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December 15, 2018
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Finance

Robinhood said to not be properly insured to offer checking & savings

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Robinhood’s new high-interest, zero-fee checking and savings feature seems to be too good to be true. Users’ money may not be fully protected. The CEO of the Securities Investor Protection Corporation, a non-profit membership corporation that insures stock brokerages, tells TechCrunch its insurance would not apply to checking and savings accounts the way Robinhood claims. “Robinhood would be buying securities for its account and sharing a portion of the proceeds with their customers, and that’s not what we cover” says SIPC CEO Stephen Harbeck. “I’ve never seen a single document on this. I haven’t been consulted on this.”

That info directly conflicts with comments from Robinhood’s comms team, which told me yesterday users would be protected because the SIPC insures brokerages and the checking/savings feature is offered via Robinhood’s brokerage that is a member of the SIPC.

If Robinhood checking and savings is indeed ineligible for insurance coverage from the SIPC, and since it doesn’t qualify for FDIC protection like a standard bank, users’ funds could be at risk. Robinhood co-CEO Baiju Bhatt told me that “Robinhood invests users’ checking and savings money into government-grade assets like US treasuries and we collect yield from those assets and pay that back to customers in the form of 3 percent interest.” But Harbeck tells me that means users would effectively be loaning Robinhood their money, and the SIPC doesn’t cover loans. If a market downturn caused the values of those securities to decline and Robinhood couldn’t cover the losses, the SIPC wouldn’t necessarily help users get their money back. 

Robinhood’s team insisted yesterday that customers would not lose their money in the event that the treasuries it invests in decline, and that only what users gamble on the stock market would be unprotected as is standard. But now it appears that because Robinhood is misusing its brokerage classification to operate checking and savings accounts where it says users don’t have to invest in stocks and other securities, SIPC insurance wouldn’t apply. “I have an issue with some of the things on their website about whether these checking and savings accounts would be protected. I refered the issue to the SEC” Harbeck tells me. TechCrunch has reached out to the SEC and will update if we hear back about its perspective on the issue.

Robinhood planned to start shipping its Mastercard debit cards to customers on December 18th with users being added off the waitlist in January. That might need to be delayed due to the insurance problem. We’ve repeatedly asked Bhatt and Robinhood’s team for a formal statement and clarification this morning, but have not heard back.

Robinhood touted how its checking and savings features have no minimum account balance, overdraft fees, foreign transaction fees, or card replacement fees. It also has 75,000 free-to-use ATMs in its network, which Bhatt claims is more than the top five US banks combined. And its 3 percent interest rate users earn is much higher than the 0.09% average interest rate for traditional savings, and beats  most name brand banks outside of some credit unions.

But for those perks, users must sacrifice brick-and-mortar bank branches that can help them with troubles, and instead rely on a 24/7 live chat customer support feature from Robinhood. The debit card has Mastercard’s zero-liability protection against fraud, and Robinhood partners with Sutton Bank to issue the card. But it’s unclear how the checking and savings accounts would be protected against other types of attacks or scams.

Robinhood was likely hoping to build a larger user base on top of its existing 6 million accounts by leveraging software scalability to provide such competitive rates. It planned to be profitable from its margin on the interest from investing users’ money and a revenue sharing agreement with Mastercard on interchange fee charged to merchants when you swipe your card. But long-term, Robinhood may use checking and savings as a wedge into the larger financial services market from which it can launch more lucrative products like loans.

But that could fall apart if users are scared to move their checking and savings money to Robinhood. Startups can suddenly fold or make too risky of decisions while chasing growth. Robinhood’s valuation went from $1.3 billion last year to $5.6 billion when it raised $363 million this year. That puts intense pressure on the company to grow to justify that massive valuation. In its rush to break into banking, it may have cut corners on becoming properly insured.

[DIsclosure: The author of this article knows Robinhood co-founders Baiju Bhatt and Vlad Tenev from college 10 years ago]

News Source = techcrunch.com

Robinhood launches no-fee checking/savings with Mastercard & the most ATMs

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Robinhood is undercutting the big banks by forgoing brick-and-mortar branches with its new zero-fee checking and savings account features. With no overdraft or monthly fees, a juicy 3 percent interest rate, and a claim of more US ATMs than the five biggest banks combined, Robinhood is using the scalability of software to pass impressive perks on to customers. The free stock trading app already used that approach to attack brokers like E*Trade and Charles Schwab that charge a per trade fee. Now it’s breaking into the larger financial services market with a model that could put the squeeze on Wells Fargo, Chase, and Bank Of America.

