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“Develop the perfect pitch to launch a start-up - Nature.com” plus 3 more

“Develop the perfect pitch to launch a start-up - Nature.com” plus 3 more


Develop the perfect pitch to launch a start-up - Nature.com

Posted: 23 Jul 2019 12:00 AM PDT

CAREER FEATURE
In the final instalment of a three-part series on science start-ups, Nature Careers introduces investor relations: how to find investors, wow them and work with them.
Amber Dance is a freelance writer in Los Angeles, California.

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Anne Dobree

Get introductions to investors before pitching, says Anne Dobrée at Cambridge Enterprise, UK.Credit: London Stock Exchange

Rushdi Hendricks felt confident in 2016 as he boarded the aeroplane. He was en route to Johannesburg, South Africa, where he intended to convince potential investors to back his latest invention: an innovative treatment for sleep apnoea.

Hendricks, a maxillofacial and oral surgeon at South Africa's University of Cape Town, had developed a biodegradable device that could be implanted at the base of the tongue. The device would encourage native stem cells to form a new tendon, which would pull the tongue forward so that it wouldn't fall back and block breathing during sleep. He'd done his homework: he'd shown that the device worked in sheep and had founded a company to develop it further. Now, he needed 15 million rand (US$1 million) to move his invention into human testing.

Armed with a PowerPoint presentation and accompanied by representatives of the university's Research Contracts and Innovation office, he was ready to present his plans to Netcare, the largest private-hospital network in South Africa. At the meeting, he told the story of the product, which, he explained, could help people with sleep apnoea when the usual breathing apparatus doesn't work. He laid out the market and the potential for future growth.

Hendricks didn't manage to secure any cash, but he did get a promise that his company, Dreamhaven, could use Netcare beds and operating theatres for its clinical trials, for free. He considered it a good deal.

Such deals can come from many sources: from the inventor's university, an 'angel' investor or a large venture-capital firm, to name just three. Scientists-turned-entrepreneurs will need an impressive pitch to convince investors to open their wallets, but pitching is a skill that can be learnt.

They should look carefully at potential investors, to find those that are a good match in terms of interests, goals and values. They might also look for investors with a record of valuing diversity.

The key to securing the cash, however, is presenting a compelling pitch that showcases the scientist's qualifications, product, team and plans — as well as their enthusiasm for their early-stage business. "In entrepreneurship, I have to do so many presentations, and I have to be passionate," says geneticist Brittany Barreto, co-founder and chief executive of Pheramor, a DNA- and social-media-based dating service in Houston, Texas. She also co-founded the couples website WeHaveChemistry. "I have to believe in myself and my product so much that it makes others believe in it."

Angels and other investors

Founders can find funds by applying to incubators and accelerators, programmes that often combine investment with resources such as entrepreneur training. These organizations can also point founders to other investors. Fledgling teams can attend commercial conferences and enter competitions (see 'Find the money'). In some areas, local investors gather regularly to hear pitches and meet start-up founders. Entrepreneurs can also look to angel investors — individuals who put their own money into early-stage companies.

Find the money

Personal networks are generally the best way to find resources and investors, but online research can also help.

FoundersBeta lists start-up competitions in the United States, Canada and elsewhere.

A blog by the Belgian customer-relationship manager Salesflare lists 50 start-up conferences happening this year.

Seed-db.com lists 190 accelerators, worldwide.

AngelList sets out 555 investors, along with their interests and locations around the world.

Boogar.com lists venture-capital firms around the world, searchable by name, interests and location. It also includes angel investors.

Amber Dance

What if the founder doesn't know any potential investors? Then it's time to network. "The best way to find them is simply to ask a lot of people whom they know who may be in a position to invest," says Daniel Batten, an entrepreneur and coach in Auckland, New Zealand. "Simple, but surprisingly effective."

It is also important to do some research on potential start-up investors, advises Anne Dobrée, head of seed funds at Cambridge Enterprise, a subsidiary of the University of Cambridge, UK. "Look at similar companies to see who is investing in that space," she suggests. Investors' websites should indicate the fields or types of product they're interested in, and whether they invest in start-ups.

