The lawmakers in Albany have passed legislation known as the Climate and Community Protection Act (CCPA) and it is sitting on the Governor’s desk awaiting signature.
There is plenty of debate on whether CCPA is good policy or bad policy. All you need to do is Google “New York’s Climate and Community Protection Act” and read the NY Post (against) and the NY Daily News (for) and you will see the various sides of the debate.
What this bill does is commit New York State to some of the most agressive goals of any city, state, or region:
This is a legally binding legislative act to achieve an 85% reduction in greenhouse gas emissions by 2050 and a goal of net zero.
My view is that we need ambitious goals like this and penalties for not reaching them (the stick).
But we also need new policies and new funding/investment to allow us to reach them (the carrot).
Most of the “green new deal” style legislation that is getting passed in NYC, NYS, and elsewhere, and being proposed in many other places, is long on sticks and short on carrots.
I believe CCPA is a good first step for NYS and I hope the Governor signs it into law.
But legislators and activists and the business community should not stop there. We need to follow these goal setting/penalty setting laws with more work around how we get there and there are many good ideas floating around on how to do that.
As hard as if has been to get CCPA done, I think the hard work is just starting because reaching these goals will require creativity, innovation, new technology, and a massive amount of investment and the willpower to see it through.
Our portfolio company Cloudflare provides a suite of mission critical security services, and increasingly other services too, in the cloud to their customers. Among the most well known of these security services is DDOS protection (aka denial of service attack protection). A DDOS attack is a massive traffic burst aimed at a website to take of offline.
Among the most vulnerable and attacked websites are those belonging to non-profits and other organizations doing work that upsets those in power.
So Project Galileo is Cloudflare’s effort to provide security services to these sorts of organizations for free so they can stay online and continue to do their work.
And Galileo turns five years old this week.
Matthew Prince, Cloudflare’s CEO and co-founder, wrote this blog post yesterday celebrating five years of Galileo and he explains why this is so important to Cloudflare, the Internet, and the world.
Airbnb has been operating in NYC and NY State for about ten years now and yet we still don’t have comprehensive home sharing legislation on the books in NY State. The reason is that the enemies of Airbnb, mostly the hotel employee unions, have been fighting Airbnb’s existence in NY State very effectively in Albany.
Many of the largest cities in the US and around the world now have comprehensive home sharing legislation on the books. It makes sense. It allows homeowners to share their homes legally and earn extra income but it also protects neighbors and neighborhoods from bad actors who abuse the system.
It is time for the folks in Albany to join that group and put fair and balanced and serious home sharing legislation on the books.
The good news is that we have good comprehensive bills before both houses of the state legislature right now.
Assemblyman Joseph Lentol and Senator James Skoufis have recently proposed comprehensive regulations for short term rentals in NY State.
An increasing number of New Yorkers rely on home sharing services not only when they travel, but also for the additional income they generate by opening up their homes here in New York.
The bills proposed by Lentol and Skoufis will create fair and restrictive rules to govern short-term home rentals in New York. Existing NYC legislation has unfairly penalized everyday New Yorkers for sharing their homes and left many confused about the law.
The proposed legislation bans short-term rentals in all affordable housing and also limits NYC residents to listing only one home. The bills also mandate data-sharing with New York City to boost transparency and enable NYC agents to target and take action against bad actors abusing the system.
The proposed legislation also allows Airbnb to collect and remit taxes on behalf of its users. Currently, NY State is missing out on badly needed tax revenue.
It is time for the NY State Legislature and Governor to pass clear and commonsense legislation to safely and responsibly regulate the home sharing industry. I would like to acknowledge Assemblyman Lentol and Senator Skoufis who have the common sense and courage to lead the way.
Well it looks like NYC is finally going to get congestion pricing, a technique used successfully in a number of cities around the world to reduce the number of cars on the road and increase the investment in mass transit.
The concept is simple. Tax cars coming into the center of a city and use those tax revenues to invest in other ways of moving people in and out of the city.
I have been a supporter of this idea going back to the Bloomberg era in NYC when it looked like we were going to get congestion pricing and then it fell apart due to political opposition.
I do have concerns about giving billions of new tax revenues to the MTA which has not been great at using the billions we have already given them to deliver better mass transit. I mention those concerns in my post late last year.
