Don’t Let VCs Run Your Business, a Platform for Black Entrepreneurs, and Alex Ohanian Campaigns For Paternity Leave

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TRADE

With tariffs looming, many companies say buying American is not an option: “Window curtain importer S. Lichtenberg & Co., which supplies Walmart Inc., Kohl’s Corp.and Amazon.com Inc., stopped sewing hems and rod pockets at its US facilities in 2007. President Scott Goldstein said restarting that work isn’t on the table. ‘I don’t even know if we can get sewers or what we would have to pay them,’ said Mr. Goldstein, adding that none of the US textile mills or dye houses that the 300-worker company, founded in 1933 and based in New York, used to buy fabric from are still in business.”

Even healthy retailers say that Trump’s threatened China tariffs could be cataclysmic: “Retailers and analysts warn the impact will be disastrous for an industry already tormented by vacant storefronts and deserted malls. The reason: Unlike earlier tariffs that mostly targeted industrial and commercial products, the next round is aimed squarely at consumer goods like footwear, toys and apparel. …

“With profit margins of five to 10 percent, Mr. Cohen said, sellers of apparel and accessories don’t have much room to maneuver. Adding to the challenge, these chains are preparing orders for the make-or-break holiday season. In a letter last month, over 170 shoemakers and retailers called on Mr. Trump to halt the trade war with China, which supplies almost 70 percent of shoes sold in the United States. The industry cannot easily return shoe production to the United States, because labor costs are much higher here and there is little capacity for new production, said Matt Priest, chief executive of the Footwear Distributors and Retailers of America. Even New Balance, which manufactures sneakers domestically, imports some material from China. ‘I do think it’s catastrophic,’ Mr. Priest said. ‘We are in the middle of right-sizing retail here in the US, with fewer brick-and-mortar stores.’”

RETAIL

San Francisco’s North Beach is littered with empty storefronts: “Amazon.com has been around for a quarter-century, and while e-commerce has been on the rise, Census Bureau data show that physical retail revenue is still growing, albeit slowly. Something deeper seems at play in North Beach, where the vacancy rate grew from 13 percent in 2017 to 21 percent in 2018, the sharpest increase in any San Francisco retail district. North Beach now ranks fourth among the city’s 24 recognized neighborhood commercial districts by vacancy rate; the citywide average is 12 percent.

“Among the reasons: Long permitting times and high construction costs, as well as the need for seismic retrofits, which account for a quarter of the neighborhood’s current vacancies. San Francisco’s high rents and labor costs have also hurt. There’s been bad luck, too: Two fires have gutted historic buildings that housed a half-dozen businesses. The problem builds on itself. Vacant storefronts threaten the stability of nearby enterprises, which support each other by circulating customers from coffee shop to art gallery, hair salon to vintage-clothing boutique. ‘There’s so many empty storefronts, it’s not like people are lingering and enjoying their walk,’ said Tracy Andreassen, owner of a women’s clothing boutique called Rendezvous that opened at 1817 Powell St. last year in a space that had been empty for years.”

TAXES

Big businesses are paying less than expected under President Trump’s tax law: “The US Treasury saw a 31 percent drop in corporate tax revenues last year, almost twice the decline official budget forecasters had predicted. Receipts were projected to rebound sharply this year, but so far they’ve only continued to fall, down by almost nine percent or $11 billion. Though business profits remain healthy and the economy is strong, total corporate taxes are at the lowest levels seen in more than 50 years. At the same time, overall taxes paid by individuals under the new tax law are up so far this year by three percent, thanks to higher wages and salaries, according to the Congressional Budget Office.”

A “mind-boggling” tax break may not drive investment dollars to the areas that need it most: “That law made it substantially cheaper to back either real estate projects or operating businesses in one of 8,764 low-income, high-poverty census tracts across the country that have been designated ‘Opportunity Zones.’ One in ten Americans now live in one of the zones, which were chosen by state governors out of the thousands of eligible tracts; they span downtowns, rural areas and desperately poor neighborhoods—as well as upscale urban playgrounds.

“The program’s backers say it will push capital into places that have historically missed out on it, and they intentionally crafted it to be free of the many rules and restrictions that have guided similar programs in the past. Opportunity Zones are not subject to criteria set by state governments like Low Income Housing Tax Credits, for example, or funneled toward mission-driven developers and lenders like New Markets Tax Credits, which allow investors to lower their income taxes by providing capital in depressed communities. In doing so, however, they opened up large tracts that were already magnets for investment, potentially sucking any new dollars away from places that could really use it.”

VENTURE CAPITAL

Even some founders who take investment capital say you should avoid letting a VC run your business: “Vuori clothing, an athleisure brand launched in 2015, is a rarity: The company, which does most of its business direct-to-consumer, has a healthy wholesale operation, a few physical stores of its own and has raised only a small angel funding round to date. The company’s founder, Joe Kudla, joined Digiday on the Making Marketing podcast to talk about why it was important for his business to not go down the VC-funding route when it launched.

“‘It’s nice if you can prove your concept with friends and family and be a little more in the driver’s seat in terms of who you partner with,’ said Kudla, who said Vuori made more than $20 million in revenue last year. ‘If you go straight to the VC community pre-revenue, they’re going to dictate terms. You don’t want a VC running your business. There are ways to find incredible investors that will be helpful to your business and support the growth you’ve defined and built. Vuori will do something institutional, it’s on our roadmap.’”

Are black founders more likely to be forced out of their businesses by investors? “Not too long before [Brian] Brackeen’s ousting, he was outspoken about his refusal to sell his facial recognition technology for the use of law enforcement, citing issues with racial bias. ‘For law enforcement systems relying on Face Recognition to identify suspects using mug shot databases—accuracy, particularly in the case of dark-skinned people, can mean the difference between disproportionate arrest rates and civil equality,’ he wrote in a blog post in 2018.