Some scientists-turned-business launchers might not have the necessary connections, says Kristy Campbell, chief operating officer of Rev1 Ventures, a 'start-up studio' in Columbus, Ohio, that builds up companies. That should be fixed sooner rather than later, she says. "It's never too early to approach investors, and get buy-in and feedback from experts." It's fine to do so even if founders haven't decided everything about the company's approach yet, she adds.

That said, scientist-entrepreneurs should try to avoid approaching investors cold, adds Dobrée. They should look for a way to get an introduction if at all possible. Friends, family members or academic connections might be helpful here. If not, the entrepreneur should seek an association or commonality that they might have with a member of the investment team — perhaps they attended the same university, for example.

As companies mature and expand, they can look to venture capitalists, who invest in firms on behalf of a large pool of investment funds.

Kristy Campbell

Turn a negative into a positive for investors, recommends Kristy Campbell at Rev1 Ventures.Credit: Rev1 Ventures

Meeting of minds

Another potential source of early funding is government grants. In 2014, Dreamhaven won 500,000 rand in seed funding from South Africa's Technology Innovation Agency (TIA) for the sheep studies. When that work was successful, he applied for 15 million rand for human trials. Last October, he met the TIA representatives in person for the first time.

At the meeting, he was able to answer their questions, such as whether the stem cells will keep building tissue forever (they won't), and laid out his budget spreadsheet with timelines and contingency plans. The investors seemed convinced. And Hendricks thinks that his personal approach helped, too.

So does Francois Oosthuizen, the university's technology commercialization manager. "Dr Hendricks took time to listen to the funders' concerns and questions," he says. "Rushdi's warmth and experience enabled him to reassure funders of his ability, and the value of the invention." Although the TIA hasn't yet signed on the dotted line, the funding procedure is in the final stages.

"It helps a lot to have that personal contact with people," says Hendricks. "When they finally met me, they were sold."

Personal attitude matters to investors, says Sean O'Sullivan, managing partner at the international venture-capital firm SOSV in Princeton, New Jersey. After all, investors are getting into a years-long legal relationship with founders. "Congeniality is good," he says, but "honesty is absolutely imperative". He's looking for founders who care about the company's mission and will listen to customers, not people who are out simply to line their own pockets. They should also be open to advice from SOSV's accelerators.

IndieBio in San Francisco, California, is one of those accelerators. For example, last August, IndieBio started conversations with a New Zealand company called New Culture, which aims to use bacteria to make vegan versions of dairy products, recalls IndieBio scientific director and partner Jun Axup. The company founders were leaning towards milk, but IndieBio suggested cheese instead. Vegan cheese is in high demand, but the current market offerings don't capture the taste and texture of cow-milk-based versions. Plus, cheese had the potential to be a high-end, profitable product.

The New Culture team disappeared for a couple of weeks, then got back in touch to say it had considered the cheese idea and was looking into it. A few months later, it sent photos of some cheese prototypes. The team was clearly open to coaching, and the accelerator was happy to take it on board, bringing it to its San Francisco labs, where New Culture is now producing vegan mozzarella.

Another feature O'Sullivan looks for is a team, rather than a single founder. When only one person runs a company, he says, it might signal that they don't work well with others.

Making the pitch

However much external investment is needed, the pitch is crucial. Entrepreneurs will probably need to deliver a few presentations, says Barreto. It's useful to have a minute-long 'elevator pitch' ready to go in the event that the entrepreneur runs into an investor outside a formal setting. And founders are sometimes invited to give a 20-minute pitch to a group of angel investors.

Scientists can learn the skill of pitching, says Batten. "There's an art to it, but there's also a science," he says. A pitch must include certain features: details about the team, the product and the market (see 'Key ingredients'). But it's important to present those elements in an engaging way.

Key ingredients

All pitches should include this information, but be sure to frame it in a way that will appeal to investors' emotional sides. Tell a story, for example, or link the product to them personally.