Today Robinhood launches checking and savings accounts in the US with a Mastercard debit card issued through Sutton Bank that starts shipping December 18th. Users earn 3 percent on all the dough they keep with Robinhood, yet there’s no minimum balance or fees for monthly membership, overdrafts, foreign transactions, or card replacements. That’s a pretty sweet deal compared to the other leading banks that all charge for some of that or offer much lower interest rates. The tradeoff is that while customers get 24/7 live text chat support, they won’t be able to walk into a local bank branch. 

Robinhood expects to turn a profit thanks to a lean 300-employee operation, earning a margin on investing your money in US treasuries, and a revenue share with Mastercard on interchange fees charged to merchants when you swipe. The launch could be critical to keeping Robinhood worthy of its $5.6 billion valuation from when it took a $363 million Series D in March just a year after raising at a $1.3 billion valuation. The 6 million-user app invested in launching a free cryptocurrency trading exchange early this year only to see coin prices plummet and mainstream interest fall off. But with banks hammering users with surprise fees and mediocre user experience, there’s a huge opportunity for a mobile-first startup to disrupt how we store money.

“Brick-and-mortar locations are costly. Our goal with this product was to build a completely digital experience so we can reduce our overhead so we can pass more of the value back to customers” Robinhood co-CEO Baiju Bhatt tells me. “Saving accounts in the US pay on average 0.09 percent and we all know the banks are making far more than that from the deposits. With Robinhood you earn 3 percent off all of your money. Mental math is hard so if you look at the median US household that has about $8000 in liquid savings, they’d earn $240 a year.”

Getting into banking could open a lucrative revenue stream for Robinhood as it charts its path to IPO. The startup recently hired Jason Warnick, a 20-year veteran of Amazon, to be its CFO and get it prepped to go public. Wall Street will want to see a more robust business that’s not as vulnerable to foes like stock brokerage Charles Schwab which is already lowering fees to stay competitive with Robinhood. Not only will checking and savings see users move more money into their Robinhood accounts that it can invest to earn a profit, but it also poises the startup to tackle more financial services in the future.

News Source = techcrunch.com

NYC’s Work-Bench announces $47M enterprise investment fund

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Work-Bench, an early stage enterprise startup venture capital firm based in New York City announced its $47 million Fund II today. It follows their initial $10 million fund.

Work-Bench is itself like a venture capital investment startup. A scrappy operation run by just five enterprise industry veterans, it defies convention in a number of ways including setting up shop in New York City. While it’s based in New York, the company will invest anywhere in the country, writing checks for $1.5 million for the Seed 2 and Series A investments.

Work-Bench’s philosophy centers around a sales approach and giving their startups entree into some of the biggest companies in the country, many of which not coincidentally, are based near their offices.

The company starts by trying to understand specific enterprise customer pain points, even before they send a founder into pitch an executive. The startup founders are judged and guided by their ability to sell. In fact, one of the founders Jonathan Lehr says even before they invest in a company, they will send them to pitch a couple of customers and take advantage of that two-way feedback channel as a way to understand the startup’s selling skills.

“Instead of starting with whiz bang tech like a lot of West Coast VCs do, by starting with the problem and and where budget dollars are being allocated, when we’re looking at companies from an investment perspective it really helps us connect all the dots a little a lot better. That’s because on the one hand the corporate executive is getting a solution to a pain point from the startup, and the startup founders are getting an introduction to the right stakeholder at the right time for them at the right organization,” Lehr told TechCrunch.

Work-Bench Team. Photo: Work-Bench

Work-Bench has set up their headquarters as space for hosting regular events that help introduce founders to key people in the community and learn about different subjects such as writing a successful RFP, negotiating contracts and setting up a successful proof of concept (PoC). They also have work spaces where founders from the portfolio companies can interact on a daily basis and get direct feedback from the Work-Bench principals, who run a truly hands-on operation.

It seems to have worked. Among the enterprise startups funded with their initial fund were Dialpad, Tamr, Cockroach Labs and CoreOS, which was sold to Red Hat for $250 million in January. In all, they invested in 17 companies in the first fund.

The second fund is already under way with 9 investments so far including Scytale, a security and identity protocol startup; Algorithmia, which is working on DevOps for AI and Catalyst, a customer success platform.

Fund II investors include co-anchors Industry Ventures and an unnamed Chicago family office. Corporate backers include Wipro, Schneider Electric and CA Technologies. Other investors include Fund I founders Craig Walker from Dialpad, Andy Palmer from Tamr, and Tim Eades from vArmour.

