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Investor Alexa von Tobel on the biggest driver of social-media-fueled stock trading

Alexa von Tobel has always felt strongly that too many people are shut out of the stock market. She felt this as a 23-year-old who didn’t have $5,000 to open a brokerage account. She felt it while building LearnVest, a financial planning startup she launched in 2009 and sold in 2015 to Northwestern Mutual for what she says was ultimately $375 million. In fact, von Tobel — who two years ago launched her own venture firm with fellow entrepreneur and former U.S. Secretary of Commerce Penny Pritzker —  cares so much about the yawning gap between investors and non-investors that she has written books about how to take control of one’s money. (Perhaps unsurprisingly, she is also a certified financial planner.)

Little wonder that in late January, for a podcast that von Tobel routinely hosts for Inc., she interviewed Robinhood Vlad Tenev about the company’s quest to make investing accessible to all and how it had shaken up the brokerage landscape in the process. Neither foresaw what would happen days later, when a Reddit community of amateur investors didn’t try to occupy Wall Street so much as turn it upside down by using Robinhood, in part, to drive up the share price of companies like GameStop and AMC Theatres — then unwind those positions. As a 21-year-old college student who lost $150,000 over the course of several days told the outlet Vice, “This whole thing has numbed me to money.”

What happened? Education, in the view of von Tobel, who says it never became an integrated part of bigger picture. While the GameStop saga has “brought a lot of new learnings and new things that people have to process and consider,” paramount among these is the inadequate financial training that Americans receive.

“I want the tools to be democratized, where everyone can get equal access to the financial system,” said von Tobel in a lively chat with us late last week that you can hear here. “But I also want equal education, and that’s where we’re woefully falling behind as a society. It’s not taught in high schools, colleges, or grad schools. Very few schools even teach the basics.”

The issue only grows more important to address each year, she says. People are living longer, and they’re more responsible than ever for their financial well-being. Meanwhile, because of innovations in fintech, including at Robinhood — which became wildly popular very quickly precisely because it dispensed with many of the barriers to participating in the stock market — there is little to keep someone from making lousy decisions with outsize consequences.

So what’s to be done? For starters, she suggests that society begin to place as much emphasis on financial health as physical wellness. “If you’re close to having a major health crisis, doctors do a really good job of saying, ‘Here’s all the things that you need to do to protect yourself; here’s what needs to happen. The same needs to exist in the financial world.”

It will take a number of stakeholders, she believes. One of these is “platforms – all of them — that provide you with [financial] tools and resources, so you can understand the kind of risks you’re taking on [to the extent] that they can provide it.”

Another, she said, is regulators, including the Consumer Financial Protection Bureau. Created in 2010 to safeguard consumers in banking, mortgage, credit card and other financial transactions, the CFPB’s very constitutionality was called into question by the Trump administration, yet its guidance is sorely needed, suggests von Tobel. (“Regulation is always a step behind, and that’s a little bit of what we’re feeling” as a society right now.)

Of course, the third and biggest stakeholder of all is the U.S. educational system, says von Tobel, adding that “you need all three, working in unison” in order to have real impact.

As for any structural changes in the meantime that von Tobel thinks should happen — according to CNBC, for example, Robinhood is preparing to lobby against a trading tax that’s been floated as a way to dampen some of the frenzied activity seen in recent weeks — she declines to “pontificate too much.”

Still, she said she thinks that “getting a Citadel and everyday Americans on equal footing is where we want to end up,” and she isn’t without hope that we’ll get there.

For example, she thinks crypto is “here to stay” and that the infrastructure being created around it will be positive for innovators as well as end users. She’s also expecting “self-driving wallets” that pay bills and make investments to become the new normal, and she thinks they could minimize some of the financial distress we might continue to see otherwise.

Considering the chaos of late, the latter almost sounds too easy, but the “wallet is simply a math equation every day,” she says. “If you have so much [money] available free, where should it go? What’s the most optimal place? It’s a math equation that updates every single hour, and I do think elements of it will be self-driving based on your goals and what you want to accomplish.”

As she puts it, “I can’t wait for the day that that actually exists in a way where it automates on its own. I do believe that’s the future.”

Lemonade launches its renters insurance in France

Lemonade is launching its renters insurance in France. This is the company’s third European launch after the Netherlands and Germany. Originally from the U.S., Lemonade is now a public company with a current market capitalization close to $4 billion.

Lemonade will compete directly with a local competitor called Luko. Both companies share a lot of similarities. But Luko has already attracted 100,000 customers and just raised $60 million.

https://techcrunch.com/2020/12/06/luko-raises-60-million-for-its-home-insurance-products/

Lemonade has optimized its insurance product in different ways. First, it’s supposed to be easier to sign up with Lemonade compared with a legacy insurance company. Second, the company wants to bring back trust by taking a flat fee for its operations.

Premiums are then pooled together and used to pay back claims. If there’s money left at the end of the year, customers can choose to donate to nonprofits. Lemonade is also a certified B-Corp.

But it’s worth noting that other insurance companies try to position themselves as socially responsible, such as MAIF. Insurtech companies aren’t reinventing the wheel on this front.

Third, Lemonade tries to pay you back as quickly as possible after you file a claim.