All pitches should include this information, but be sure to frame it in a way that will appeal to investors' emotional sides. Tell a story, for example, or link the product to them personally.

• Who the founders are.

• The problem you're solving: what gaping hole in the market are you filling?

• What your product or service is. Bring a prototype, or at least a picture.

• The intellectual property or other technology you own.

• Who your competition is, and why your product or service is unique or better.

• Who your target customers are.

• Testimonials from those customers or people who have tested your offerings.

• Your marketing plan to reach those customers.

• Your revenue model: are you selling goods or services, subscriptions, licences, data?

• Your exit strategy: how they'll get a return on their investment. Will you sell shares to the public, for example, or sell your technology to a larger company?

• What, specifically, you're asking investors.

Amber Dance

"Humans make decisions based on emotions, not on logic," says Batten, who is himself an investor. Successful entrepreneurs tug on investors' feelings, turning their problem and solution into a compelling story. For example, they might describe how a patient would benefit from what the company has to offer. Or, they might use statistics to their advantage to put a personal slant on an ailment or medical condition. For example, says Batten, "in 20 years, one of us will be dead, and one of us will be in a wheelchair". That, he says, gets listeners' attention.

A pitch doesn't have to include every possible statistic or answer every conceivable question about the technology, Batten adds. "It's about going for curiosity, not closure." A cheque probably won't come until a few more conversations have occurred.

For scientists new to pitching, practice and coaching can help. For example, Batten recalls one client whose presentation went beautifully until he looked down and fumbled his words when requesting money. "What we were watching was a mindset issue, not a skill-set issue," says Batten. He helped the scientist to change his outlook: he wasn't selling something, he was helping his research have as great an impact as possible. On the next pitch, the presenter looked listeners in the eye, and didn't stumble.

Picking partners

The relationship between founders and investors is about more than just funds. Although some investors will sit back and wait for financial returns, others will want to be active in the company.

"Ideally you want someone who will add value, not just bring money," says Dobrée. Investors can have relevant experience and be able to offer advice and guidance. They might want a seat on the management board so that they can be involved in decisions. No matter the extent of the investor's involvement, "the investor should be someone you value and trust", Dobrée says.

Venture-capital funds can be particularly risky, warns William Bains, a biochemist and entrepreneur near Cambridge, UK. He's found that some such companies will set a time limit on when they need to see a return on investment, even if that means selling the company to another business or organization. "Money always comes with strings attached," says Bains.

Venture-capital funding often isn't the best choice for an early-stage start-up, advises Bains. It's better later, he says, when a company is growing fast and needs tens of millions of dollars, pounds or euros.

To find out about a venture capitalist's plans, just ask, advises O'Sullivan. Are they in it for the long haul, or do they expect to get a return within a few years? Savvy founders do their homework on investors, getting the inside view from others who have worked with them.

That means it is sometimes best to turn down the money, says Batten. Watch out, he advises, for investors who don't listen to the founders, or who are trying to minimize the entrepreneur's equity or role. "It's honestly better not to get investment than to get non-aligned investors," he says.

Part of that alignment can have to do with an appreciation for diversity. Unfortunately, investor populations don't always value the full spectrum of scientists with great ideas. "In most pitch competitions, I'm the only woman," notes Barreto. She's also occasionally shown up ready to present, only for investors to ask her when the chief executive will arrive. (Sometimes, to avoid such questions and to emphasize her scientific credibility, she dons a lab coat.)

According to a 2015 analysis by tech publication The Information and venture-capital firm Social Capital in Palo Alto, California, fewer than 1% of US senior venture capitalists in the tech industry involved in investment decisions are black, and just 1.3% are Hispanic. Women make up 8.2% of senior investment teams at top-tier firms (see go.nature.com/32uk56v).

There's also a gender gap for US entrepreneurs. Female business launchers who pitch to investors receive, on average, US$1 million less than do men, according to 2018 research by Boston Consulting Group in Massachusetts and the accelerator network MassChallenge. Yet female-owned businesses earn more than twice as much as male-run companies, the research suggests (see go.nature.com/2nya2wp).