But we should not let perfect be the enemy of the good. NYC needs congestion pricing and we need it now. It will reduce traffic in lower and midtown manhattan and it will provide the resources we need to modernize and improve our mass transit options.
If we could couple congestion pricing with structural reforms of the MTA, then we would be really cooking with gas.
Let me first say that I am sympathetic to Warren’s position. I particularly don’t like the way that Google, Apple, and Amazon use their market power in search and in their app stores to display their own products. The mobile app stores, in particular, have always seemed to me to be a constraint on innovation vs a contributor to it.
However, as you might imagine, I don’t love her proposal. I don’t think breaking up companies solves anything. And lots of rules on paper don’t either.
What we need is a competitive marketplace where new entrants have a chance to beat out old incumbents.
And I think we are on the cusp of that with crypto and the innovations in and around it.
This tweet exchange explains my high level view here:
we are on the cusp of a new architecture, based on a user's control of their own data, and monetized via protocol tokens, that will unseat all of these monopolies in time. the massive increase in ICO-based fundraising, largely outside of the US, is the counterweight to this.
What we need are policies that make it easier for startups to raise capital (like supporting ICOs instead of clamping down on them) and policies that open up the proprietary data assets of the big incumbents (like giving users control of their own data assets). Those sorts of things along with the never ending march of technology will do the trick I think.
NY State Senator Michael Gianaris is leading the efforts to stop Amazon from opening up a large presence in the borough of Queens in NYC.
I get that this makes for good politics at some level. Standing up for the taxpayer and expressing outrage at a massive tax giveaway to the one of the wealthiest companies in the world, run by one of the wealthiest people in the world, makes for great stump speeches.
The very people that Gianaris and others like Ocasio-Cortez represent and are “standing up for” want Amazon in Queens by large margins.
What the voters and citizens of Queens seem to understand is that this is a once in a decade type opportunity to change the face of a borough and a city.
As historian Kenneth Jackson explained in this excellent NY Times Op-Ed piece yesterday, history shows that the economic fortunes of cities change quickly with once dominant industries moving on and new ones arriving. This is a fantastic opportunity for NYC to cement its role as a leading tech sector and one that should not be missed. There is no guarantee that the NYC of tomorrow will be as vital as the NYC of today. We have to work to make it so and this effort to recruit Amazon to NYC is exactly the kind of work which will make it so.
In my view, politicians like Gianaris and Ocasio-Cortez are being irresponsible and reckless in their opposition to Amazon while playing politics with something that is without question good for NYC, good for Queens, and good for their voters. Their voters know it and so should they.
I was talking to a friend about AOC’s proposal to increase marginal federal rates to 70% to fund investments in fighting climate change. My friend said he was disappointed that she didn’t propose a top federal rate of 83.25% so that the marginal rate in NYC would be 100%. He was joking but his remark is important because it speaks to the nuance of the marginal rate, something AOC and her followers don’t really understand as much as they claim.
It reminds me of a heated conversation I had with my kids and their friends during our family ski trip over the year end break. Our kids, like most millennials I know, are struggling with the notion of capitalism at any cost and the massive income and wealth inequality that we are witnessing.
This headline I came across on Twitter today kind of sums it up well:
I am in the business of helping founders start companies which results in some of them becoming billionaires. Contrary to what some think, my wife and I aren’t in that club ourselves. But I know a fair number of billionaires and I have had a front row seat to the process of them going from not having a penny in their pockets to billions on their balance sheet.
And we are participants in the “economic system that creates billionaires.” I do not think it is immoral and I do not think billionaires are immoral. I do think the inequality that we allow in our country is immoral.
To me, these are two different things. And that is the gist of the discussion I was having with my kids and their friends over the year end holiday. They asked me why I don’t believe in massively raising taxes on the rich to pay for all of these new social programs that the candidates on the left are proposing.
I am a fan of many of these social programs, like medical care for all, like more affordable education for all, like new approaches to what we once called “welfare” and now is taking shape as Universal Basic Income. I have been called a communist, a socialist, a liberal, and more on this blog and all of those labels could be accurate in someone’s mind. I believe that society must find ways to support the basic needs of everyone, which include wellness, knowledge, and income. That we do not is immoral. That we allow billionaires is not.
I am a capitalist and a business person. I understand that increasing taxes on the wealthiest leads many of them to move their income and assets to lower tax jurisdictions and can be counter productive, particularly when you go beyond a certain threshold. I also understand that government is bloated and there are many places where we could cut spending to fund these new innovative programs that could help counter the immoral wealth imbalance we have in our country.
