The Brunch Briefing | Debt
The Brunch Briefing | Debt
WeWork, Dark Money, and Surveillance
(The Brunch Briefing is a collection of the most interesting stories from the past week, designed to enliven your weekend conversations. For last week’s BB click here.)
🐰 Overheard
(Quotes from clever people)
Everyone always talks about how much money there is in politics. This is the wrong framing. The right framing is…why is there so little money in politics?
- Scott Alexander, Slate Star Codex
In his piece, “Too Much Dark Money in Almonds,” Alexander discusses the counter-intuitively small amount of cash in politics — only $5B was spent on elections in 2018, while $12B was spent on almonds. Given the immense passion politics imbues in the populace, we might reasonably expect individuals and corporations to allocate more dollars towards driving outcomes they care about.
There are signs this is changing, caused by ideological polarization and technology. $209MM was donated by individuals to Democrats in 1H19, a 70% increase on the amount given by supporters of both parties at this point of the last presidential election. Political fundraising tools like ActBlue (Dems) and WinRed (Reps) have brought more small donors into the fold, as have tools like Hustle and The Tuesday Company. Novel distribution channels are still emerging: just this week, Bloomberg reported Alexa now accepts political donations up to $200. This is the first step in enabling the 1/3 of Americans with smart home devices to contribute with just their voice.
✏️ Monitoring: Income Share Agreements
(One space worth keeping an eye on)
$1.6T in debt. The cost of higher education in America has put an increasing number of families in the red, with total debt rising +125% over the past decade. That figure is equivalent to ~8% of national income, a doubling since the mid-2000s. This is a uniquely American phenomenon* with its origins in the Reagan administration. It was the president’s budget director, David Stockman who set a new course, saying, “If people want to go to college bad enough, then there is opportunity and responsibility on their part to finance their way through the best way they can.” The result is that the average US student graduates with $37K of debt, while many in Europe and Asia receive equivalent educations for nothing.
Enter, Income Share Agreements (ISAs). While a number of companies have come to market over the past 12-18 months helping students better manage their loans — including Pillar, Chipper, Gradjoy, Piecewise — the more radical opportunity may be in changing the underlying financing instrument. Rather than requiring students to take on debt, ISAs work on a $0 upfront cost basis, with graduates paying a fixed percentage of income once they have a paying job. New companies are addressing different parts of this emerging stack.
Financing. ISAs can make attractive investments, with annual returns between 7-15%. Edly, which recently raised a seed, offers a platform for investors to finance programs like that of Holberton School’s, a technical academy with exceptional graduate outcomes. Other financing platforms include, Blair, and Lumni, which is expanding from LatAm to the US.
Servicing. Offering ISAs is operationally complex and novel to traditional institutions. Servicing companies help educators set up, manage, and collect from ISA programs. Players include Vemo Education, EdAid and Leif.
Schools. The first wave of challenger schools have been dominated by those looking to train software developers; unsurprising, given the tight market for technical talent and high entry-level salaries. This includes companies like General Assembly, Thinkful, and Lambda. There are early signs of movement beyond this domain with Flockjay, SV Academy, and preHIRED offering sales training.
Expect ISAs to go mainstream. Of the $200B of student loans and disbursements made each year, ISAs look like a rounding error. But with Congress discussing a bill designed to regulate the space — establishing minimum income thresholds and ceilings on the share schools can take — expect ISAs to move from fringe alternative to true student loan substitute. That will be good news for financing and servicing providers as more traditional universities offer their own programs. Challenger schools will continue to thrive by offering differentiated programming — I’m keeping an eye out for insurgents focusing on growth marketing, financial services, high-skill manufacturing, and other industries with severe skill-gaps.
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*The UK is also in bad shape. But with $121B in outstanding debt (~4% of national income), the crisis is yet to reach the same heights as across the pond.