Female entrepreneurs will probably get asked more questions about their qualifications than will men, warns Nancy Wang, co-founder and chief executive of the international non-profit organization Advancing Women in Product in San Francisco. They might have to tout credentials, such as a PhD, to 'prove' their worth.

There's no one way to reply to gender-biased grilling, but Batten suggests a direct approach: "These questions seem to be more about my ability to maintain the company than grow it. Is this the same sort of question that you ask male entrepreneurs?"

And Campbell adds that it's important not to let such questions throw you. "You need to be prepared to turn a negative into a positive and show how you'll handle challenges with your product, market, team and growth plan."

It can take time to find the right investors and build up the necessary capital. Hendricks has been working on Dreamhaven for nine years. In addition to Netcare and the TIA, he is in talks with other potential partners and investors, but he is finally ready to test his device on people. Dreamhaven expects to start human trials by the end of the month.

Nature 571, 589-591 (2019)

doi: 10.1038/d41586-019-02252-w

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Microsoft and Dell corporate VCs: Our days of being second best to Silicon Valley investing firms are over - CNBC

Posted: 25 Jul 2019 06:24 AM PDT

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Bad reputations can be hard to ditch. Sometimes, they are even deserved. Corporate venture capital — efforts by major companies to competitively invest in start-ups versus the famed Silicon Valley financial VCs — is one such example. CVCs don't deny it. They admit the lack of faith even extended to within their own organizations.

"CFOs hated corporate venture capital," said Nagraj Kashyap, corporate v.p. and global head of M12, Microsoft's VC arm, speaking at the recent CNBC @Work Human Capital + Finance event in Chicago.

Then there were the attacks from giants within the traditional venture world, such as Union Square Ventures' Fred Wilson, who said a few years back at a CB Insights' conference, "[Corporate investing] is dumb."

If there is historical evidence to support Wilson's dig, and even the corporate VC officials say that there is, it is increasingly less true today.

"Fred Wilson is a great investor, but that's like saying all VCs are evil," Kashyap said. [Wilson once said something close to that about corporations as well.] "Painting with such a broad brush."

For more on tech, transformation and the future of work, join CNBC at the @ Work: People + Machines Summit in San Francisco on Nov. 4. Leaders from Dropbox, Sas, McKinsey and more will teach us how to balance the needs of today with the possibilities of tomorrow, and the winning strategies to compete.

The Microsoft VC executive said for current corporate VCs, "good CVCs that have financial discipline and have a longer-term time horizon," CFOs are no longer saying, "You need to return this, or we will shut you down."

These executives making venture bets for some of the tech industry's biggest companies say CVCs may even have an edge over Silicon Valley's established VCs in landing deals with hot start-ups and helping these young companies grow revenue.

A scene from HBO's Silicon Valley featuring founder of fictional internet start-up Pied Piper, Richard Hendricks, played by actor Thomas Middleditch.

Source: HBO

"We publish numbers," said Scott Darling, president of Dell Technologies Capital, who became head of Michael Dell's internal VC team after Dell acquired EMC. "We are at over 3.5 times the top decile threshold for financial performance. Michael is clear, we are a business and we produce. This idea of strategic return is not a vague concept. I can point to nine or 10 figures that even a CFO would agree is value that we have returned to the company."

Dell Technologies' case it has invested more than $600 million in about 100 investments over the last six years.

$130 billion in VC, one-third of it from corporations

Global investments made by CVCs are booming, according to CB Insights data. CVC activity reached a historic high in 2018, with $53 billion invested across 2,740 deals, and 264 new CVCs investing for the first time, up 35% from 2017. (There were 61 new CVCs in 2013.) The $53 billion was roughly one-third of total VC investments made in 2018.

"That's a big number," Darling said, though he noted that 80% of research and development is focused on "sustaining engineering" rather than innovation. "Every penny of the $130 billion is focused on disruption," he said.

