lunes, 25 de marzo de 2013

Global Economics from Bloomberg BusinessWeek


Europe's Cyprus Crisis Has a Familiar Look
Opening Remarks
Europe's Cyprus Crisis Has a Familiar Look
 
To most of the world, the banking crisis that broke out in Cyprus in mid-March was as abrupt and unexpected as an outbreak of Ebola. For Cypriots, it wasn’t sudden at all. Many opportunities to steer the country in a better direction came along over the years but were missed or never tried. Now the misbegotten decision by European finance ministers to tax the accounts of ordinary depositors to help pay for a bailout of the country’s biggest banks has become a source of continentwide embarrassment.
 
The bailout mess roiling the capital of Nicosia and the financial hub of Limassol has plenty of only-in-Cyprus color: Russian oligarchs doing biznes in the sunny Mediterranean, a simmering conflict with Turkey, a former president who was educated in Soviet-era Moscow. Underneath the details, though, is a frustratingly familiar pattern. A small country cleans up its act and joins the international financial community. Money pours in from abroad. The cash is spent or lent unwisely under the noses of inattentive or ineffectual regulators. When losses mount, the money flows out as quickly as it came in. In the end, it’s the little guys who lose the most.
 
Only five years ago, Cyprus seemed to be in a sweet spot. The country had teetered on the edge since a war in 1974 that left the northern third of the island under Turkish control. For years it also had shaky government finances and a reputation as a haven for foreign money launderers and tax evaders. But successive governments worked hard to lose those bad habits as the price for admission to the European club. Cyprus balanced its budget (for two years, anyway). And it tightened banking regulations so successfully that today it’s in better compliance with the 36-nation Financial Action Task Force’s rules on money laundering than Germany, France, or the Netherlands.
 
Cyprus was the richest of the 10 countries that joined the European Union in 2004. Just four years later it dropped its currency, the pound, in favor of the euro. There was a brief episode of capital flight after the Lehman Brothers failure in 2008, but it was soon reversed.
 
For a time, being inside the EU and the euro zone benefited both Cyprus and foreigners eager to invest there. It made the country—whose population of 800,000 or so is no bigger than that of Jacksonville, Fla.—more attractive as a place to do business. It particularly lured wealthy Russians, who appreciated the country’s strong protection of property rights beyond Moscow’s reach and its 10 percent corporate income tax rate (Europe’s lowest), not to mention the balmy weather and a shared Orthodox faith. The storefronts of Limassol are plastered with signs in Cyrillic.
 
Roman Abramovich, the oligarch whose properties include London’s Chelsea Football Club, operates Evraz (EVR), his steel, mining, and vanadium business, through a limited liability company called Lanebrook in downtown Nicosia. There’s no evidence to support German parliamentarians’ allegations that Cyprus is a haven for tax evaders. In January even Russian tax authorities gave Cyprus a clean bill of health.
 
The problem—again, a familiar one—was that Cyprus’s two biggest banks couldn’t manage the flood of deposits.
 
Cypriot regulators fell short as well. Athanasios Orphanides, who worked for the U.S. Federal Reserve before becoming governor of the Central Bank of Cyprus in 2007, realized the hot money could cause bubbles and inflation in the domestic economy, so he limited the share that could be lent domestically. Fine, except the big two—the Bank of Cyprus (BOC) and the Cyprus Popular Bank—simply shoveled the money westward into loans in Greece. Greek government bonds were particularly attractive because they offered higher yields at supposedly zero risk—since everyone knows sovereigns don’t default, right?
 
A picaresque character in the sorry tale is the wealthy Greek businessman Andreas Vgenopoulos, a former national fencing champion who is nonexecutive chairman of Marfin Investment Group (MIG). He bought Cyprus Popular Bank in 2006, renamed it Marfin Popular Bank, and led a rapid, risky expansion in Greece. It ended with the Cyprus government forcing him out and seizing control, but not before his derring-do induced the Bank of Cyprus to take similar risks to keep pace. Vgenopoulos’s bank lent money to people who used proceeds of the loans to buy shares in his other business, Marfin Investment Group. Vgenopoulos says there’s nothing wrong with that. This January he sued Cyprus, asking it to give him back the bank and pay damages.