Chances are you don’t think that much about renters insurance. But it’s a lucrative industry. For instance, home insurance is a legal requirement in France. Due to tenant turnover, there are many opportunities to jump in and convince customers to switch to Lemonade when people move to a new place.

Let’s see how the fight between Lemonade and Luko plays out in France.

Political strategist turned tech investor Bradley Tusk on SPACs as a tool for VCs

Bradley Tusk has become known in recent years for being involved in what’s about to get hot, from his early days advising Uber, to writing one of the first checks to the insurance startup Lemonade, to pushing forward the idea that we should be using the smart devices in our pockets to vote.

Indeed, because he’s often at the vanguard, it wasn’t hugely surprising when Tusk, like a growing number of other investors, formed a $300 million SPAC or special acquisition company, one that he and a partner plan to use to target a business in the leisure, gaming, or hospitality industry, according to a regulatory filing.

Because Tusk — a former political operative who ran the successful third mayoral campaign for Mike Bloomberg —  seems adept at seeing around corners, we called him up late last week to ask whether SPACs are here to stay, how a Biden administration might impact the startup investing landscape, and how worried (or not) big tech should be about this election. You can hear the full conversation here. Owing to length, we are featuring solely the part of our conversation that centered on SPACs.

TC: Lemonade went public this summer and its shares, priced at $29, now trade at $70. 

BT: They are down today last I checked. When you only check once in a blue moon, you’re like, ‘Hey, look at how great this is,’ whereas if, like me, you check me every day, you’re like, ‘It lost 4%, where’s my money?’

We got really lucky; Lemonade was our second deal that we did out of our first fund, and the fact that it IPO’d within four years of the company’s founding is pretty amazing.

TC: Is it amazing? I wonder what it says about the common complaint that the traditional IPO process is bad — is it just an excuse?

BT: [CEO] Daniel Schrieber was very clear that he and [cofounder] Shai Wininger had a strategy from day one to go public as quickly as they possibly could, because in his view, an IPO is supposed to represent kind of the the beginning. It’s the ‘Okay, we’ve proven that there’s product market fit, we’ve proven that there’s customer demand; now let’s see what we can really do with this thing.’ And it’s supposed to be about hope and promise and future and excitement. And if you’ve been a private company for 10 years, and you’re worth tens of billions of dollars and your growth is already starting to flatten out a little bit, it’s just much less exciting for public investors.

The question now for everyone in our business is what happens with Airbnb in a few weeks or whenever they are [staging an IPO]. Will that pixie dust be there, or will they have been around so long that the market is kind of indifferent?

TC: Is that why we’re seeing so many SPACs? Some of that pixie dust is gone. No one knows when the IPO window might shut. Let’s get some of these companies out into the public market while we still can?

BT: No, I don’t I don’t think so. I think SPACs have become a way to raise a lot of money very quickly. It took me two years to raise $37 million for my first venture fund, and three months was the entire process for me to raise $300 million for my SPAC. So it’s a mechanism that is highly efficient and right now is so popular with public market investors that there is just a lot of opportunity, and people are grabbing it. In fact, now you’re hearing about people who are planning SPACs having to pull [them] back because there’s a ton of competition right now.

At the end of the day, the fundamentals still rule. If you take a really bad company public through a SPAC, maybe the excitement of the SPAC gets you an early pop. But if the company has neither good unit economics nor high growth, there’s no real reason to believe it will be successful. And especially for the people in the SPAC, where they have to hold on to it for a little while, by the time the lockup ends, the world has probably figured out that this is not the greatest IPO of all time. You can’t put lipstick on a pig.

TC: You say you raised the SPAC very quickly. How is the investor profile different than that of a typical venture fund investor?

BT:  The investors for this SPAC — at least when I did the roadshow, and I think I did 28 meetings over a couple of days — is mainly hedge funds and people who don’t really invest in venture at all, so there was no overlap between my [venture fund] LP base and the people who invested in our SPAC that I’m aware of. These are public market investors who are used to moving very quickly. There’s a lot more liquidity in a SPAC. We have two years to acquire something, but ultimately, it’s a public property, so investors can come in and out as they see fit.

TC: So it’s mostly hedge funds that are getting paid management fees to deploy their capital in this comparatively safe way and that are getting interest on the money invested, too, while it’s sitting around in a trust while [the SPAC managers] look for a target company.

BT: Why it kind of does make sense for [them to back] VCs is they are basically making the bet to say: does this person running the SPAC have enough deal flow, enough of a public profile, enough going on that they are going to come across the right target? And venture investors in many ways fit that profile because we just look at so many companies before deploying capital.

TC: Do you have to demonstrate some kind of public markets expertise in order to convince some of these investors that you know what it takes to take a company public and grow it in the public markets?

BT: I guess. We raised the money, so I guess I passed the test. But I did spend a little under two years on Wall Street; I created the lottery privatization group of Lehman Brothers. And my partner [in the SPAC], Christian Goode, has a lot of experience with big gaming companies. But overall, I think that if you are a venture investor with a ton of deal flow and a good track record but very little or no public market experience, I don’t know that that would disqualify you from being able to rate a SPAC.