"Historically, the role of CVC in the VC marketplace and within their own organizations was unclear. These days, however, there are many 'veteran CVCs'" Gary Dushnitsky, associate professor of strategy & entrepreneurship at the London School of Business who has been studying CVCs for decades, wrote in an email to CNBC. His research shows that the longevity of many CVC units often surpassed that of the average CEO tenure. "Simply put, it suggests that the CVC will be there to see the start-up through its growth."

Even as the profile of CVCs grows — companies like 7-Eleven, Campbell Soup and General Mills have venture arms now — CB Insights data shows that they've yet to break through in terms of accessing the top deals for billion-dollar start-ups.

Corporations realized the best way to do this is like VC, but adding value through the resources of the mothership.

Nagraj Kashyap

Microsoft corporate v.p. and global head of M12

Only three CVCs have backed unicorns at the Series B stage or earlier, and all three of those CVCs are subsidiaries of tech companies, CB Insights found in a recent report.

"The dearth of unicorns in CVC portfolios recalls the critiques of past corporate waves in the VC world. Established companies may be pushing money toward innovative startups, but they still take too long to make decisions and take on too little risk to make those startups thrive," CB Insights analysts wrote. "The CVC fund, critics say, is often more a stab in the dark by corporates who see their industries changing around them rather than a cohesive strategy. That approach does not often lend itself to success."

But in 2017, 243 CVCs invested in at least one company at the seed round, more than two and a half times the 101 CVCs acting at the seed level in 2013.

'Capital is cheap. Value-add is not'

Their reasons for backing early-stage companies speak to the advantage these venture arms think they may have over Silicon Valley in the future. First and foremost, CVCs are looking to make a straightforward return on their investment. But they also want to get in on the disruptive start-ups as early as possible so they can ultimately incorporate their products into their own sales efforts.

"Corporations realized the best way to do this is like VC, but adding value through the resources of the mothership. But it is always financial first," Kashyap said. "When I or the team meet with a company, we look and feel like a financial VC. Post-investment we become a strategic VC. ... Capital is cheap. Value-add is not."

That's a key change and has made more CFOs open to corporate VC, the Microsoft executive said. "We have a longer-term orientation than VCs. When a founder comes in, we dont tell them we need to exit in 5 years."

When founder has reservations, Kashyap said, "We say, 'don't talk to us, talk to other founders we funded. That's the sale ... they did what no other financial VC could do for us."

Dell and Microsoft invest in companies they can help make commercially viable and often plug them into their product development, sales and distribution networks. This helps start-ups gain product adoption— and a first-mover advantage.

"Some of the most sophisticated angel investors, serial entrepreneurs, making tens of billions, they invest with the new breed of corporate investor, not the strategic VCs," Darling said. "They want the leverage they can get out of corporate partners. We have five people we work with carefully who will not invest with financial investors."

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It does not hurt to have a CEO like Satya Nadella of Microsoft. Nadella does not look at the deals ahead of investment, but Kashyap does regularly take a group of portfolio company founders to meet with the Microsoft CEO. "When I tell him [about the companies] it is not the same as when founders tell him," Kashyap said. "Satya and Michael are involved in this stuff because they are still founders, they grew up in this stuff."

Darling said after Michael Dell bought EMC and asked him to stay on and run the venture group, Dell's question to him was to explain the goal of VC. "At the end of the day, what you need to do is strive to be the single-most valued-added member of that [start-up] board. The board is bunch of people competing to do more for the entrepreneur."

Dushnitsky said this threat has been noticed by the traditional venture world. The recent rise of "platform VCs" and "applied VCs" can be viewed as a vindication of the CVC model.

"These new VC types include a set of people and complementary resources that aim to support and boost start-up growth. He said his research on CVCs in the pharmaceutical industry shows that an industry leader with a global footprint and over 100,000 employees may be seen as a powerful platform and VC competitor.