Once Greece hit the skids in 2010, it was inevitable that Cyprus would follow. Already by 2011 the government was effectively prevented from selling bonds by a junk credit rating. It resorted to a €2.5 billion ($3.2 billion) loan from the Russian government, due in 2016. The killer, though, was the pact reached in October 2011 to reduce the value of Greek government bonds by 70 percent. That produced a loss to the Cyprus banks of more than €4 billion—the same in proportion to the economy’s size as a $4 trillion loss in the U.S. President Demetris Christofias, seemingly not realizing the severity of the blow, agreed to the haircut without seeking offsetting aid for Cypriot banks. He eventually sought a bailout, but, befitting a left-wing politician who earned a doctorate in history in the Soviet Union, dragged his heels on cutting government spending while inveighing against the “troika” of the European Union, the European Central Bank, and the International Monetary Fund. Losses mounted.
 
Which brings us to the current cock-up. Germany’s parliament insisted that creditors of the big Cyprus banks share the pain of the bailout. The banks have few private bondholders, so that left depositors. President Nicos Anastasiades, a right-wing politician who succeeded Christofias in February, reluctantly agreed to the tax on bank deposits in negotiations with the troika. But on March 19, Cyprus’s parliament rejected the deposit tax by a 36-0 show of hands. Banks remained closed as the crisis dragged on, and frightened Cypriots lined up at cashless ATMs. One man was arrested for trying to bulldoze his way into a bank.
 
Prize in Economics in 2010, is only slightly less incensed than the bulldozer man. In an e-mail exchange, the London School of Economics professor said he was “appalled” by the troika’s gambit. “Small countries be warned when joining the euro zone,” he wrote. “You could be bullied anytime by your big brothers if it suits their political objectives.” Bullying of Cyprus aside, the macroscale fear is that depositors will expect the same thing to happen in Greece, Portugal, and so on. If they yank their money out as a precaution, that could cause the failure of even healthy banks.
 
In retrospect, most or all of this could have been avoided if Cypriot banks had been prevented from lending so heavily to Greece. Once it was clear that the Central Bank of Cyprus was underregulating, the European Central Bank should have made noise, even though at the time it lacked authority to dictate terms. When the halloumi hit the fan, the EU, ECB, and IMF should have stood by Cyprus unconditionally. The time for tough love is before the crisis, not during it.
 
Now it’s all about keeping Cyprus from collapsing while appeasing creditor nations like Germany. “This is not the end of the process but instead kicks off a further round of negotiation with Moscow and Berlin,” Alexander White, a European political analyst at JPMorgan Chase (JPM) in London, said in a note. That Europe’s leaders resorted to this plan shows just how limited their options have become—which is why it’s so important to avoid getting into jams like this in the first place. When will we learn?
 

jueves, 21 de marzo de 2013

Small Business:This Week's Top Story from Bloomberg BusinessWeek


Paul Graham of Y Combinator and Charlie Rose talk during TechCrunch Disrupt New York in 2011

Paul Graham of Y Combinator and Charlie Rose talk during TechCrunch Disrupt New York in 2011

Technology

Waiting for the Accelerator Bubble to Pop
Posted by: on March 14, 2013
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Since Paul Graham launched Y Combinator in 2005, the field of startup incubators and accelerators has exploded in the U.S. and overseas, with new entries emerging in all manner of oddball shapes and sizes, from a 80,000-square-foot space in San Jose, Calif., dedicated to tech companies hoping to do business in China, to a program that offers entrepreneurs cash to develop their business in Chile.
There are accelerators for green tech, health tech, ed tech, the cloud, and every other tech flavor du jour, and accelerators everywhere from Baton Rouge to Durham, N.H., as cities across the country lay claim to the title of the Silicon Valley of [insert industry here].

