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Warren Buffett loaned $300 million to Harley-Davidson during the financial crisis. Here’s the story of how he helped the motorcycle maker.

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Warren Buffett motorcycleReuters

  • Warren Buffett loaned about $300 million to Harley-Davidson during the financial crisis.
  • “It was the bridge we needed to get us through a rough time,” the motorcycle maker’s finance chief said in 2014.
  • Buffett’s Berkshire Hathaway probably netted about $150 million in profit from the five-year loan, but could have made more than $1 billion if it had invested $300 million in Harley-Davidson stock over the same period.
  • “I knew enough to lend them money; I didn’t know enough to buy the equity,” Buffett later explained.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett loaned a little over $300 million to Harley-Davidson in February 2009, when the famous motorcycle maker was reeling from a one-two punch of weaker demand and a cash crunch during the financial crisis.

A few weeks earlier, Harley-Davidson unveiled a three-part plan to weather the downturn: invest in its brand, cut costs, and find the money to cover its financing division’s roughly $1 billion in yearly costs.

The first two elements translated into targeting younger and more diverse riders; closing plants, combining operations, and outsourcing some distribution; and laying off about 1,100 employees or about 12% of its workforce.

However, paralyzed credit markets made it tricky to fulfill the third part of the plan. The company ultimately decided to borrow from its largest shareholder, Davis Selected Advisers, as well as Buffett’s Berkshire Hathaway.

The pair effectively loaned it a combined $600 million for five years at a hefty 15% annual interest rate.

“It was the bridge we needed to get us through a rough time,” Harley-Davidson’s finance chief, John Olin, told Fortune magazine in 2014.

The group needed the cash to continue offering financing to motorcycle dealerships and retail customers, and to keep its production lines humming, Olin continued.

The high-interest loan was its only option to borrow money without giving up a stake in the company, he added.

Read more: Famed short-seller Andrew Left lays out his methodology for finding the stock market’s weakest links — and says he’s terrified of newbie day-traders that think they can outsmart Carl Icahn and Warren Buffett

‘I knew enough to lend them money’

Buffett struck a bunch of similar deals during the crisis. For example, he invested $5 billion in Goldman Sachs and $3 billion in General Electric in the fall of 2008.

“Credit remained virtually nonexistent,” Alice Schroeder said about that period in “The Snowball: Warren Buffett and the Business of Life.”

“Buffett lent at interest rates that in some instances bordered on usurious.”

The famed investor also showed his ruthlessness by refusing Harley-Davidson’s request to repay its loan early. Berkshire said it was happy with the agreed terms, the company told Fortune.

Buffett likely netted a healthy $150 million in profit from the loan. However, he could have raked in upwards of $1 billion by investing the $300 million in Harley-Davidson stock instead, as its shares more than quadrupled in value between 2009 and 2014.

A shareholder asked Buffett why he opted for debt instead of equity during Berkshire’s annual meeting in 2010.

“I knew enough to lend them money; I didn’t know enough to buy the equity,” the investor replied.

“I kind of like a business where your customers tattoo your name on their chest,” he continued. “But figuring out the economic value of that … I’m not sure even going out and questioning those guys I’d learn much from them.”

Buffett made the loan because he was confident at the time that “a) Harley-Davidson was not going out of business, and that b) 15% was going to look pretty damned attractive.”

Read more: Mark Minervini says he raked in a 33,554% return over 5 years using a simple stock-trading strategy. Here are his 7 secrets to ‘superperformance.’

Keeping it simple

Berkshire made “very good money” by making a simple judgement that the company wouldn’t go broke and lending it money, Buffett said at the meeting.

Buying its stock would pose tougher questions such as whether the motorcycle market would shrink or Harley-Davidson’s margins would suffer from the downturn, he added.

Crisis deals such as the Harley-Davidson loan also showed how Berkshire policy of keeping some cash in the bank and never going all in on stocks can pay off handsomely, Buffett argued.

“We felt very good about where that philosophy left us,” he said. “We actually could do things at a time when most people were paralyzed, and we’ll keep running it that way.”

