Unintended Consequences: When SAFE and Convertible Notes Go Awry

Andrew Krowne and I recently co-wrote an article in Tech Crunch, Why SAFE Notes Are Not Safe for Entrepreneurs. We’ve received numerous constructive comments, both privately and on social media, from attorneys, VCs, and CEOs who are well aware of the problem (including several who are experiencing it in real time). This is a fundamental issue that does, indeed, boil down to understanding the post-money valuation of a company. But it is also a topic that many find esoteric and difficult to grasp. To restate two core points of the article: While there are proper uses of notes (to bridge the company to achieve a major milestone, or driven by insiders’ willingness to extend runway), there also are troubling and frequent improper uses (to postpone pricing equity until valuation is higher or to ignore the implicit message associated with being unable to find a lead investor to price the Continue reading "Unintended Consequences: When SAFE and Convertible Notes Go Awry"

Why the Bond-Yield Curve Isn’t Likely Signaling Recession Ahead

Record-low yields on U.S. Treasurys have for decades signaled weakness in the U.S. economy and foreshadowed recession. Not this time. Some economists are pointing to the so-called yield curve—the difference between long-term and short-term rates—as a harbinger of a new slowdown. Yields on 30-year and 10-year Treasurys plumbed record depths earlier this month, setting fresh milestones in three-decade downward trends. Yields have since retreated a bit from their lows. But combined with weak business investment, falling corporate profits and slipping auto sales, the slump in bond yields has led some investment banks to put the risk of recession as high as 60%, accounting for past yield-curve compressions that were followed by recessions. [wsj-responsive-dynamic-inset id=2] But unlike in the past, the pressures likeliest to trigger an economic contraction this time lie outside the U.S. Turmoil and weakness overseas have drawn investors to the security of U.S. government bonds, driving their prices up and their yields down. “The low level Continue reading "Why the Bond-Yield Curve Isn’t Likely Signaling Recession Ahead"

The Tale of the Swiss Coco

The coco bond market has endured its Paradise Lost moment. The main index has fallen nearly 8 per cent this year after returning 7 per cent in 2015 – practically utopian, in the current rates environment. Some names – Deutsche, UniCredit, Banco Popular – have experienced the distress of trading below 75 cents on the euro. Let’s briefly set aside these qualms of heart-sick malady. Let’s turn instead to the mostly untold tale of a $2.5bn Credit Suisse 6.25 dollar-denominated AT1 bond. CS 6.25, as we’ll call it. Continue reading: The Tale of the Swiss Coco

Who Wins and Loses in the IMF Governance Overhaul, and What’s Next

China, Brazil and other developing nations will now have more power at the International Monetary Fund, largely at the expense of European nations.
More than five years after the deal was inked by global powers, the International Monetary Fund executive board this week officially approved the governance overhauls that give emerging markets more power at the emergency lender. The so-called quota reforms help restore some of the credibility the fund lost in the last decade as emerging markets grew in economic heft and injected critically needed cash into the fund, but gained little power at the IMF in return. “These reforms will ensure that the fund is able to better meet and represent the needs of its members in a rapidly changing global environment,” said IMF chief Christine Lagarde. IMF brass worried that countries such as China, India and Brazil were growing increasingly disenfranchised with the Washington-based
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Why Emerging Markets Are Melting Down, and Why It Matters, in 10 Charts

An Indian rickshaw driver pushes a heavy cart up an incline in New Delhi. World Bank economists say 2016 could be a hard slog for emerging-market countries.
Emerging markets face one of their most challenging years since the financial crisis. Here’s why, and why it matters in 10 charts.

1. The Party’s Over

Economists, including at the International Monetary Fund and the World Bank, have had to slash their forecasts for emerging markets over the last several years.

2. The Pain Isn’t All the Same

Some countries have faced bigger downgrades than others, for example, Russia, Brazil and China.

3. Bad Assumptions

Old estimates assumed growth rates based on much stronger commodity prices. And economists assumed much higher productivity. But oil, metals and other commodity prices have plummeted. Crude oil prices have lost roughly 65% of their value over the last 18 months:  

4. Slackers

And governments didn’t
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IMF Chief Economist’s 2016 Warning: Watch Out for China and Emerging-Market Volatility

An investor reacts at a stock exchange hall Monday in China. Chinese shares slumped on the first trading day of 2016, forcing authorities to halt all mainland trading.
China’s slowdown and rising volatility in emerging markets are two of the top global economic risks International Monetary Fund chief economist Maury Obstfeld is watching out for in 2016. Global stocks took a hit on the first trading day of the new year following a rout in Chinese markets, fueled by another bout of disappointing data in the world’s second-largest economy. Growth challenges in China and other emerging markets are expected to force the IMF to downgrade its global economic forecast for the year when the fund posts its latest outlook in January. Global growth will be “disappointing and uneven,” IMF Managing Director Christine Lagarde said late last week.  Beijing is facing critical decisions in the coming months on how Continue reading "IMF Chief Economist’s 2016 Warning: Watch Out for China and Emerging-Market Volatility"

WSJ Survey: Yuan No Challenge to Dollar Amid China’s Tiptoe Toward Freer Markets

The National People’s Congress, China’s Communist Party-controlled legislature, gathers at the Great Hall of the People in Beijing this year. “Until China fully transforms its nation into an open democracy with an economy much more transparent, subject to market forces…there is no chance the renminbi will overtake the U.S. dollar,” said Economic Outlook Group’s Bernard Baumohl. 
China’s yuan is highly unlikely to challenge the dollar’s hegemony as the world’s most used reserve currency in the next 50 years despite winning International Monetary Fund backing, according to economists surveyed by The Wall Street Journal. The IMF last week added the yuan to its elite basket of reserve currencies, acknowledging the growing heft of the world’s No. 2 economy and encouraging Beijing to move ahead with promised liberalization. But economists surveyed by the Journal expressed deep uncertainty about the country’s political and economic fate. Beijing’s ponderous move toward freer markets
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