to be this way. A bank can be a positive influence in your life and the world around you. The bank should be the most-beloved institution. It’s the avenue for living out all your hopes and dreams. It’s a Wonderful Life is about banking: a good bank and a bad bank. We have a choice between being the Baileys and being the Potters. And yet we’ve only had the Potters’ version.”
Ranking the big guys
All of it—Senate testimony, campaign speeches, wonky academic discussions—seems far removed from the everyday life of most Americans. So Cherny doesn’t mention it (much). Instead he pops open his Aspiration app and shows how it puts one’s day-to-day financial life into a new light. Take Amazon and Walmart, for example. While they feel like similarly massive corporations, they’re very different from each other by one score that’s increasingly important to young consumers: their environmental track record.
Cherny explains why this matters (at least to Aspiration’s customers). He shows me that Aspiration gives Walmart a planet score of 94 out of 100, while Amazon scores a paltry 65. Similarly, while Southwest Airlines has a person score of 85 (meaning it treats its employees well), United Airline’s person score is 64. And so on. McDonalds has a person score of 61 and a planet score of 76, compared to Burger King’s 49 and 53, respectively. Aspiration saw a surge in user sign-ups the day President Trump announced a planned withdrawal from the Paris Agreement. “More than ever,” Cherny says, “people want to align their actions with their values.”
Aspiration’s proprietary ranking system generates an impact score.
Aspiration uses a proprietary algorithm to determine those rankings, using factors such as employee pay and commitment to health care for its person scores, or greenhouse gas emissions and energy efficiency for its planet scores. Similarly, those numbers are compiled into an overall assessment of how much Aspiration customers themselves are contributing to labor and environmental progress. (At a recent check, Cherny’s own spending had a person score of 85 and a planet score of 91.)
Big banks don’t do this kind of thing, of course. They prefer to do business with others, not judge them. But the scores are exactly what Cherny’s public service background brings to fintech: a people-first approach over a consumer-first one.
“I think of us as a service,” Cherny says. “The way to be profitable is to serve people, not screw people over. Restaurants feed you. They don’t take advantage of your hunger.”
So far, eBay alums Pierre Omidyar and Jeff Skoll agree, with both making hefty investments. In all, Aspiration has raised more than $150 million from other power players, including AGO Partners, Allen & Company, Alpha Edison, Flourish Ventures, David Bonderman, and Steve Rattner. Having invested heavily in growth and new products, Aspiration forecasts finally hitting profitability later this year.
Doing good, it turns out, can satisfy the objectives of activist-minded customers and the board. Aspiration’s Redwood Fund, for example, is an investment fund that is fossil fuel–free and firearm-free and has performed in the top 2% since it debuted in 2016 (its minimum initial investment is just $10). Some 70% of Aspiration users have no mutual fund when they sign up, but 40% of those customers open one within a year, and 60% of those make monthly investments.
In December, Aspiration debuted Planet Protection, which pairs debit card payments at gas stations with automatic carbon offsets. It’s based on gallons of gas purchased, and it tries to bring even the most gas-guzzling SUV driver somewhere nearer the range of carbon-neutral. It’s far too soon to say whether such efforts will have any meaningful impact on carbon emissions, but it’s getting its share of eco cred. “Aspiration helps people protect our planet by ensuring their deposits are fossil fuel–free and by rewarding socially conscious spending,” said Leonardo DiCaprio, the environmentalist actor, when he joined Aspiration’s board last year. While Bank of America could offer the same earth-friendly deal, Cherny bets it won’t.
Taking a flier on Elizabeth Warren
Cherny has won big on bets before. Before Aspiration, he edited Democracy, a journal whose claim to fame was publishing a proposal by Warren that would become the Consumer Finance Protection Bureau. He didn’t just edit it and publish it, but also advocated for it. “Seeing that the financial industry was so strongly resisting efforts to reform made me start thinking that a more ethical, trusted competitor could beat them at their own game,” he tells me.
His life has been full of idealism—ever since at least age 12, when Cherny volunteered for Michael Dukakis’s presidential campaign. In his twenties, when his Czech immigrant parents, who had no savings, were bequeathed several thousand dollars from a dead neighbor, Cherny watched as their small fortune was swindled by a financial adviser who gambled it all on high-risk, illiquid real estate. After Cherny’s stint in Washington, by the time of the financial crash, he was a financial fraud prosecutor in Arizona, which he calls “ground zero of the mortgage meltdown.” He says he saw its victims up close. They were lots of elderly folks or families of deployed soldiers. They were just gutted, he recalls. From that experience, the seeds of Aspiration was born—that the combined forces of banking and tech could benefit from his unlikely résumé builder built on public service. Not that he flourished as a public servant; he lost congressional bids.
Aspiration is far from alone—Robinhood is another one—in the fintech upper echelons in getting banks to drop fees for trading in stocks, funds, and options. (Similarly, Cherny is hoping to get banks to give up the $35 billion they make each year on overdraft fines—to no avail so far, despite lobbying for more regulation because, as he put it in an essay, “laissez-faire is lazy and not fair”).
Cherny recalls an early investment meeting. Beforehand, he told his cofounder, Blackstone private equity alum Joe Sanberg (who’s also a founding investor in Blue Apron), that he was worried Aspiration’s Pay What’s Fair model—in which customers are not required to pay anything, but rather what they want—might get copied by competitors. The investment meeting was short. “They’re not going to steal it,” Cherny recalls telling Sanberg. “They think we should be locked up in an insane asylum.”
Bankers, however, almost never get locked up. “We’re closer to 1910 than 2010 in economic fairness in America,” says Mehrsa Baradaran, a law professor at the University of California at Irvine who wrote How the Other Half Banks. “We have the unbanked, the underbanked, and, lemme tell you, actual banking is not much better. They’re pro-shareholder, pro-themselves. Aspiration does a lot of good, but I’m always wary of trotting out the kind slavemaster.”
The day after Cherny and I talk, Google and Citibank announce a checking account partnership—on the heels of a credit card partnership between Apple and Goldman Sachs over the summer and Santander investing heavily in Ebury. That B-school hypothetical is getting closer to reality by the day.
“I fully anticipate a world where every tech company has a bank. The Bank of Amazon, the Bank of Uber, the Bank of Facebook,” he tells me after the Google-Citi news breaks. “But this is Big Banks, which nobody likes, combining with Big Tech, which nobody likes. I’m not worried about what they’ll produce together.”
Correction, January 15, 2020: An earlier version of this story misspelled the name of Aspiration’s cofounder. He is Joe Sanberg.
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