There’s Unreasonable at Sea, a 100-day program on an ocean liner, which encourages entrepreneurs to “combat the greatest challenges of our time” while sailing among ports in 13 countries. There’s Brad Feld, TechStars co-founder and Foundry Group managing director, who bought a three-bedroom house in Kansas City and is using it to launch a co-working space that sounds a little bit like MTV’s The Real World meets Google Fiber.
There’s even a startup incubator housed in California’s San Quentin State Prison, though to be fair, the program’s founder, venture capitalist Chris Redlitz, told Reuters that the jailhouse incubator isn’t a play to develop investment ideas as much as a means to teach entrepreneurial skills.

It’s enough to make you wonder, with apologies to the folks at San Quentin, whether accelerators are the cutting edge in launching innovative businesses or something more resembling college study abroad: a transformational experience for a few, an extended jaunt for the rest.

Accelerator programs, as typically defined, make a small equity investment in the companies they accept and offer space and mentoring to entrepreneurs over the course of several months. (Business incubators, which have been around for decades, generally provide space as well as business services and give companies more time to hatch, though according to Jasper Welch, chief executive of the National Business Incubation Association, the line between accelerators and incubators is blurring.)

As accelerators have become an increasingly popular way to scatter seed funding among a large number of companies, critics have noted two key developments: Companies of lesser promise are gaining acceptance, and often funding, and the quality of mentoring in the programs has decreased.

When David Tisch, former managing director of TechStars’ New York City accelerator, stepped down from his role with the program, he complained in an interview that “the majority of accelerators are not good for companies.”

The result is that venture capitalists have begun to predict that accelerators are going to fail. “If we get out of 2013 without some noteworthy contraction, I’d just be gobsmacked,” says Paul Kedrosky, an early-stage investor and senior fellow at the Kauffman Foundation.

There are already signs of paring back. In December, Y Combinator’s Graham wrote about his accelerator’s decision to reduce its class size, from 84 companies in the summer 2012 class to less than 50 in the current session. When 500 Startups, an elite Silicon Valley accelerator, announced plans to move into the New York market at the beginning of the year, it decided that the city didn’t need another accelerator and opted to open a co-working space instead.

The contraction hasn’t been universal. TechStars, one of the accelerators that Kedrosky ranks among the best, launched three new programs—one in London, one in Chicago, and one focusing just on education technology in New York—in the first two months of this year. And there isn’t enough academic research on accelerators to judge the value of the programs, says Dane Stangler, the acting director of research and policy at the Kauffman Foundation. (Stangler does say that there’s “significant research on incubators, and the weight of it isn’t positive.”)

One study, conducted by Houston’s VC Aziz Gilani last year, showed that only two accelerators—Y Combinator and TechStars—had produced meaningful exits for company founders. Forty-five percent of the programs he included failed to produce a single graduate who raised venture funding. That squares with Kedrosky’s investing approach to accelerator companies: “If they’ve gone through a top program, it’s interesting,” he says. “If it’s not one of the top ones, it just tells me you’re alive.”

Meanwhile, the ongoing Series A crunch means that accelerator companies are fighting for less venture funding. And, to revisit the study abroad analogy, it’s easy to wonder whether more companies would be better served by skipping the entrepreneurial equivalent of chaperoned semester in Europe and setting out on their own to explore the world.
Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.


jueves, 14 de marzo de 2013

Boomberg BusinessWeek: Small Business: This Week's Top Story

Coming to a City Near You: Chinese Business Incubators
By on March 07, 2013

Chinese Vice President Xi Jinping (L) meets with Vice President Joe Biden regarding increased trade in Los Angeles, Feb. 16

Chinese Vice President Xi Jinping (L) meets with Vice President Joe Biden regarding increased trade in Los Angeles, Feb. 16