Source: https://markets.businessinsider.com/news/stocks/warren-buffett-loaned-300-million-harley-davidson-2009-financial-crisis-2020-6-1029306090

Publications

Security and Sustainability Forum-With Hazel Henderson and Claudine Schneider. 10/22/2020

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Steering Societies Beyond GDP to the SDGs

With Hazel Henderson and Claudine Schneider

October 22, 2020

1:15 pm to 2:15 pm EDT

The next webinar in the SSF series, with ecological economist and futurist Hazel Henderson, will address how the UN SDGs can and should replace GDP as the basis for valuing society leading to an economy based on planet protection and human wellbeing. Claudine Schneider is Hazel’s guest.

GDP accounts for all the public expenditures as “debt” while ignoring the value of the assets they created. If GDP were to be corrected by including the missing asset account, these debt-to-GDP ratios would be cut by up to 50% — with a few keystrokes! Learn why money isn’t what you think it is and why that matters to life on Earth in the next two webinars with Hazel and guests.

Register

Claudine Schneider is a former Republican U.S. representative from Rhode Island. She was the first, and to date only, woman elected to Congress from Rhode Island. She is founder of Republicans for Integrity, which describes itself as a network of “Republican former Members of Congress who feel compelled to remind Republican voters about the fundamentals of our party and to provide the facts about incumbents’ voting records.”

October 22nd webinar with Claudine Schneider and Hazel

Sincerely,

Ed.

Edward Saltzberg, PhD

Executive Director

Security and Sustainability Forum

www.ssfonline.org

[email protected]

Sincerely,

Ed.

Edward Saltzberg, PhD

Executive Director

Security and Sustainability Forum

www.ssfonline.org

Source: https://www.ethicalmarkets.com/63564-2/

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The Briefing: RVShare raises over $100M, Google disputes charges, and more

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Here’s what you need to know today in startup and venture news, updated by the Crunchbase News staff throughout the day to keep you in the know.

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RVShare raises over $100M for RV rentals

RVShare, an online marketplace for RV rentals, reportedly raised over $100 million in a financing led by private equity firms KKR and Tritium Partners.

Akron, Ohio-based RVShare has seen sharp growth in demand amid the pandemic, as more would-be travelers seek socially distanced options for hitting the road. Founded in 2013, the company matches RV owners with prospective renters, filtering by location, price and vehicle types.

Previously, RVShare had raised $50 million in known funding, per Crunchbase data, from Tritium Partners. The company is one of several players in the RV rental space, and competes alongside Outdoorsy, a peer-to-peer RV marketplace that has raised $75 million in venture funding.

Funding news

  • BrightFarms closes on $100M: Indoor farming company BrightFarms said it secured more than $100 million in debt and new equity capital to support expansion plans. The Series E round of funding was led by Cox Enterprises, which now owns a majority stake in the company, and includes a follow-on investment from growth equity firm Catalyst Investors.
  • Anyscale inks $40MAnyscale, the Berkeley-based company behind the Ray open source project for building applications, announced $40 million in an oversubscribed Series B funding round. Existing investor NEA led the round and was joined by Andreessen Horowitz, Intel Capital and Foundation Capital. The new funding brings Anyscale’s total funding to more than $60 million.
  • Klar deposits $15M: Mexican fintech Klar closed on $15 million in Series A funding, led by Prosus Ventures, with participation from new investor International Finance Corporation and existing investors Quona Capital, Mouro Capital and Acrew. The round brings total funding raised to approximately $72 million since the company was founded in 2019. The funds are intended to grow Klar’s engineering capabilities in both its Berlin and Mexico hubs.
  • O(1) Labs rakes in $10.9M: O(1) Labs, the team behind the cryptocurrency Mina, announced $10.9 million in a strategic investment round. Co-leading the round are Bixin Ventures and Three Arrows Capital with participation from SNZ, HashKey Capital, Signum Capital, NGC Ventures, Fenbushi Capital and IOSG Ventures.
  • Blustream bags $3M: After-sale customer engagement company Blustream said it raised $3 million in seed funding for product usage data and digital transformation efforts for physical goods companies via the Blustream Product Experience Platform. York IE led the round of funding for the Worcester, Massachusetts-based company with additional support from existing investors.Pillar secures another $1.5M: Pillar, a startup that helps families protect and care for their loved ones, raised $1.5 million in a seed extension to close at $7 million, The round was led by Kleiner Perkins.

