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Start-Ups Pursue ‘Free Money’ With Relief Funds, Prompting Backlash

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Domio, a start-up that offers short-term rentals, has its headquarters in a New York City loft that features beer on tap, a game room and a wall of house slippers for visitors. The fast-growing and unprofitable company has raised $117 million in venture capital, including $100 million in August.

When the coronavirus pandemic caused Domio’s bookings to dry up last month, it laid off staff but did not ask its investors for more funding. Jay Roberts, Domio’s chief executive, said it had no immediate need to raise more money and most likely had enough cash to last until 2021.

Instead, Domio applied for a federal loan under the Paycheck Protection Program, the $349 billion plan to save jobs at small businesses during the outbreak. It received a loan on April 13. Three days later, the program’s funding ran out, even as hundreds of hard-hit restaurants, hair salons and shops around the country missed out on the relief.

Questions about whether the funds were disbursed fairly and whether some applicants deserved them have drawn scrutiny to the aid program. Several companies that got millions of dollars in loans, such as the Shake Shack and Kura Sushi restaurant chains, faced criticism and eventually gave the money back. On Friday, President Trump signed legislation approving a fresh $320 billion to replenish the program, which the Small Business Administration is directing.

Now, scrutiny of the program has reached technology start-ups like Domio. While many of these young companies have been hurt by the pandemic, they are not ailing in the same way that traditional small businesses are. Many mom-and-pop enterprises, which tend to employ hourly workers and operate on razor-thin margins, are shutting down immediately because of economic pain or begging for donations via GoFundMe campaigns.

But start-ups, which last year raised more than $130 billion in funding, have sometimes turned to the government loans not for day-to-day survival but simply to buy useful time. In Silicon Valley parlance, they want to extend their “runway,” or cash on hand, to a year or more. Many are backed by venture capital investors, who have accumulated record sums of capital — $121 billion as of the start of this year — that could be used to keep companies afloat.

The start-up rush to tap the finite pool of government aid has stirred up a furious debate in Silicon Valley over whether these companies should have applied.

“They are doing it because they can,” said Chris Olsen, a venture capitalist with Drive Capital Partners in Columbus, Ohio. “They view it as free money.”

Silicon Valley Bank, which serves start-ups and is one of the lenders offering the Small Business Administration loans, said that it had received 5,500 applications and that nearly two-thirds — more than than 3,600 — had been approved.

Most tech start-ups have fewer than 500 employees, making them eligible for the federal loans. They needed simply to certify that current “economic uncertainty” made the funds necessary to support their “ongoing operations.” The loans can be forgiven if used to cover payroll. The government has not shared a list of recipients.

Justin Field, the senior vice president of government affairs at the National Venture Capital Association, a lobbying group, said start-ups were justified in seeking the federal aid.

“These are potentially some of the most important companies for America’s future competitiveness,” he said.

Some start-ups said they saw how they had an advantage over traditional small businesses in obtaining the loans. While the application process has been difficult to navigate, many of the start-ups leaned on their relationships with banks, investors, law firms and the lobbying group.

AltMarket, a Los Angeles start-up that released a cryptocurrency honoring the late Wu Tang Clan rapper O.D.B., received a federal loan on April 14, its chief executive, Bryce Weiner, said. He said his company, which has worked with financial regulators in the past, was better equipped to sort through the loan application than, say, a restaurant owner. He added that he had worked closely with his lawyer for a week, contacting banks and loan providers.

“It’s clear that people who need this money probably don’t have access to what’s going on,” Mr. Weiner said.

Jamie Baxter, chief executive of the staffing start-up Qwick, said his chief financial officer had worked overtime for two weeks figuring out the loan application process. Qwick, backed by $7 million in venture funding, received a loan for $500,000. It also cut staff by 70 percent and tapped its investors for an additional $1 million, Mr. Baxter said.

While it wasn’t initially clear that venture-backed start-ups were eligible for the federal loans, lobbyists spent weeks pushing to clarify that they could participate. The idea gained support in Congress, including from two powerful Californians, Speaker Nancy Pelosi and Representative Kevin McCarthy, who leads House Republicans.

The National Venture Capital Association also guided investors on participation. Firms like Menlo Ventures distributed messages from the group, asking founders to persuade Senator Marco Rubio, the Florida Republican who leads the small business subcommittee, to support rule changes.