I believe that technological revolutions, like the industrial revolution and the information revolution, create opportunities for entrepreneurs to reimagine how the economy should operate. Those entrepreneurs, like Rockefeller, Carnegie, Morgan, Bezos, Page, Zuckerberg, build very powerful monopolies and amass billions.
As these revolutions reimagine how the economy should operate, many people lose jobs, can’t find jobs, find themselves in lower paying jobs, and there is real dislocation that results. And you get this “immoral wealth imbalance.”
The one part of the economy that seems immune to re-imagination is the government. If we were to force it to go through the same technological revolution that the private sector is going through, we would see massive efficiencies, and massive job losses, that would free up a huge amount of capital that could be used to pay for things like medical care for all, affordable education for all, and some amount of income for all.
That is what I am for. That is what I explained to my kids and their friends that I am for.
Times of change are times of change. And we can’t change some things but not everything.
I will end with a story from a book I read a few years ago. The book is called The Prize that was written by Dale Russakoff and is about the effort by Chris Christie, Cory Booker, and Mark Zuckerberg to fix the broken Newark NJ public school system.
The story takes place at an anti-charter school rally. Dale meets a woman who is protesting against the charter schools that are replacing the district schools. As she is talking to this woman, she explains that she is late to the rally because she had to spend all morning in line trying to get her child into the new charter school in her neighborhood. Dale is perplexed. Why would she be protesting charter schools if she is that committed to getting her child into one? The woman explains that most of her family works in the district schools and will lose their jobs if the city moves to charter schools.
And that’s where we are. We are not willing to move away from the things of the past to get the things of the future. So our elected officials decide to try to give us both and we struggle with how to pay for it all.
I am not for the emerging progressive Robin Hood narrative. I am certainly not for the entrenched conservative Let Them Eat Cake narrative. I am for a new narrative that understands that everything must change if we are to find ways to support everyone in our society.
Today, as is my custom on the first day of the new year, I am going to take a stab at what the year ahead will bring. I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right, and some wrong. But having a point of view, a foundation, is very helpful when operating in a world that is full of uncertainty.
I believe and have been telling those around me that I think 2019 will be a “doozy.” I think we will see major dislocations in the leadership of the United States, a bear market in stocks, a weakening economy, a number of issues with the global economy including a messy Brexit and a sluggish China. All of this will lead to a more cautious stance by investors in the startup economy. And crypto will not be a safe haven for any of this although there will be signs of life in crypto land in 2019.
Let’s take each of those in the order that I mentioned them.
I believe that we will have a different President of the United States by the end of 2019. The catalyst for this change will be a devastating report issued by Robert Mueller that outlines a history of illegal activities by our President going back decades, including in his campaign for President.
The House will react to Mueller’s report by voting to impeach the President. Which will set up a trial in the Senate. That trial will go so badly for the President that he will, like Nixon before him, negotiate a resignation that will lead to him and those close to him being pardoned for all actions, and Mike Pence will become the President of the United States sometime in 2019.
I believe this drama will play out through most of 2019. I expect the Mueller report to be issued sometime in the late winter/early spring and I expect an impeachment vote by the House before the summer, leading to a trial in the Senate in the second half of the year.
The drama in Washington will have serious impacts to the economy in the United States starting with our capital markets.
The US equity capital markets enter 2019 on shaky ground. Though the last week of the year brought us a relief rally, the markets are dealing with higher rates, some early indications of a weaker economy in 2019 (possibly due to higher rates), and, of course, the potential for the drama in Washington that we’ve already discussed. Here is a chart of the S&P 500 over the last five years:
I expect the S&P 500 to visit 2,000 sometime in 2019 and then bounce around that bottom for much of the year. This would represent a decrease in the S&P’s trailing PE multiple to around 15x which feels like a bottom to me given the recent history of the equity markets in the US:
Interest rates have been rising gradually in the US for the last three years. The Fed has taken its Fed Funds rate from essentially zero three years ago to almost 2.5% today:
The rates that are available to consumers and businesses have followed and I expect that to continue in 2019. Here is a chart of the interest rates on the three most popular mortgage products in the US:
When it gets more expensive to borrow, marginal projects don’t get funded. And what happens at the margin has a much larger impact on the economy than most people understand. No wonder the President wants to fire the Fed Chairman.