🖼️ 1000 words
(Something to look at)
Is Robinhood overvalued? This graph from ARK Research shows the valuation per user of various banks and fintech applications. While it’s perhaps unsurprising that users of incumbents like Wells Fargo and JP Morgan are valued in the thousands, Robinhood’s figures stand out given the brokerage’s limited feature set. (The company famously experimented with checking and savings accounts offering 3% a year, before walking it back.) With $323MM in new funding, a valuation of $7.6B, and pressure from polished insurgents like Public and Webull, expect the unicorn to give high-interest bank accounts another shot before EOY.
Square’s Cash App, which is testing $0 commission trading and has a user value of just $114, may be a steal.
😱 Signs of the apocalypse
(Look on my Works, ye Mighty, and despair!)
Face, palm. The fires in Indonesia are so bad, they sometimes darken the sky of Singapore. The global thirst for palm oil — an ingredient ubiquitous in consumables as diverse as make-up, cereal, and toothpaste — is decimating the country’s rainforest. In clearing space for more palm plantations, producers of the oil endanger wildlife and release significant amounts of carbon into the atmosphere. I’m hopeful that more companies downstream will turn to eco-friendly substitutes like those offered by synthbio startup, C16.
The euphemism of ‘smart cities.’ As many as 75 countries are using facial recognition to surveil citizens. While autocratic regimes are among the user base, so too are countries like France and the US. The systems themselves are provided by a mix of Chinese (Huawei, Hikvision), Japanese (NEC), and US (Palantir, Cisco) firms. Many such installations have been as part of a ‘smart city’ initiative, coupling features like traffic management with surveillance and algorithmic crime prediction.
🐒 Long tail
(Best of the rest)
Deepfakes are improving faster than experts expected. Chinese app, Zao, showcases the remarkable mimicry already possible.
Fort Collins (CO) is now offering residents gigabit fiber for $60/month. The town has spent years battling ISP giant Comcast who tried to thwart the effort.
Chess players burn up to 6K calories in a day of tournament play. Competing at the top requires physical fortitude, a balanced diet, good sleep, and…chocolate milk.
India one-ups NYC by banning all e-cigs. While the city has outlawed flavored vapes, India’s prohibition excises 106MM adult smokers from Juul’s potential user base.
Wells Fargo jumps aboard the stablecoin train. They follow JP Morgan and the People’s Bank of China.
The 100 best books of the 21st century. A follow-up to last week’s movie list. Glad to see Levels of Life, Tenth of December, and The Argonauts mentioned.
Cancel culture comes to Silicon Valley. In response to AltSchool’s demise, edtech investor Jason Palmer tweeted out a slightly celebratory comment. The backlash from the industry was swift and severe. Worrying.
It only took Skinny Pop $500K to reach $80MM revenue. Ryan Caldbeck of CircleUp, discusses appropriate marketing spend for CPG startups.
WeWork shelves its IPO after slashing valuation. The office space provider has been dogged by uninspiring financials, low investor interest, and a delusional CEO.*
The continent of Greater Adria has been found. The Greenland-sized landmass was created 200MM years ago, before being subsumed by the Mediterranean Basin.
T. Boone Pickens’s final message. The Texas oil-man and philanthropist’s parting words were shared on LinkedIn this week. Plenty worth mulling over.
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*Digression and prediction: I expect the company to wait until 2020 to re-file. I doubt Neumann will be at the helm.
🧩 Puzzler
(A question, conundrum, or riddle to mull over)
The more you take, the more you leave behind. What am I?
Congratulations to Nick T., who was first to solve last week’s riddle. The answer was ‘Queue.’ Looking forward to hearing this week’s responses.
Finally, thank you. Many of you have shared The Generalist, either referring readers or recommending on social media. It’s led to a 211% increase in subscribers over the past week (easy when the numbers are small 😉). If you have someone you think would enjoy it, any forwards are much appreciated. ❤️
Wishing you all a lovely, restful Sunday.