Founders walk a fine line in taking CVC money

But he cautioned against CVC taking a victory lap too soon. "The CVC is not a panacea. There is a host of things a start-up should consider as it contemplates CVC backing. For example, does it want to bolt itself to the corporate ecosystem? Does it want to become part of the Dell ecosystem, or the Microsoft one?"

That is a fine line for entrepreneurial-minded founders, and a reason why Kashyap said Microsoft's initial investment offer is purely made on financial terms. A hard sell from Day One on the platform opportunities could make founders skittish, even if it is ultimately their company's best path to growing sales.

"It may raise concerns regarding appropriation, Dushnitsky said, and he pointed to a recent headline about Amazon's Alexa fund.

It also may limit perceived flexibility. "Back in the day, RIM [now BlackBerry] launched a CVC arm. Many of its portfolio companies opted to feature the iPhone on their homepage, either along the Blackberry device or exclusively so, " he said.

It also may raise concerns regarding valuation at "exit," the London School of Business professor said. "If the CVC-parent firm is to be your prospective acquirer – how does that affect valuation? Does it command a premium? a discount?"

Dell's Darling said the fundamental problem for all VCs won't change. "The data says 80% of private financial venture folks lose money. All the returns go to roughly 20%. I don't think it will be any different in the corporate world. The way you get in trouble in life is to lose track of who you are, what you do, and that's how you get in trouble in venture CVC. Do a cold- hearted assessment of what you are. The average return on capital is eight to 10 years away. The average CFO is in the job five to six years. It can't work without that long time horizon."

The Dell VC executive added, "You can't dabble in this. ... I can rattle off all these industries we thought were not subject to disruption and all of them are."

Fed cuts interest rate for first time since 2008, adopting risky new strategy - Los Angeles Times

Posted: 31 Jul 2019 11:30 AM PDT

The Federal Reserve on Wednesday cut interest rates for the first time since the Great Recession in 2008, a risky move that clashes with its historical practice of taking such a step only when the economy is in real trouble.

The small, quarter-point reduction in its key rate is meant to be preventive medicine in the face of global economic uncertainties, such as the U.S. trade conflict with China and Britain's messy exit from the European Union.

In announcing its decision after a two-day meeting, the Fed highlighted elements of a solidly growing American economy but stated that it was acting "in light of the implications of global developments for the economic outlook as well as muted inflation pressures."

That strategy is a departure from the past when the central bank typically acted only after seeing actual evidence of an impending downturn.

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The Fed statement Wednesday signaled that the central bank was prepared to cut rates further if needed, reiterating that it "will act as appropriate to sustain the expansion."

But financial markets and one of the Fed's most influential critics — President Trump — were disappointed. Stocks sold off upon release of the statement and kept sinking as Fed Chair Jerome H. Powell addressed a news conference afterward.

Some investors were looking for a bigger half-point cut, and many others had been betting on the Fed to lower rates further in the next few months. But two of 10 policymakers voted against Wednesday's rate move, preferring to stand pat. And Powell spoke tentatively about future plans, and he pushed back against the idea that this was, as he put it, "the beginning of a lengthy cutting cycle."

Trump has been hammering the Fed and Powell, whom the president nominated, to do more to stimulate the economy. Trump tweeted ahead of the policymakers' meeting that "a small rate cut is not enough." And he kept up the pressure Wednesday after the Fed's decision was announced.

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"What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world," Trump tweeted. "As usual, Powell let us down."

Powell kept a stiff upper lip when asked by a reporter about Trump's influence, saying that political considerations have no bearing on the Fed's decision.

But some analysts were unconvinced. And Powell came under renewed criticism from the other side of the rate debate — economists, investors and others who have argued that the central bank has no business cutting rates when the economy is humming.

"The Fed's decision today is like in the days when doctors bled their patients to heal them," said Chris Rupkey, managing director at MUFG Bank in New York. "Fed officials made a very unwise decision today and buckled to the president's demands by manufacturing reasons to cut interest rates despite a strong economy with no recession signs apparent anywhere out on the horizon."