Mr. Field, the association lobbyist, said it was up to individual companies to decide whether they could truthfully tell the government that they required help.

“You have to certify need, there’s no doubt about that,” he said. “How do you define need is a subjective question that you have to figure out.”

In recent weeks, prominent investors including Albert Wenger at Union Square Ventures, Mark Suster of Upfront Ventures, Seth Levine of Foundry Group and Mr. Olsen of Drive Capital, have published blog posts or letters urging most start-ups not to pursue the money.

“We just think those companies ought to not get in line in front of Main Street businesses,” Mr. Wenger said.

Manny Medina, founder of Outreach, a sales software start-up that has raised $238 million and is valued at $1.1 billion, said his board of directors and bank had initially pushed him to apply for a loan. His contacts at Silicon Valley Bank told him that the program would be a “free-for-all” and a “run to the money,” he said. Outreach did not apply, he said, but “there was some real pressure.”

Julia Thompson, a spokeswoman for Silicon Valley Bank, said that what Mr. Medina had described did not represent the lender’s “official stance, but may have been one person’s characterization.”

Some start-ups that applied for the loans argued that their jobs should not be treated as more disposable than, say, waiters or house cleaners, despite much higher salaries. Several said they had a fiduciary duty to keep their company alive.

Kendrick Nguyen, chief executive of Republic, a site for investing in start-ups that has raised more than $16 million in funding, said he had applied so his company could be in a strong position when the economy bounced back. Republic has enough money to keep going for one to two years despite a steep drop in business last month, he said.

Mr. Nguyen said that Republic had not asked its investors for more money “because, quite frankly, we are in a very sound financial situation for a tech start-up.” He declined to be specific about the financials.

Other entrepreneurs said they had no better option than to seek the aid.

JetClosing, a real estate tech start-up in Seattle, said its fund-raising plans had been derailed by the virus in March, leading to layoffs of 20 of its 100 employees. Dan Greenshields, the chief executive, said he had applied for a government loan to stave off further cuts. Last Wednesday, JetClosing received a $1.6 million loan.

The League, a members-only dating app based in San Francisco, also applied for a federal loan. Amanda Bradford, the chief executive, said that revenue had fallen 10 to 15 percent this year and that the company’s landlord had declined to lower the monthly $13,000 rent. While the League looked into traditional loans, they carried a 16 percent interest rate. A government loan, with an interest rate of 1 percent, would help the company get to one year of cash, she said.

LiveRecover, a software start-up in Austin, Texas, opted not to apply but was torn over the decision, a co-founder, Dennis Hegstad, said.

“If there’s money flying from the sky and everyone’s grabbing it, why would you not grab it?” he asked. Then he answered his own question: “There are other people who need it more.”

Source: https://www.nytimes.com/2020/04/27/technology/startups-sba-loans-backlash.html

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NVIDIA CloudXR Allows Hi-Fi XR Streaming via 5G Networks

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NVIDIA CloudXR Allows Hi-Fi XR Streaming Via 5G Networks | ARPost

NVIDIA CloudXR

Source: https://arpost.co/2020/05/26/nvidia-cloudxr-hifi-xr-streaming-5g/

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Visualizing the Countries Most Reliant on Tourism

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While COVID-19 is dominating headlines, another kind of emergency is threatening the lives of millions of people around the world—food insecurity.

The two are very much intertwined, however. By the end of 2020, authorities estimate that upwards of 265 million people could be on the brink of starvation globally, almost double the current rate of crisis-level food insecurity.

Today’s visualizations use data from the fourth annual Global Report on Food Crises (GRFC 2020) to demonstrate the growing scale of the current situation, as well as its intense concentration in just 55 countries around the globe.

Global Overview

The report looks at the prevalence of acute food insecurity, which has severe impacts on lives, livelihoods, or both. How does the Integrated Food Security Phase Classification (IPC) classify the different phases of acute food insecurity?