 Hanhai zPark is an 80,000-square-foot incubator for tech startups that opened last June in San Jose. It’s backed by investors from China, including the largest state-owned developer of business parks in Beijing. The group plans to open a biotech incubator twice the size in South San Francisco, near Genentech’s campus, by the middle of 2013. They’re searching for a third Bay Area property to turn into a 200,000-square-foot space for clean tech companies next year.
By the time they’re done, the combined incubators will hold space, for startups, greater than seven NFL fields, or enough to occupy about one-fifth of the Empire State Building. All these offices and labs are meant to house young companies eager to do business in China and Chinese startups expanding to the U.S. Hanhai zPark is scouting spaces in Boston and other cities, as well. “There’s a huge demand from cities all over the U.S. that they need investors from China to grow their industries and jobs,” says Victor Wang, president of Hanhai zPark.
The money flowing from China to buy U.S. properties and companies reached a record $6.5 billion last year, up 17 percent from a year earlier, according to Rhodium Group, a research and advisory firm. Hanhai zPark isn’t the first China-focused incubator to open in Silicon Valley last year: InnoSpring, a Santa Clara space whose backers include Chinese real estate developers, opened a few months earlier.
Why park big new incubators in an area already packed with them? Existing ties between China and the Bay Area make Silicon Valley a natural home to ventures like Hanhai zPark. Many Chinese-born entrepreneurs go to Stanford or work at U.S. tech companies in the valley. Wang, himself a native of Harbin, in northern China, went to Stanford business school before starting his own health IT venture. About a year and a half ago, leaders from Hanhai, a privately held operator of five big business incubators in China, and zPark, a state-owned developer of the largest science and tech park in China, approached him about running a space for startups in the U.S. Xi Jinping, China’s incoming president, and Vice President Joe Biden touted the deal during meetings in Los Angeles and Washington last year.
The space available may be growing faster than demand. Hanhai zPark has about 40 tenants so far, but it has room for as many as 100 or 200, depending on the space they need. About a three-quarters of the tenants are American companies, many founded by Chinese immigrants or Americans of Chinese heritage, Wang says. The rest are Chinese companies exploring the U.S. market.
On top of offering the usual incubator services, such as legal and accounting help, Hanhai zPark will invest directly in some of its tenant companies through a $5 million angel fund. It will also make introductions to people in business and government on the mainland. “We’ll connect [startups'] needs to the Chinese partners in different cities,” Wang says.
Those connections, along with ample capital, are the main attraction for American companies considering seeking investors from China. “That differentiates them from other venture investors, particularly in sectors where there’s a high political risk, like digital services,” says Thilo Hanemann, research director at Rhodium Group, who tracks Chinese investment flows.
That can help startups crack a market where even multinationals such as Google (GOOG) have stumbled. Still, companies face risks doing business on the mainland, where the legal protections taken for granted in the U.S. and Europe don’t exist. In China, “there’s no rule of law that protects individuals and companies against the government,” Hanemann says.
Expect the pace of Chinese investment in the U.S. to accelerate. Hanemann notes that while the growth in cross-border investment gets a lot of attention, China is really playing catch up. “If you think about China as the world’s second-largest economy, the right question to ask is why have they not been more active?” he says. Part of the reason is that the government has only recently made it easier for wealth to move beyond China’s borders. “There’s a lot of channels through which Chinese corporations and funds can shovel money into the U.S. now,” Hanemann says.
Tozzi is a reporter for Bloomberg Businessweek in New York.

 

jueves, 7 de marzo de 2013

Convoca CAMACOL a Concurso para empresarios por $250,000.00



Small Business: From Bloomberg BusinessWeek

This Week: Human Capital 
By on March 01, 2013

Startup Money—for a Piece of Your Future Paycheck


Young people who can show they’ll earn a decent living in the future should be able to access some of that wealth now. So says Upstart, a new type of lender based in Silicon Valley. It matches wealthy folks willing to front money to college students and recent grads.


Generally within one year of accepting the money, recipients have to start repaying backers. The twist: Rather than return the specific amount, they agree to pay a chunk of their annual income, as reported on their tax returns, for 10 years.
 