Other news

  • Google rejects DOJ antitrust arguments: In the wake of a widely anticipated U.S. Justice Department antitrust suit against Google, the search giant disputed the charges in a statement, maintaining that: “People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives.”
  • Facebook said to test Nextdoor rival: Facebook is reportedly testing a service similar to popular neighborhood-focused social Nextdoor. Called Neighborhoods, the feature reportedly suggests local neighborhood groups to join on Facebook.

Illustration: Dom Guzman

Venture investors and leaders in the fintech space can visualize a future where such startups will move toward again rebundling services.

Root Inc., the parent company of Root Insurance, launched its initial public offering and is looking at a valuation of as much as $6.34 billion.

Clover Health posted rising revenues and a narrower loss in its most recent financial results, published in advance of a planned public market debut.

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

Source: https://news.crunchbase.com/news/briefing-10-21-20/

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Syte Sees $30M Series C For Product Discovery

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Online shopping has become the norm for most people in 2020, even coaxing traditional retail brands to up their presence to stay competitive. However, now that shoppers can’t see and touch products like they used to, e-commerce discovery has become a crucial element for customer acquisition and retention.

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Enter Syte, an Israel-based company that touts creating the world’s first product discovery platform that utilizes the senses, such as visual, text and voice, and then leverages visual artificial intelligence and next-generation personalization to create individualized and memorable customer experiences, Syte co-founder and CEO Ofer Fryman told Crunchbase News.

To execute on this, the company raised $30 million in Series C funding and an additional $10 million in debt. Viola Ventures led the round and was joined by LG Technology Ventures, La Maison, MizMaa Ventures and Kreos Capital, as well as existing investors Magma, Naver Corporation, Commerce Ventures, Storm Ventures, Axess Ventures, Remagine Media Ventures and KDS Media Fund.

This brings the company’s total fundraising to $71 million since its inception in 2015. That includes a $21.5 million Series B, also led by Viola, in 2019, according to Crunchbase data.

Fryman intends for the new funding to be put to work on product enhancements and geographic expansion. Syte already has an established customer base in Europe, the Middle East and Africa, and will now focus expansion in the U.S. and Asia-Pacific.

Meanwhile, Syte has grown 22 percent quarter over quarter, as well as experienced a 38 percent expansion of its customer base since the beginning of 2020.

“Since we crossed $1 million annual recurring revenue, we have been tripling revenue while also becoming more efficient,” Fryman said. “We can accelerate growth as well as build an amazing technology and solution for a business that needs it right now. We plan to grow further, and even though our SaaS metrics are excellent right now, our goal is to improve them.”

Anshul Agarwal, managing director at LG Technology Ventures, said Syte was an attractive investment due in part to its unique technology.

“They have a deep-learning system and have created a new category, product discovery that will enable online shopping in a way we never had the ability to do before,” Agarwal said. “The product market fit was also unique. We believe in the strong execution by the team and the rapid growth in SaaS. We looked at many different companies, and the SaaS metrics that Syte showed are the strongest we’ve seen in a while.”

Illustration: Li-Anne Dias

Venture investors and leaders in the fintech space can visualize a future where such startups will move toward again rebundling services.

Root Inc., the parent company of Root Insurance, launched its initial public offering and is looking at a valuation of as much as $6.34 billion.

Clover Health posted rising revenues and a narrower loss in its most recent financial results, published in advance of a planned public market debut.

Crunchbase News’ top picks of the news to stay current in the VC and startup world.

Source: https://news.crunchbase.com/news/syte-sees-30m-series-c-for-product-discovery/

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