  • Phase 1: Minimal/None
  • Phase 2: Stressed
  • Phase 3: Crisis
  • Phase 4: Emergency
  • Phase 5: Catastrophe/Famine

According to the IPC, urgent action must be taken to mitigate these effects from Phase 3 onwards. Already, 135 million people experience critical food insecurity (Phase 3 or higher). Here’s how that breaks down by country:

Country/ Territory Total Population Analyzed (Millions) Population in Crisis (Phase 3+, Millions) Share of Analyzed Population in Crisis
Afghanistan¹ 30.7 11.3 37%
Angola¹
(24 communes in 3 provinces)
0.9 0.6 62%
Bangladesh
(Cox’s Bazar and host populations)
3.5 1.3 37%
Burkina Faso¹ 21.4 1.2 6%
Burundi 11.5 0.2 2%
Cabo Verde 0.5 0.01 2%
Cameroon¹
(7 regions)
16.1 1.4 8%
Central African Republic¹
(excluding Lobaye)
4.4 1.8 41%
Chad¹ 14.3 0.6 4%
Colombia¹
(Venezuelan migrants)
1.6 0.9 55%
Côte d’Ivoire 19.8 0.06 0%
Democratic Republic of the Congo¹
(109 territories)
59.9 15.6 26%
Ecuador¹
(Venezuelan migrants)
0.4 0.3 76%
El Salvador¹
(Eastern region)
1.4 0.3 22%
Eswatini¹
(rural population)
0.9 0.2 25%
Ethiopia¹
(selected areas in 6 regions)
28.7 8 27%
Gambia 2 0.2 10%
Guatemala¹ 16.6 3.1 18%
Guinea 10.1 0.3 3%
Guinea-Bissau¹ 1.3 0.1 10%
Haiti¹ 10.5 3.7 35%
Honduras¹
(13 departments)
5.1 1 18%
Iraq 39.3 1.8 5%
Kenya¹
(Arid and Semi-Arid Lands)
13.9 3.1 22%
Lebanon¹
(Syrian refugees)
0.9 0.3 29%
Lesotho¹
(rural population)
1.5 0.4 30%
Liberia 4.3 0.04 1%
Libya 6.7 0.3 5%
Madagascar¹
(Southern, south-eastern and eastern areas)
4.6 1.3 28%
Malawi¹ 15.3 3.3 22%
Mali¹ 20.5 0.6 3%
Mauritania¹ 4.1 0.6 15%
Mozambique¹
(39 districts)
5 1.7 34%
Myanmar 54 0.7 1%
Namibia 2.4 0.4 18%
Nicaragua 6 0.08 1%
Niger¹ 21.8 1.4 7%
Nigeria¹
(16 states and Federal Capital Territory)
103.5 5 5%
Pakistan¹
(Balochistan and Sindh drought-affected areas)
6 3.1 51%
Palestine 5 1.7 33%
Rwanda 12.6 0.1 1%
Senegal¹ 13.2 0.4 3%
Sierra Leone¹ 8.1 0.3 4%
Somalia¹ 12.3 2.1 17%
South Sudan² 11.4 7 61%
Sudan¹
(excluding West Darfur)
41.9 5.9 14%
Syrian Arab Republic 18.3 6.6 36%
Turkey¹
(Syrian refugees)
2.7 0.5 17%
Uganda 40 1.5 4%
Ukraine
(Luhansk and Donetsk oblasts, and IDP)
6.1 0.5 9%
United Republic of Tanzania¹
(16 districts)
4.8 1 20%
Venezuela¹ 28.5 9.3 32%
Yemen² 29.9 15.9 53%
Zambia¹
(86 districts)
9.5 2.3 24%
Zimbabwe¹
(Rural population)
9.4 3.6 38%
Total populations 825.1 million 134.99 million

Source: GRFC 2020, Table 5 – Peak numbers of acutely food-insecure people in countries with food crises, 2019
¹ Include populations classified in Emergency (IPC/CH Phase 4)
² Include populations classified in Emergency (IPC/CH Phase 4) and in Catastrophe (IPC/CH Phase 5)

While starvation is a pressing global issue even at the best of times, the ongoing impact of the COVID-19 pandemic is projected to almost double these numbers by an additional 130 million people—a total of 265 million by the end of 2020.

To put that into perspective, that’s roughly equal to the population of every city and town in the United States combined.

A Continent in Crisis

Food insecurity impacts populations around the world, but Africa faces bigger hurdles than any other continent. The below map provides a deeper dive:

global food crisis 2020 africa

Over half of populations analyzed by the report – 73 million people – are found in Sub-Saharan Africa. Main drivers of acute food insecurity found all over the continent include:

  • Conflict/Insecurity
    Examples: Interstate conflicts, internal violence, regional/global instability, or political crises.
    In many instances, these result in people being displaced as refugees.
  • Weather extremes
    Examples: Droughts and floods
  • Economic shocks
    Macroeconomic examples: Hyperinflation and currency depreciation
    Microeconomic examples: Rising food prices, reduced purchasing power
  • Pests
    Examples: Desert locusts, armyworms
  • Health shocks
    Examples: Disease outbreaks, which can be worsened by poor quality of water, sanitation, or air
  • Displacement
    A major side-effect of conflict, food insecurity, and weather shocks.

