Morning Report

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Seed Deals Fall in Silicon Valley and Companies are Gaming Glassdoor

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Good Wednesday Morning,


Because of the shutdown, we could fall into a recessionand not even know it: “A partial shutdown of the US government, which enters its second month on Wednesday, has delayed the publication of key economic data, leaving investors and businesses to follow their intuition and gut instincts as they make critical decisions…

“Businesses including manufacturers, farmers, retailers, builders and others rely on these reports in making decisions on capital spending, production and managing inventory among other activities. Government and private economists count on them to assemble a full picture of the health of the US economy, and financial market participants need them to guide asset allocation decisions.”


Suddenly, far fewer seed deals are getting done and tech firms seem to be losing their optimism: “Messaging startup Hustle projected the picture of Silicon Valley largesse. The company spent millions of dollars raised from investors such as Alphabet Inc. on expensive new hires, on-tap kombucha, arcade games and a six-figure salary for its pedigreed chief executive. So it came as a shock to many employees earlier this month when co-founder and CEO Roddy Lindsay sent them an early-morning email announcing mass layoffs. Before the week was done, even the espresso machine was ripped out of the kitchen at Hustle’s San Francisco headquarters. …

Most startups fail, even in the best of times. Yet a worrying sign is the shrinking of so-called seed deals, essentially the earliest investments in startups. The number of these deals has fallen steadily, dropping to 882 in the fourth quarter from more than 1,500 three years earlier, according to researcher PitchBook…‘The unbridled optimism that inhabits our world,’ said startup investor Sunny Dhillon, ‘is getting a shot of realism.’”


Companies are gaming their ratings on Glassdoor: “Glassdoor has become an important arbiter of employee sentiment in today’s highly competitive job market. A Wall Street Journal investigation shows it can be manipulated by employers trying to sway opinion in their favor.

“An analysis of millions of anonymous reviews posted on Glassdoor’s site identified more than 400 companies with unusually large single-month increases in reviews. Some companies, including Elon Musk’s rocket company Space Exploration Technologies Corp. and software giant SAP SE , have had multiple spikes. During the vast majority of these surges, the ratings were disproportionately positive compared with the surrounding months, the Journal’s analysis shows.”


Despite being courted aggressively, direct-to-consumer brands are choosing not to to sell on Amazon for reasons that include: “Amazon’s refusal to share meaningful customer data, its lack of nuance and expertise in areas like premium fashion, the lack of discoverability on Amazon’s search platform, the inability to track attribution from platforms like Facebook, its general user experience, its faceless customer service and, overall, an ominous feeling that a deal with Amazon was a deal with the devil.”

For brands like DSTLD, a maker of denim clothes, selling on Amazon would be antithetical to their whole direct-to-consumer approach. “‘The only advantage you have in the DTC world today is that you are defensible against Amazon because of your brand. That’s our whole selling point,’ said Mark Lynn, the co-founder of DSTLD. ‘It’s hard to build a long-lasting business in retail: the margins are low, it takes time. But we believe our brand is defensible and if you sell your soul, well, that’s kind of the end of that.’”

Starbucks will soon be available on the Uber Eats app in six major US cities including San Francisco, DC, and NYC, totaling 3,500 stores. But what if the coffee arrives cold or customers burn themselves? The coffee chain says it has developed “new “packaging solutions” to keep coffee hot within the promised 30-minute delivery time.” This is another win for Uber Eats, the fastest-growing meal delivery service in the US.


The FDA is threatening to ban all e-cigarettes: “The Food and Drug Administration says that e-cigarettes face an uncertain future in US markets unless youth smoking rates drop over the next year. Speaking at a public hearing Friday in Silver Spring, Md., FDA Commissioner Scott Gottlieb said he could see the entire category of e-cigarette and vaping products removed from store shelves if companies don’t stop marketing such products to youth.”


Diners tip waitstaff significantly more when they receive their bill in a gold-colored folder, according to a recent study: Apparently, it “makes customers feel like they’re in a restaurant that caters to high-status people. And when people feel like they’re wealthier, they tend to be more inclined to flaunt their wealth.” It’s strange, say researchers, but comports with other studies that have tracked the impact of color on customer behavior: Cool blues encourage lingering longer and spending more in most retail situations, whereas fast-food joints tend to use warm reds and yellows (McDonald’s, anyone?) to move diners through restaurants more quickly.


Fine for anticompetitive behavior? $650 million. MasterCard was just fined by the European Commission for preventing people from using cheaper banking services outside their home country: “Prior to 2015, Mastercard obliged banks receiving card payments to use a fee set in their home country, even if cheaper rates were available elsewhere in the European Union…‘By preventing merchants from shopping around for better conditions offered by banks in other member states, Mastercard’s rules artificially raised the costs of card payments, harming consumers and retailers in the EU.’”


The Oscars might not have a host but this is a revolutionary year in film and nominations yesterday brought a year of firsts. Netflix snagged its first best picture nomination for Golden Globe-winning film “Roma.” Another big first is “Black Panther” became the first-ever superhero movie to get a best picture nom with its near-universal acclaim and $1.3 billion at the box office. Finally, believe it or not, Spike Lee is now officially an Oscar-nominated director for his period piece “BlacKkKlansman.”


Two big hedge-fund investors are circling eBay and suggesting it part ways with its StubHub ticketing and classified-ads businesses: Elliott Management said the “company should focus on revitalizing its core marketplace business…The fund said it thinks StubHub, the popular ticket-reselling platform, could sell for between $3.5 billion and $4.5 billion and eBay’s classified businesses for between $8 billion and $12 billion. Elliott also said the remaining marketplace business, before any improvements, could be worth about $15 billion.”

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