Upstart, which accepts applicants from 30 states in which it has lending licenses or where no licensure is required, has big ambitions: “We’re trying to create a fundamentally new category of finance that theoretically is applicable to any person in the world,” says Jeff Keltner, who co-founded the venture with former colleagues from Google (GOOG). The website launched in August and started accepting profiles in September. (Upstart isn’t the only business pushing this model, as the Verge pointed out earlier this week.)
 
The money might enable participants, dubbed “upstarts” by Upstart, to enroll in coding boot camp, pay off college loans, or start businesses. “The thing that’s new is you’re investing in an individual and their personal potential,” says Keltner. With today’s crushing levels of student loan debt, “we see so many students coming out saying: ‘I can’t turn down this job, because I have this $700 a month loan payment … trying my own thing is just crazy.’”
 
Backed by $5.25 million from investors that include Kleiner Perkins Caufield & Byers, First Round Capital, and Mark Cuban, Upstart doesn’t intend to squeeze struggling people. Payments are waived as long as the recipient earns less than $30,000 in a year. (However, Upstart will extend the term of payments one year at a time per low year, for a maximum contract of 15 years.) Payments to backers are capped at five times their original investment.
Kathleen Day, a spokesman at consumer advocacy group Center for Responsible Lending, hasn’t studied Upstart’s service. But she says my description of it “raises red flags because it sounds like it would be very hard for the person borrowing the money to have a reasonable idea of what they’re going to have to pay” in the future. Upstart’s money, she notes, may keep recent grads from being tied to a job for a stint, but it doesn’t erase their previous debts. “There’s a whole range of people [earning more than] $30,000 for whom paying a portion of their salary for the next 10 years would be a severe financial hardship.”
 
To predict applicants’ future income, Upstart funnels personal information on the application—such as credit history, SAT scores, major, and schools attended—into a statistical model that compares the applicant to others. The money’s intended use is displayed on the applicant’s profile but isn’t factored into the income calculation. If an art history major from a state school pledges 1 percent of income, he or she might get roughly $5,000 from a backer, while a former Blackstone Group (BX) associate who attended Harvard Business School would get closer to $20,000, Keltner explains.
 
Trina Spear, who fits the latter profile, used the money she got through Upstart to join medical apparel company FIGS Scrubs as co-founder in February. The risk profile is better than angel investing in a startup, says Keltner. For example, he says, if Spear’s company fails, “she’ll get a job. And she’ll probably get a pretty good paying job and [her Upstart backer] will get a portion of that income.”
 
The target annualized return for backers is 8 percent. That’s just a target and will only happen in the “highly unlikely” event that the upstart’s income matches Upstart’s statistical model exactly and the borrower pays the income share due, Keltner explains. If Upstart is wrong, backers will earn less—or more. Backers, he notes, “could lose their investment entirely if the upstart makes less than $30,000 for 15 years after funding, but we think this is fairly unlikely for the upstart cohort we have.” Upstarts can pledge no more than 7 percent of their future income.
 
While only about 10 of its 40-plus upstarts are in repayment phase, none have defaulted, according to Keltner, who says investors might find it attractive to think: “‘I can invest in here and make 8 percent and have it completely unrelated to what happens to my portfolio invested in real estate or equities.’” Upstart makes money by taking 3 percent of what an upstart raises and a 0.5 percent annual fee on funds invested.
 
So far, more than 100 backers have invested a total of over $500,000, which Keltner says isn’t nearly enough volume. That’s why the 10-person venture is exploring ways for investors to bet on a pool of people, rather than just one person. The goal is change the perception of the model from a “peer-to-peer novelty” to a broader “new asset class [that] you can analyze in a more traditional way,” Keltner explains.
 
Upstart has held no discussions of this nature with schools, he says, but “it would make total sense for every endowment fund to be willing to invest in any student who graduates from [their school]. For example, an investor could someday say, ‘I’m a Stanford guy—here’s $50,000, put it in Stanford kids’ … or any other category—say, women engineers” from different schools.
 
Leiber is Small Business editor for Businessweek.com, Entrepreneurs editor for Bloomberg.com, and covers small business for Bloomberg Businessweek