One severely impacted country is the Democratic Republic of Congo, where over 15 million people are experiencing acute food insecurity. DRC’s eastern region is experiencing intense armed conflict, and as of March 2020, the country is also at high risk of Ebola re-emergence.

Meanwhile, in Eastern Africa, a new generation of locusts has descended on croplands, wiping out vital food supplies for millions of people. Weather conditions have pushed this growing swarm of trillions of locusts into countries that aren’t normally accustomed to dealing with the pest. Swarms have the potential to grow exponentially in just a few months, so this could continue to cause big problems in the region in 2020.

Insecurity in Middle East and Asia

In the Middle East, 43 million more people are dealing with similar challenges. Yemen is the most food-insecure country in the world, with 15.9 million (53% of its analyzed population) in crisis. It’s also the only area where food insecurity is at a Catastrophe (IPC/CH Phase 5) level, a result of almost three years of civil war.

global food crisis 2020 middle east

Another troubled spot in the Middle East is Afghanistan, where 11.3 million people find themselves in a critical state of acute food insecurity. Over 138,000 refugees returned to the country from Iran and Pakistan between January-March 2020, putting a strain on food resources.

Over half (51%) of the analyzed population of Pakistan also faces acute food insecurity, the highest in all of Asia. These numbers have been worsened by extreme weather conditions such as below-average monsoon rains.

An Incomplete Analysis

As COVID-19 deteriorates economic conditions, it could also result in funding cuts to major humanitarian organizations. Upwards of 300,000 people could die every day if this happens, according to the World Food Program’s executive director.

The GRFC report also warns that these projections are still inadequate, due to major data gaps and ongoing challenges. 16 countries, such as Iran or the Philippines have not been included in the analysis due to insufficient data available.

More work needs to be done to understand the true severity of global food insecurity, but what is clear is that an ongoing pandemic will not do these regions any favors. By the time the dust settles, the food insecurity problem could be compounded significantly.

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Source: https://www.visualcapitalist.com/countries-reliant-tourism/

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How U.S. Consumers are Spending Differently During COVID-19

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When times get tough, central banks typically act as the first line of defense.

However, modern economies are incredibly complex—and calamities like the 2008 financial crisis have already pushed traditional policy tools to their limits. In response, some central banks have turned to newer, more unconventional strategies such as quantitative easing and negative interest rates to do their work.

In response to the COVID-19 pandemic, central banks are once again taking decisive action. To help us understand what’s being done, today’s infographic uses data from the International Monetary Fund (IMF) to compare the policy responses of 29 systemically important economies.

The Central Bank Toolkit

To begin, here are brief descriptions of each policy, which the IMF sorts into four categories:

1. Monetary Policies

Policies designed to control the money supply and promote stable economic growth.

Policy Name Intended Effect
Policy rate cuts Stimulates economic activity by decreasing the cost of borrowing
Central bank liquidity support Provides distressed markets with additional liquidity, often in the form of loans
Central bank swap lines Agreements between the U.S. Fed and foreign central banks to enhance the provision of U.S. dollar liquidity
Central bank asset purchase schemes Uses newly-created currency to buy large quantities of financial assets, such as government bonds. This increases the money supply and decreases longer-term rates

2. External Policies

Policies designed to mitigate the effects of external economic shocks.

Policy Name Intended Effect
Foreign currency intervention Stabilizes the national currency by intervening in the foreign exchange market
Capital flow measures Restrictions, such as tariffs and volume limits, on the flow of foreign capital in and out of a country

3. Financial Policies for Banks

Policies designed to support the banking system in times of distress.

Policy Name Intended Effect
Easing of the countercyclical capital buffer A reduction in the amount of liquid assets required to protect banks against cyclical risks
Easing of systemic risk or domestic capital buffer A reduction in the amount of liquid assets required to protect banks against unforeseen risks
Use of capital buffers Allows banks to use their capital buffers to enhance relief measures
Use of liquidity buffers Allows banks to use their liquidity buffers to meet unexpected cash flow needs
Adjustments to loan loss provision requirements The level of provisions required to protect banks against borrower defaults are eased

4. Financial Policies for Borrowers

Policies designed to improve access to capital as well as provide relief for borrowers.

