Posted on

BTS’s Loyal Army of Fans Is the Secret Weapon Behind a $4 Billion I.P.O.

It’s 10:30 on a Monday night, and Ashley Hackworth is putting the final touches on a personal project to make the world’s biggest boy band a little bit bigger.

Ms. Hackworth, who teaches English in South Korea, is on a Zoom call with five other fans of the Korean pop group BTS, planning a virtual meet-up for followers. An online game for the event still needs work. Someone has to reach out to local radio stations about media coverage. And who can contact potential sponsors?

Their fan group will not be paid a dime for promoting the band. But without their efforts, and those of a vast network of other hyper-dedicated fans, the Korean company that manages BTS, Big Hit Entertainment, would not now be a multibillion-dollar enterprise.

On Thursday, shares in the company will begin trading in South Korea, capping off the country’s most hotly anticipated initial public offering since 2017. Institutional and retail investors across the world scrambled to get a piece of Big Hit before the listing, with hundreds of pre-orders for every share. Big Hit, which reported a profit of $86 million last year, is valued at around $4 billion, after raising more than $800 million by offering investors about 20 percent of the company.

Naturally, there are some concerns about an enterprise whose main product is a boy band — a creation not known for a long shelf life. For now, though, many investors see the listing as a golden opportunity, amid a global recession, to own a slice of a musical phenomenon that was the world’s most lucrative touring act last year and, by one estimate, adds more than $3.5 billion annually to South Korea’s economy.

Image
Credit…Jean Chung for The New York Times

But what these investors are really paying for is not necessarily Big Hit or even BTS. It’s a huge and highly connected ecosystem of fans like Ms. Hackworth with a deep, even life-changing, attachment to the group and its message of inclusivity and self-love.

BTS supporters, who call themselves the Army, don’t just attend concerts or buy the band’s seemingly endless stream of merchandise (although they do plenty of that). They have organized themselves into groups that perform a host of services on the band’s behalf, from translating a fire hose of BTS content into English and other languages (applications required, experience preferred) to paying for advertising and running highly coordinated social media campaigns.

Big Hit’s biannual corporate meetings receive millions of views online from hard-core fans, who scrutinize business strategy. And like any good company, the Army is obsessed with metrics: One Twitter account, @btsanalytics, which pumps out bone-dry data on album sales, YouTube views and music streaming numbers, has more than 2.5 million followers. Fans use the numbers to set, and follow through on, ambitious goals for BTS song and album releases — an approach intended to help the band climb the global charts.

Fans also look out for other fans. Lawyers educate followers about legal issues. Teachers offer tutoring. And as Big Hit’s I.P.O. approached, those with investment backgrounds started online chat groups to counsel less financially savvy fans on the ins and outs of investing in the company.

Image

Credit…Jean Chung for The New York Times

“We’re Army Incorporated,” Ms. Hackworth, 30, said during a recent interview from her apartment, where the group’s posters and seven branded baseball caps, one for each member, decorated the walls. The fan group functions like any company, she joked, although “no one is in charge of us, really, and we don’t have a C.E.O. unless you consider that BTS.”

The Army, whose name stands for Adorable Representative M.C. for Youth, is often depicted as a group of screaming teenage girls. The reality is different: While its demographics are hard to pin down — many members seem to be women in their 20s and 30s — the band’s fan base is broadly diverse, cutting across lines of gender, age, religion and nationality.

Compared with fan groups that have come before them, BTS’s followers are “so much savvier and strategic and smarter than what we’ve seen, especially in taking advantage of and utilizing platforms like social media to really achieve their goals,” said Nicole Santero, a Ph.D. student at the University of Nevada, Las Vegas, who has conducted extensive research on the Army.

BTS — whose name is an abbreviation of the Korean words Bangtan Sonyeondan, or Bulletproof Boy Scouts — has won a large following with its boyish good looks, slick dance moves and catchy music, spanning genres from rap to disco.

But what fans really respond to is the band members’ carefully cultivated and inspirational story of fighting their way to the top of the music business while staying true to themselves, Ms. Santero said. Their emotional openness and focus on mental health make fans “feel that BTS represents something that has impacted them and changed their lives, so supporting them is sort of their way of giving back to the group,” she said.

That devotion has allowed Big Hit to make BTS, which declined a request for an interview, into something more than just a band or even a brand. It is also a kind of lifestyle product, incorporating a dizzying array of content and merchandise, from variety shows to web comics, from video games to Korean-language courses. Its language textbooks are taught at Middlebury College and the École Normale Supérieure, one of France’s most prestigious graduate schools.

Image

Credit…Jeong Eun Song

One of Big Hit’s early innovations was to provide fans with hours of video showing the group’s members going about their daily lives — eating, working out and even just relaxing — creating an unusual level of intimacy with their followers.

Big Hit’s approach, which it describes as offering “music and artist for healing,” has set it apart in an industry notorious for coldly rational business calculations and paternalistic treatment of artists. Most of Big Hit’s Korean competitors build musical groups from the top down, recruiting thousands of trainees annually and spending years drilling them in singing, dancing and public comportment.