“A lawsuit Brackeen filed against the Kairos board and reviewed by Black Enterprise, alleges that an investor pressured Brackeen to reconsider selling the company’s tech to law enforcement and that a ‘fundamental clash’ ensued, setting the board and investors ‘on a mission to push Brackeen out of Kairos.’ Then things got ugly. Members of the board accused Brackeen of being a thief, even creating an itemized list of purchases they claim were charged to Kairos and had nothing to do with company business. They accused him of using company funds for unauthorized trips, meals, and other expenses that some would say many CEOs routinely charge to corporate accounts. Brackeen denied the allegations and filed a countersuit.”

Sherrell Dorsey has turned her daily newsletter, ThePLUG, into a platform that is attempting to increase financing for black entrepreneurs: “‘A lot of times investors are looking for patterns in data,’ Dorsey told me by phone from Harlem. ‘So when that information is not shared in public’ it can negatively impact investment. Dorsey believes this lack of data around issues affecting the new majority of American consumers may prevent mostly white venture capital investors from understanding the problems solved by black business owners.

“By reporting stories of black entrepreneurship in ThePLUG, Dorsey is improving the flow of information that eases conversation—and moves dollars—between founders and investors. ‘The conversation was veering off to, There’s no black people in tech,’ she said. ‘But the challenge is, most of the press has been dominated by Mark Zuckerberg this and Elon Musk that.’”

STARTUPS

Elizabeth Warren wants to give $7 billion in grants to minority entrepreneurs: “States and municipalities would play a role in administering Ms. Warren’s proposed program, the Small Business Equity Fund. They would be responsible for tasks such as enforcing conflict-of-interest rules and collecting data on outcomes, according to an outline of Ms. Warren’s plan. ‘Why $7 billion in funding? That’s enough to ensure that if Black, Latinx, and Native American entrepreneurs started businesses at the same rate as white entrepreneurs, we could fully close the startup capital gap for every single one of these new minority-owned businesses for the next ten years,’ Ms. Warren wrote on the blogging site Medium, where she often unveils policy proposals.”

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TECHNOLOGY

Amazon is getting sued because its Echo and Echo Dot devices are allegedly saving recordings of children. “[The] suits are about the Alexa assistant and Echo devices more broadly, not just the FreeTime service for kids. The suits name nine states—Florida, California, Illinois, Michigan, Maryland, Massachusetts, New Hampshire, Pennsylvania and Washington—that prohibit recording conversations without the consent of children or their parents. ‘At no point does Amazon warn unregistered users that it is creating persistent voice recordings of their Alexa interactions, let alone obtain their consent to do so,’ the lawsuits allege.”

HUMAN RESOURCES

Reddit co-founder (and recent dad) Alex Ohanian’s newest project is campaigning for companies to guarantee paternity leave with his Pledge for Paternity Leave partnership with Dove: “Only one out of five dads in the US have access to paid leave, and far fewer have the ability to take it, and we want to change that. … This is basically a by-product of the bar being set so incredibly low for dads; we celebrate celebrity fathers just for acknowledging they have children. …

“I call out hustle porn for its BS and celebrate founders who are taking care of themselves and spending time with their families because it’s the right business decision. I say this as a founder of a billion-dollar company, and as an early stage investor. At the end of the day, the greatest business outcomes come with sacrifice and discipline and hard work, but you and your people still have to do the work, and there are diminishing marginal returns in output.”

CRYPTOCURRENCY

The new g0-to destination for blockchain could be …Wyoming. “Until recently, strict money-transmitter laws meant residents there couldn’t even use a Coinbase account. But over the past two years, Wyoming has enacted 13 blockchain laws, with a raft of other proposals on the way. … Wyoming’s push is a reflection of the nation’s patchwork of state laws, created in the absence of clear federal rules. Some, like New York, favor rigorous regulation. The state’s Bitlicense regime, which began in 2015, involves a strict vetting process for companies that want to deal with New York residents, prompting complaints that it deters innovation. Legislators in Wyoming, as well as neighboring Colorado and Montana, see that as an opening.”

OXFORD STRATEGIC ADVISORY DEAL OF THE DAY  

Albeck Gerken, a provider of traffic operations engineering services, was acquired by Iteris, a provider of intelligent information solutions for the traffic management market, for $10.7 million. The deal value is for a 1.32x multiple of revenue and a 5.35x multiple of EBITDA.

M&A

Rabbit Hole Distillery, a producer of alcoholic beverages, was acquired by Pernod Ricard USA, a spirits and wine company.

Next Chapter Treatment Center, an all-male addiction and trauma program, was acquired by APN Lodge, a multi-service lodge that offers programs for athletics, executive acceleration, health and behavioral treatment.

SUCCESSION

The death of Denver Broncos owner Pat Bowlen demonstrates yet again the importance of having a solid succession plan: “For all the stability Mr. Bowlen provided to the Broncos, their future is cloudy. He put the team in a trust with the goal of having one of his children take over. To be considered to succeed him, the three trustees he had appointed established a set of requirements that would first have to be met, including having experience in club operations and an advanced academic degree.

“Beth Bowlen Wallace appeared to be the farthest ahead. She went to law school and worked for the team, but in 2015 her position with the Broncos was eliminated. Then, in 2018, Ms. Wallace and Brittany Bowlen, who is nearly 20 years Ms. Wallace’s junior, both declared their interest in running the team. The dispute deepened when Pat Bowlen’s brother Bill filed a civil claim in state court in Colorado that accused the trustees of self-dealing. Bill and his brother John have publicly supported Beth Bowlen Wallace’s candidacy.”

And that’s what’s ahead.

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com.

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