Policy Name Intended Effect
State loans or credit guarantees Ensures businesses of all sizes have adequate access to capital
Restructuring of loan terms or moratorium on payments Provides borrowers with financial assistance by altering terms or deferring payments

Putting Policies Into Practice

Let’s take a closer look at how these policy tools are being applied in the real world, particularly in the context of how central banks are battling the effects of the COVID-19 pandemic.

1. Monetary Policies

So far, many central banks have enacted expansionary monetary policies to boost slowing economies throughout the pandemic.

One widely used tool has been policy rate cuts, or cuts to interest rates. The theory behind rate cuts is relatively straightforward—a central bank places downward pressure on short-term interest rates, decreasing the overall cost of borrowing. This ideally stimulates business investment and consumer spending.

If short-term rates are already near zero, reducing them further may have little to no effect. For this reason, central banks have leaned on asset purchase schemes (quantitative easing) to place downward pressure on longer-term rates. This policy has been a cornerstone of the U.S. Federal Reserve’s (Fed) COVID-19 response, in which newly-created currency is used to buy hundreds of billions of dollars of assets such as government bonds.

When the media says the Fed is “printing money”, this is what they’re actually referring to.

2. External Policies

External policies were less relied upon by the systemically important central banks covered in today’s graphic.

That’s because foreign currency interventions, central bank operations designed to influence exchange rates, are typically used by developing economies only. This is likely due to the higher exchange rate volatility experienced by these types of economies.

For example, as investors flee emerging markets, Brazil has seen its exchange rate (BRL/USD) tumble 30% this year.

In an attempt to prevent further depreciation, the Central Bank of Brazil has used its foreign currency reserves to increase the supply of USD in the open market. These measures include purchases of $8.8B in USD-denominated Brazilian government bonds.

3. Financial Policies for Banks

Central banks are often tasked with regulating the commercial banking industry, meaning they have the authority to ease restrictions during economic crises.

One option is to ease the countercyclical capital buffer. During periods of economic growth (and increased lending), banks must accumulate reserves as a safety net for when the economy eventually contracts. Easing this restriction can allow them to increase their lending capacity.

Banks need to be in a position to continue financing households and corporates experiencing temporary difficulties.

—Andrea Enria, Chair of the ECB Supervisory Board

The European Central Bank (ECB) is a large proponent of these policies. In March, it also allowed its supervised banks to make use of their liquidity buffers—liquid assets held by a bank to protect against unexpected cash flow needs.

4. Financial Policies for Borrowers

Borrowers have also received significant support. In the U.S., government-sponsored mortgage companies Fannie Mae and Freddie Mac have announced several COVID-19 relief measures:

  • Deferred payments for 12 months
  • Late fees waived
  • Suspended foreclosures and evictions for 60 days

The U.S. Fed has also created a number of facilities to support the flow of credit, including:

  • Primary Market Corporate Credit Facility: Purchasing bonds directly from highly-rated corporations to help them sustain their operations.
  • Main Street Lending: Purchasing new or expanded loans from small and mid-sized businesses. Businesses with up to 15,000 employees or up to $5B in annual revenue are eligible.
  • Municipal Liquidity Facility: Purchasing short-term debt directly from state and municipal governments. Counties with at least 500,000 residents and cities with at least 250,000 residents are eligible.

Longer-term Implications

Central bank responses to COVID-19 have been wide-reaching, to say the least. Yet, some of these policies come at the cost of burgeoning debt-levels, and critics are alarmed.

In Europe, the ECB has come under scrutiny for its asset purchases since 2015. A ruling from Germany’s highest court labeled the program illegal, claiming it disadvantages German taxpayers (Germany makes larger contributions to the ECB than other member states). This ruling is not concerned with pandemic-related asset purchases, but it does present implications for future use.

The U.S. Fed, which runs a similar program, has seen its balance sheet swell to nearly $7 trillion since the outbreak. Implications include a growing reliance on the Fed to fund government programs, and the high difficulty associated with safely reducing these holdings.

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Source: https://www.visualcapitalist.com/how-u-s-consumers-are-spending-differently-during-covid-19/

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