But Big Hit bet that fans would prefer human vulnerability to superficial polish. While the company is fiercely protective of BTS’s image, it describes itself as the group’s partner, and it has given the band members a degree of freedom uncommon in the world of corporate K-pop.

The Army has embraced the image projected by the company and its founder, Bang Si-hyuk, a longtime music producer who in 2010 discovered BTS’s leader, RM, then a 16-year-old underground rapper, and built the group around him. Fans view Mr. Bang as a doting father figure who raised the men from obscurity and supports their interests, whether that means making albums with references to Carl Jung or starting an initiative to promote contemporary art.

In the lead-up to the I.P.O., Mr. Bang demonstrated his commitment to treating the BTS members as equals by giving them more than 478,000 of his own shares in the company. Army members applauded the move, although some questioned whether Mr. Bang — who holds 43 percent of the company and is set to be worth nearly $1.4 billion — should have given the men more.

He would do well to keep the group and its fans happy. BTS accounted for almost 88 percent of the company’s sales in the first half of 2020, down from more than 97 percent during the same period the previous year.

That dependence on BTS is investors’ biggest concern. The normal worries that a company might have about any pop group — like the possibility of its breaking up or leaving the label — are exacerbated in South Korea by the country’s mandatory 18-month military service for men. Barring a change in the law or a deferment, BTS’s oldest member will have to report for duty as early as the end of next year, with the other members close behind.

Image

Credit…Jean Chung for The New York Times

Big Hit has tried to reduce those risks by diversifying. It now has five acts in addition to BTS. More important, it has positioned itself as a “content creator” in the vein of Disney, with BTS essentially playing the role of Mickey Mouse — a priceless intellectual property that can be spun off in almost limitless directions.

That means projects like the BTS Universe, a fantasy world populated by fictional versions of the band. The concept is similar to Disney’s approach to the Star Wars or Marvel Comics franchises, drawing fans into a constantly expanding cosmos of new content and merchandise that can eventually accommodate Big Hit’s other musical acts.

The company has also built its own social media platform, WeVerse, a commitment to digital content that is already paying off. Big Hit has increased its revenue sharply in 2020 even as the coronavirus forced BTS to cancel its sold-out world tour. Over the weekend, the group held a two-day online concert through WeVerse for which it sold nearly a million tickets, costing at least $43 each.

The concert rode the band’s success on the music charts. In early September, thanks to a push by the Army, BTS’s first English-language single, “Dynamite,” debuted at No. 1 on Billboard’s Hot 100 — a first for a Korean pop group. On Monday, another of its songs, a remix of “Savage Love,” also debuted at No. 1, further raising the high expectations for Big Hit’s share listing.

Laksmi Astari, 22, an Indonesian student majoring in fashion design at Sookmyung Women’s University in Seoul, is planning to pool money with her sister and a cousin to invest in Big Hit — her first time buying stock.

Image

Credit…Jean Chung for The New York Times

She is not overly concerned about potentially losing the money. She sees shares in the company as a kind of merchandise that might one day pay for itself.

“I get to invest in idols that I like, and it allows me to stay connected to BTS,” she said.

For Big Hit, a lot is riding on whether it can persuade fans like Ms. Astari to channel their enthusiasm toward the company’s other acts.

It might be a hard sell. Ms. Hackworth and the other members of her BTS fan group said that while they were enthusiastic about the prospects for Big Hit’s share offering, they were doubtful that lightning could strike twice.

“There’s no replication,” Ms. Hackworth said. “There’s just one BTS and one Army.”

Posted on

Snowflake Stock More Than Doubles in IPO Debut

SAN FRANCISCO — It’s bonanza time in Silicon Valley and on Wall Street.

Snowflake, a data storage and analytics provider, kicked off a frenzied phase of technology initial public offerings on Wednesday when its stock opened at more than double its listing price and then soared in early trading, in a sign of Wall Street’s appetite for fast-growing companies.

The company opened at $245 a share on the New York Stock Exchange, up from $120 set by its bankers, and then shot up to as high as $319 before closing at $254. The listing, which valued Snowflake at $70.4 billion, was the largest so far this year and the largest ever for a software maker, according to Renaissance Capital, which tracks I.P.O.s. It was also a major payday for Snowflake’s venture capital investors, who had valued the start-up at $12.4 billion just seven months ago.

Snowflake is among several prominent tech companies that are expected to list their shares in the coming months as the tech industry thrives amid the pandemic-induced economic downturn. After a lull in I.P.O.s during the volatile early months of the coronavirus crisis this spring, new listings roared back over the summer and have accelerated in recent weeks, even as tech stocks hit some recent turbulence.

Other companies are also rushing to get out ahead of the Nov. 3 election, which could lead to more volatility. They include Airbnb, the home rental company; DoorDash, the on-demand delivery provider; Wish, an e-commerce site; Palantir, a data analytics start-up; OpenDoor, a real estate marketplace; and Asana, a collaboration software provider.

This week, the software companies Sumo Logic, American Well Corporation and Unity Software are also set to go public, along with JFrog, which listed its shares on Wednesday. Together, the debuts represent a private market value of more than $78 billion.

