No money for start-ups – How founders suffer from the SVB bankruptcy

Good morning dear readers,

Today’s morning briefing has some economic delicacies in store for you. Are you excited? Let’s get started!

There is a mantra that is considered the basis of safe investment: Please do not put all your eggs in one basket. Diversification is essential, because if a money storage fails for whatever reason, you are not left with financial nothingness.

However, many start-ups in the USA seem to have forgotten this basis. Because for the founders, the Silicon Valley Bank (SVB) was considered the number one money house in which they placed their full trust. After the bank went bankrupt last week, many American start-ups are now worried about their financial resources. German start-ups, on the other hand, seem to have been smarter and didn’t just park their money with the SVB.

Many founders were probably downright urged by investors to open an account with the Silicon Valley bank. These were considered the “gold standard”, is how a venture capitalist with the aptly named Bernhard Gold describes the aura of the bank in the scene.

This is particularly explosive because it was again investors who helped cause the bank’s collapse. Based on rumors of a “bank run,” some financiers have posted internal messages advising their startups to participate in that same bank run and withdraw their money as soon as possible.

Conclusion: Economists recognize a classic case of game theory here. It would actually be better for everyone involved to leave the money in the bank. But if everyone else empties their accounts, I should also emptied my account so as not to end up as a loser.

Charles Goodhart: “It is unlikely that such a concentrated revolution will occur again in the next few centuries.”

(Photo: Imago Images)

“The fat years are over” – this is how the core message of the economist Charles Goodhart can be summed up. Goodhart knows what he’s talking about, after all he’s been through a lot in his 86 years of life: for example the oil crises, the bursting of the dot-com bubble and the global financial crisis.

But now the economic expert is certain that mankind will never again experience such good economic times as in the 1990s and noughties. The former central banker and economics professor estimates: “So many positive developments as in this period can no longer come together.”

If he has his way, we’ll also have to brace ourselves for a new era of high inflation, where the new normal for inflation is between 3.5 and 4 percent. At the same time, people would also make more money. This is not a problem as long as productivity increases at the same time. In other words, the value of labor must increase, not just its price. Otherwise there is a risk of a wage-price spiral, the notorious vicious circle of inflation and rising salaries.

For the portion of economics in the morning, I recommend the interview that my Berlin colleague Julian Olk conducted with Goodhart.

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Zalando is currently causing great dissatisfaction on several levels. Because the online fashion retailer is realigning its strategy – away from rapid growth and towards more profitability. This not only leads to layoffs of employees and a new minimum order value for customers, but also new fees for merchants.

According to a new guideline, the several thousand external sellers of clothing, shoes and accessories will have to pay Zalando a commission of up to 25 percent in the future. The new prices are likely to make selling via the platform uneconomical for many companies – some even see their business model threatened.

After the rapid growth during the corona pandemic, the numbers at Zalando recently looked sobering. While the number of customers continued to grow slightly, sales stagnated. But above all the net result, the sum of all profits after deducting taxes, was pretty miserable.

Business economists quickly see through that high costs are likely to be responsible for this. At Zalando in the form of increased logistics, personnel and marketing costs. The new fees are intended to compensate for this. However, it is questionable whether this calculation will work out in the end.

One of the most powerful chief supervisors in the German corporate landscape resigns. Karl-Ludwig Kley headed the supervisory board of the energy supplier Eon for seven years. On Tuesday evening, the committee proposed his current deputy, Erich Clementi, as his successor. The Handelsblatt interviewed Kley as he said goodbye to his position on the future of energy supply.

I would like to pick out two statements from the interview. Kley considers the nuclear phase-out to be a mistake at this point in time: “Before we scrape together the coal from all possible seams, it would be much more logical to let the nuclear power plants continue to run.”

In order to build power lines, expropriations should also be allowed: “As a result of various lawsuits, it took us eleven years at our grid company Avacon just to replace an existing grid line. Unfortunately, there are many such examples. Our country cannot afford that.”

Finally, there are news about artificial intelligence. The US start-up OpenAI has presented the latest version of its ChatGPT model. GPT-4 is said to be better than its predecessor at identifying misinformation and providing “human-level performance in various professional and academic challenges.”

For me personally, there is still worrying news: GPT-4 is said to be eloquent, able to deal with irony and jokes, and summarize sources. This makes generated texts entertaining and of higher quality. Sounds like we Morning Briefing writers may be about to take early retirement. Then GPT-4 takes over at this point.

I wish you a good day not feeling threatened by a machine.

Best regards
Her

Teresa Stiens
Editor of the Handelsblatt

Morning Briefing: Alexa

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