News Source = techcrunch.com

TNB Aura closes $22.7M fund to bring PE-style investing to Southeast Asia’s startups

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TNB Aura, a recent arrival to Southeast Asia’s VC scene, announced today that it has closed a maiden fund at SG$31.1million, or around US$22.65 million, to bring a more private equity-like approach to investing in startups in the region.

The fund was launched in 2016 and it is a joint effort between Australia-based venture fund Aura and Singapore’s TNB Ventures, which has a history of corporate innovation work. It reached a final close today, having hit an early close in January. It is a part of the Enterprise Singapore ‘Advanced Manufacturing and Engineering’ scheme which, as you’d expect, means there is a focus on hardware, IO, AI and other future-looking tech like ‘industry 4.0.’

The fund is targeting Series A and B deals and it has the firepower to do 15-20 deals over likely the next two to three years, co-founder and managing partner Vicknesh R Pillay told TechCrunch in an interview. There’s around $500,000-$4 million per company, with the ideal scenario being an initial $1 million check with more saved for follow-on rounds. Already it has backed four companies including TradeGecko, which raised $10 million in a round that saw TNB Aura invest alongside Aura, and AI marketing platform Ematic.

The fund has a team of 10, including six partners and an operating staff of four. It pitches itself a little differently to most other VCs in the region given that manufacturing and engineering bent. That, Pillay said, means it is focused on “hardware plus software” startups.

“We are very strong fundamentals guys,” Pillay added. We ask what is the valuation and decide what we can get from a deal. It’s almost like PE-style investing in the VC world.”

A selection of the TNB Aura team [left to right]: Samuel Chong (investment manager), Calvin Ng, Vicknesh R Pillay, Charles Wong (partners), Liu Zhihao (investment manager)

Another differentiator, Pillay believes, is the firm’s history in the corporate innovation space. That leads it to be pretty well suited to working in the B2B and enterprise spaces thanks to its existing networks, he said.

“We particularly like B2B saas companies and we believe we can assist them through of our innovation platforms,” Pillay explained.

Outside of Singapore — which is a heavy focus thanks to the relationship with Enterprise Singapore — TNB Aura is focused on Indonesia, the Philippines, Thailand and Vietnam, four of the largest markets that form a large chunk of Southeast Asia’s cumulative 650 million population. With an internet population of over 330 million — higher than the entire U.S. population — the region is set to grow strongly as internet access increases. A recent report from Google and Temasek tipped the region’s digital economy will triple to reach $240 billion by 20205.

The report also found that VC funding in Southeast Asia is developing at a fast clip. Excluding unicorns, which distort the data somewhat, startups raised $2.6 billion in the first half of this year, beating the $2.4 billion tally for the whole of 2017.

There are plenty of other Series A-B funds in the region, including Jungle Ventures, Golden Gate Ventures, Openspace Ventures, Monks Hill Ventures, Qualgro and more.

News Source = techcrunch.com

Payment service Toss becomes Korea’s newest unicorn after raising $80M

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South Korea has got its third unicorn startup after Viva Republica, the company beyond popular payment app Toss, announced it has raised an $80 million round at a valuation of $1.2 billion.

This new round is led by U.S. firms Kleiner Perkins and Ribbit Capital, both of which cut their first checks for Korea with this deal. Others participating include existing investors Altos Ventures, Bessemer Venture Partners, Goodwater Capital, KTB Network, Novel, PayPal and Qualcomm Ventures. The deal comes just six months after Viva Republica raised $40 million to accelerate growth, and it takes the company to nearly $200 million raised from investors to date.

Toss was started in 2013 by former dentist SG Lee who grew frustrated by the cumbersome way online payments worked in Korea. Despite the fact that the country has one of the highest smartphone penetrations rates in the world and is a top user of credit cards, the process required more than a dozen steps and came with limits.

“Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just one password and three steps to transfer up to KRW 500,000 ($430),” Lee said in a past statement.

Working with traditional finance

Today, Viva Republica claims to have 10 million registered users for Toss — that’s 20 percent of Korea’s 50 million population — while it says that it is “on track” to reach a $18 billion run-rate for transactions in 2018.

The app began as Venmo -style payments, but in recent years it has added more advanced features focused around financial products. Toss users can now access and manage credit, loans, insurance, investment and more from 25 financial service providers, including banks.

Fintech startups are ‘rip it out and start again’ in the West –such as Europe’s challenger banks — but, in Asia, the approach is more collaborative and assistive. A numbe of startups have found a sweet spot in between banks and consumers, helping to match the two selectively and intelligently. In Toss’s case, essentially it acts as a funnel to help traditional banks find and vet customers for services. Thus, Toss is graduating from a peer-to-peer payment service into a banking gateway.