I expect the combination of higher rates, uncertainty in Washington, and storm clouds globally (which we will get to soon) will cause business leaders in the US to become more cautious on hiring and investment. Consumers will make essentially the same calculations. And that will lead to a weaker economy in the US in 2019.
The global picture is not much better. The eurozone is about to go through the most significant change in decades with some sort of departure of the UK from the EU (Brexit). It remains unclear exactly how this will happen, which in and of itself is creating a lot of uncertainty on the Continent. I don’t expect most businesses in Europe to do anything but play defense in 2019.
Probably the biggest unknown for the global economy is the resolution of the ongoing trade tensions between China and the US. It seems inevitable that China will make some concessions to the US to resolve these trade tensions. But, of course, what happens in Washington (first issue) may impact all of that. In the meantime, the uncertainty around trade and exports hangs over the Chinese economy. China’s GDP has been slowing in recent years as it achieved relative parity with the US and the Eurozone:
Any significant trade concessions from China could impact its growth prospects in 2019 and beyond, which will take the most powerful engine of global growth off the table this year.
So all of that is a pessimistic take on the broader macro environment in 2019. How will all of this impact the startup/tech economy?
The startup/tech economy is somewhat immune to macro trends. Many startups and big tech companies were able to grow and expand their businesses during the last financial downturn in 2008 and 2009. Some very important tech companies were even started in those years.
The tech/startup economy is driven first and foremost by technical and creative (ie business model) innovation. And that is not impacted by the macro environment.
So I expect that we will continue to see big tech invest and grow their businesses and do well in 2019. I expect we will see IPOs from big names like Uber/Lyft/Slack, although I also expect those deals will get priced well below the lofty expectations they have in mind right now. Some of that will be because of weak equity markets in the US, but it is also true that most of the IPOs in 2018 also priced below the lofty “going in” expectations of founders, managers, boards, and their bankers. The public markets have been much more sanguine about value than the late stage private markets for a long time now.
However, I do think a difficult macro business and political environment in the US will lead investors to take a more cautious stance in 2019. It would not surprise me to see total venture capital investments in 2019 decline from 2018. And I think we will see financings take longer, diligence on new investments actually occur, and valuations to come under pressure for even the most attractive opportunities.
But all of that is going to happen at the margin. I expect 2019 to be another solid year for the tech/startup sector as we are in a possibly century-long conversion from an industrial economy to an information economy and the tailwinds for tech/startup vs the rest of the economy remain in place and strong.
Any set of predictions for 2019 from me on this blog would not be complete without some thoughts on crypto. So here is where my head is at on that topic.
I think we are in the process of finding the bottom on the large, liquid, and lasting crypto-tokens. But I think that process could take much of 2019 to play out. I expect we will see some bullish runs, followed by selling pressures taking us back to retest the lows. I think this bottoming out process will end sometime in 2019 and we will slowly enter a new bullish phase in crypto.
I think the catalyst for the next bullish phase will come as the result of some of the many promises made in 2017 coming to fruition in 2019. Specifically, I think we will see some big name projects ship, like the Filecoin project from our portfolio company Protocol Labs, and the Algorand project from our portfolio company Algorand. I think we will see a number of “next gen” smart contract platforms ship and challenge Ethereum for leadership in this super important area of the crypto sector. I also expect the Ethereum open source community to ship a number of important improvements to its system in 2019 and defend their leadership in the smart contract space.
Other areas of crypto where I expect to see meaningful progress and consumer adoption happen in 2019 are stablecoins, NFT/cryptoassets/cryptogaming, and earn/spending opportunities, particularly in the developing world.
There will also be pressure on the crypto sector in 2019. The area I am most concerned about are actions brought by misguided regulators who will take aim at high quality projects and harm them. And we will continue to see all sorts of failures, from scams, hacks, failed projects, and losing investments be a drag on the sector. But that is always the case with a new emerging technology that allows anyone to set up shop and get going. Permissionless innovation produces the greatest gains over time but also comes with the inevitable bad actors and actions.
So that’s where my head is at on 2019. Do I sound pessimistic? I suspect I do, but I am not. I am incredibly optimistic, like my partner Albert and can’t wait to get going and make things happen in this new year. It is going to be a doozy.