Powell defended Wednesday's decision as prudent risk-management. And he insisted that the small rate cut — and all the communications leading up to it that made it a sure thing — had boosted the economy.

Partly for that reason, the economic effect of Wednesday's drop in the Fed's benchmark rate to 2.25% from 2.5% will almost certainly be muted.

Mortgage rates and stock prices already have factored in a rate cut; most companies haven't had trouble accessing capital; and tweaking borrowing costs won't boost car sales, which have peaked after years of pent-up demand.

Credit isn't what his company needs, said Greg Danenhauer, an owner of Parker Boiler, a 65-employee manufacturing company in Los Angeles. "We have money in the bank," he said, although he noted that cheaper loans could help his small-business customers, which include breweries and laundry firms.

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Wednesday's Fed action also won't mean much for savers who have socked away money in certificates of deposits. The average interest rate on five-year CDs, for example, already has dropped to 1.31% from 1.52% in March in anticipation of the Fed cut, said Greg McBride of Bankrate.com.

But the bigger, long-term danger is that with interest rates already low, dropping them further not only nicks the Fed's firepower when a real downturn comes but also could add fuel to stocks and other assets that are at very high levels.

"That is clearly the risk: It fans some bubbles," said Ryan Sweet, an economist at Moody's Analytics.

In addition to lowering the Fed's main overnight lending rate, officials said Wednesday that the central bank would halt its run-off of asset holdings in August, two months earlier than scheduled. Some observers, including a very critical Trump, had viewed that reduction of the Fed balance sheet as having a tightening effect.

Besides jawboning from Trump, who fears that a slowdown could hurt his chances of winning reelection next year, the Fed will almost certainly face pressure to lower rates further from markets as well.

It won't be easy for Fed policymakers — who at times have given mixed or confusing communications — to manage Wall Street expectations.

Investors have been sensitive to every signal from the Fed, even if it involves just a small rate hike or cut. It reflects what analysts view as underlying insecurity in markets and an outsize reliance on the Fed to keep the party going.

The Fed in the past saw itself as a firefighter, but today it is more like a gardener that is expected to nurture an economy and keep it growing, said Dec Mullarkey, head of investment strategy at SLC Management, which manages $159 billion in assets.

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And at the moment, the Fed is to trying to get ahead of a possible downturn as trade and other uncertainties have weighed on business sentiment and investments, he added.

"It's an ounce of prevention is worth a pound of cure kind of move," Mullarkey said.

He noted, however, that "it's a dangerous game because markets now keep second-guessing you, and there's quite a bit of feedback between markets and the Fed … You want the Fed to be leading that conversation, not reacting to it. And it's complicated right now who's doing what."

Those pressures are, in part, of the Fed's own making.

The central bank raised rates four times last year as the economy was rolling along, in a bid to wean the financial system from cheap money and return rates to more normal levels amid strong growth. But then Powell made an abrupt shift early this year, first pausing the rate-hike campaign and later in spring pivoting fully to a rate-cut bias.

U.S. economic fundamentals have remained solid during that period. While growth has slowed from about 3% last year and through the first quarter, that was expected. Among other things, stimulus from the big tax cut that passed in late 2017 began to fade.

Even then, second-quarter growth was a healthy 2.1% and forecasters see the rest of the year performing about as well.

The latest data on consumer spending were strong, lifted by resilient job growth and solid income gains. And inflation, which has been undershooting the Fed's 2% target and gave policymakers another reason to cut rates, is poised to inch higher.

The Fed noted that business investment has been "soft," and analysts attribute that partly to uncertainties stemming from the U.S.-China trade dispute and the multitude of tariffs imposed by each nation on the other. The two sides resumed negotiations this week but do not appear close to resolving their differences anytime soon.

Some economists, however, say the falloff in business spending for equipment and buildings is part of a cyclical slowdown and not an underlying threat to growth. And they don't see the Fed having need to make further rate cuts after Wednesday.

In fact, the way things look now, the Fed could very well reverse course next year and push interest rates back up a notch, said Ken Matheny, an economist at Macroeconomic Advisers by IHS Markit, a leading forecasting firm in St. Louis.