“Korea is a top 10 global economy, but no there’s no Mint or Credit Karma to help people save and spend money smartly,” Lee told TechCrunch in an interview. “We saw the same deep problems we need to solve [as the U.S.] so we’re just digging in.”

“We want to help financial institutions to build on top of Toss… we’re kind of building an Amazon for the financial services industry,” he added. “We try to aggregate all those activities, covering saving accounts, loan products, insurance etc.”

Former dentist SG Lee started Toss in 2013.

Lee said the plan for the new money is to go deeper in Korea by advancing the tech beyond Toss, adding more users and — on the supply side — partnering with more companies to offer financial products.

There’s plenty of competition. Startups like PeopleFund focus squarely on financial products, while Kakao, Korea’s largest messaging platform, has a dedicated fintech division — KakaoPay — which rivals Toss on both payment and financial services. It also counts the mighty Alibaba in its corner courtesy of a $200 million investment from its Ant Financial affiliate.

Alibaba and Tencent tend to move in pairs as opposites, with one naturally gravitating to the rivals of the other’s investees as recently happened in the Philippines. It’s tricky in Korea, though. Tencent is caught in limbo since it is a long-standing Kakao backer. But might the Ant Financial deal spur Tencent into working with Toss?

Lee said his company has a “good relationship” with Tencent, including the occasional home/away visits, but there’s nothing more to it right now. That’s intriguing.

Overseas expansion plans

Also of interest is future plans for the business now that it is taking on significantly more capital from investors who, even with the most patient money out there, eventually need a return on their investment.

Lee is adamant that he won’t sell, despite Viva Republica increasingly looking like an ideal entry point for a payment or finance company that has missed the Korean market and wants in now.

He said that there are plans to do an IPO “at some point,” but a more immediate focus is the opportunity to expand overseas.

When Toss raised a PayPal-led $48 million Series C 18 months ago, Lee told TechCrunch that he was beginning to cast his eyes on opportunities in Southeast Asia, the region of over 650 million consumers, and that’s likely to see definitive action next year. The Viva Republica CEO said that Vietnam could be a first overseas launchpad for Toss.

“We’re thinking seriously about going beyond Korea because sooner or later we will hire saturation point,” Lee said. “We think Vietnam is quite promising. We’ve talked to potential partners and are currently articulating ideas and strategy materialized next year.

“We already have a very successful playbook, we know how to scale among users,” Lee added.

While the plan is still being put together, Lee suggested that Viva Republica would take its time expanding across Southeast Asia, where six distinct countries account for the majority of the region’s population. So, rather than rapidly expanding Toss across those markets, he indicated that a more deliberate, country-by-country launch could be the strategy with Vietnam kicking things off in 2019.

The Toss team at HQ in Seoul, Korea

Korea rising

Toss’s entry into the unicorn club — a vaunted collection of private tech companies valued at $1 billion or more — comes weeks after Coupang, Korea’s top e-commerce company, raised $2 billion at a valuation of $9 billion.

While that Coupang round came from the SoftBank Vision Fund — a source of capital that is threatening to become tainted given its links to the murder of journalist Jamal Khashoggi — it does represent the first time that a Korea-based company has joined the $100 billion mega-fund’s portfolio.

Some milestones can be dismissed as frivolous, but these two coming so close together are a signal of increased awareness of the potential of Korea as a startup destination by investors outside of the country.

While Lee admitted that the unicorn valuation “doesn’t change a lot” in daily terms for his business, he did admit that he has seen the landscape shift for Korea’s startup ecosystem — which has only two other privately-held unicorns: Coupang and Yello Mobile.

“More and more global VCs are aware that South Korea is a really good opportunity to do a startup. It is getting easier for our fellow entrepreneurs to pitch and get access to global funds,” he said, adding that Korea’s top 25 cities have a cumulative population (25 million) that matches America’s top 25.

Despite that potential, Korea has tended to focus on its ‘chaebol’ giants like Samsung — which accounts for a double-digital percentage of the national economy — LG, Hyundai and SK. That means a lot of potential startup talent, both founders and employees, is locked up in secure corporate jobs. Throw in the conservative tradition of family expectations, which can make it hard for children to justify leaving the safety of a big company, and it is perhaps no wonder that Korea has relatively fewer startups compared to other economies of comparable size.

But that is changing.

Coupang has been one of the highest profile examples to follow, alongside the (now public) Kakao business. But with Viva Republica, Toss and a charismatic dentist-turned-founder, another startup story is being written and that could just inspire a future generation of entrepreneurs to rise up and be counted in South Korea.

News Source = techcrunch.com

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