Even though there is a case to be made for an "insurance cut" in rates, he said, financial conditions lately have become more favorable. And if the bipartisan budget that passed the House clears the Senate, as expected, that also could add a little more juice to growth in the second half.

"We think it's a one-and-done," Matheny said of Wednesday's Fed action.

The next start-up cities that will transform the global economy - World Economic Forum

Posted: 23 Jul 2019 12:00 AM PDT

During the past decade, much of the discussion about start-up ecosystems has been centered on the question of which city or region will become "the next Silicon Valley". Although there are several places with promising growth trajectories, we frankly think this view is short-sided. It implies there needs to be a new champion overshadowing the old one.

In fact, there will be no "next Silicon Valley". Instead, new research from Startup Genome's 2019 Global Startup Ecosystem Report (GSER) points to there being 30 "next" hubs that will reach critical mass and reshape the state of the global economy. While none of them will be as big as Silicon Valley in the foreseeable future, each will thrive due to either regional dominance or start-up sub-sector leadership.

Now, it's not obvious which ecosystems will end up as the global change agents we predict, but we have some big clues. The first place we should look to determine the next hotspots is at present start-up ecosystem rankings. We rank 150 leading start-up ecosystems each year, incorporating data on more than a million companies globally. The newest list shows Silicon Valley is at the top, but following it are New York City, London, Beijing, Boston, Tel Aviv, Los Angeles, Shanghai, Paris and Berlin.

These 10 globally leading hubs have built a strong reputation for having plentiful start-ups and small businesses. New York City, for example, owns the number two slot for start-up ecosystems in part because it has more than 9,000 start-ups, numerous unicorns and high global connectedness (a measure of how much founders are connected with other top global ecosystems). Alternately, Beijing has been steadily moving up the ecosystem ranks in part to being home to more than 1,000 AI companies, which is one of the four fastest-growing startup sub-sectors globally.

While the 10 ecosystems outlined above are some of the more obvious leaders in the global start-up revolution, it's worth looking at the fastest growing hubs beyond them. Startup Genome dubs these "Challenger Ecosystems" and 12 such ecosystems are identified, in alphabetical order:

Greater Helsinki, Finland

Hangzhou, China

Jakarta, Indonesia

Lagos, Nigeria

Melbourne, Australia

Montreal, Canada

Moscow, Russia

Mumbai, India

São Paulo, Brazil

Seoul, South Korea

Shenzhen, China

Tokyo, Japan

Among this list, we can easily point to Lagos as a top contestant for regional leadership in the African continent. Given the wider economic context and the current momentum, several indicators point to the fact that even a spot in the global top 10 is not out of reach. Indicators include that it is the largest city in Africa and one of the fastest growing cities in the world, it has the largest tech hub in Africa, global titans like Google and Facebook have invested there, and young entrepreneurs there are on the cutting edge when it comes to running mobile-first businesses.

When it comes to specific start-up sub-sector leadership, we see Montreal emerge as one of the global hotspots for artificial intelligence (AI) start-ups. Since 2016, more than $1 billion has been invested in AI companies located there (including notable startup Element AI), and it has the largest concentration of AI academic researchers in the world. Montreal also hosts the NeurIPS conference, the largest AI event held annually in the world.

Other "Challenger" ecosystems on our list have not created such a strong brand, or ecosystem identity, for themselves yet. But that is changing rapidly, partly due to aggressive government investment. In Asia-Pacific, for example, Seoul Metropolitan Government stands out with a recent pledge of $1.6 billion in funding for start-ups by 2022. South Korea is also notable for its R&D spending-to-GDP ratio, which is the highest in the world at 4.55%.

The global start-up community is now the top engine of job creation and economic growth in the world, not only in Silicon Valley. The next hubs, partly predicted above, will be where the bulk of that growth is occurring and they are where the global economy will be remade, especially in the areas of advanced manufacturing, agricultural tech, AI and blockchain.

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