Investors are eager to back hot I.P.O.s to juice their returns, said Kathleen Smith, principal at Renaissance Capital. “We’ve been on this rocket ship of returns since the drop in March,” she said.

But Ms. Smith cautioned that Snowflake’s high price set it up for trouble if it did not keep growing quickly. “It’s nosebleed territory,” she said. “It can’t mess up on the growth side.”

Frank Slootman, Snowflake’s chief executive, agreed. “This is just a hot deal, and we’ll have to live with the consequences of it,” he said in an interview with CNBC.

The action followed weeks of mounting hype over Snowflake, which offers database software that companies use to store and analyze their reams of information. Mr. Slootman, a longtime Silicon Valley software executive who has led Snowflake since 2019, previously ran ServiceNow and Data Domain, both of which also went public.

On Tuesday, Snowflake sold 28 million shares for $120 each, a sharp increase from its initial price range of $75 to $85. It raised a total of $3.4 billion in its offering, which was led by Goldman Sachs and Morgan Stanley.

The company’s revenue has been growing quickly, jumping 133 percent in the first six months of the year to $242 million, up from $104 million during the same period last year. But it is also unprofitable, losing $171 million in the first half of this year. In its offering prospectus, Snowflake emphasized that once customers begin using its services, it often gets them to move more of their data onto its platform.

Snowflake’s largest investors include Sutter Hill Ventures, which owns 20 percent of the company, as well as Altimeter Capital, Redpoint Ventures, Sequoia Capital and Iconiq Capital. Last week, Berkshire Hathaway and Salesforce Ventures each agreed to purchase $250 million of shares in Snowflake’s public offering, stoking hype around the listing.

In recent years, public market investors have been skeptical of the richly valued, money-losing “unicorn” start-ups that enjoyed a decade of free-flowing venture capital. Last year, Uber’s I.P.O. flopped and WeWork, the co-working company, pulled its I.P.O. after intense scrutiny.

The arrival of the coronavirus in March further threatened to upend the start-up industry. But the opposite has happened. Start-ups and big technology companies alike have benefited as people work and learn from home and live more of their lives online. Now start-ups are taking advantage of the booming stock market and investor excitement for tech.

Several tech start-ups with upcoming market debuts plan to try new methods and processes for the transaction. Some, including OpenDoor, the vehicle sales site Shift Technologies and various electric vehicle makers, are agreeing to “blank check” mergers via special purpose acquisition companies. Such transactions offer more flexibility around deal terms and can be completed quickly.

Others, like Palantir and Asana, said they would go public via direct listing, which bypasses the traditional underwriting process. With a private valuation of $20 billion, Palantir could be the largest company to try such a transaction, following in the footsteps of Slack, the workplace collaboration service, and Spotify, the music streaming company. Venture capitalists have argued for this method because it does not aim for a first-day trading “pop” that indicates the company could have priced its shares higher and raised more money from the transaction.

Past direct listings have also not raised new capital, but in August, the Securities and Exchange Commission approved the New York Stock Exchange’s plan to let companies raise money in direct listings. The plan has been criticized by some as harmful to potential investors.

Other companies may explore the Long Term Stock Exchange, a new trading platform created by Eric Ries, author of tech bible “The Lean Startup.” The exchange, which is intended to give longer-term investors more voting control, is backed by several of Silicon Valley’s top investors. It opened for business last week.

Posted on

Snowflake More Than Doubles in Debut as Wall Street Embraces Tech IPOs

SAN FRANCISCO — It’s bonanza time in Silicon Valley and on Wall Street.

Snowflake, a data storage provider, kicked off a frenzied phase of technology initial public offerings on Wednesday when its stock immediately more than doubled in its market debut, in a sign of Wall Street’s appetite for fast-growing companies.

The company opened at $245 a share on the New York Stock Exchange, up from $120 set by its bankers, before shooting to $298 and then later bouncing around. The listing, which valued Snowflake at more than $68 billion, was the largest so far this year and the largest ever for a software maker, according to Renaissance Capital, which tracks I.P.O.s. It was also a major payday for Snowflake’s venture capital investors, who had valued the start-up at $12.4 billion just seven months ago.

Snowflake is among several prominent tech companies that are expected to list their shares in the coming months as the tech industry thrives amid the pandemic-induced economic downturn. After a lull in I.P.O.s during the volatile early months of the coronavirus crisis this spring, new listings roared back over the summer and have accelerated in recent weeks, even as tech stocks hit some recent turbulence.

Other companies are also rushing to get out ahead of the Nov. 3 election, which could lead to more volatility. They include Airbnb, the home rental company; DoorDash, the on-demand delivery provider; Wish, an e-commerce site; Palantir, a data analytics start-up; OpenDoor, a real estate marketplace; and Asana, a collaboration software provider.

This week, the software companies Sumo Logic, American Well Corporation and Unity Software are also set to go public, along with JFrog, which listed its shares on Wednesday. Together, the debuts represent a private market value of more than $78 billion.

Investors are eager to back hot I.P.O.s to juice their returns, said Kathleen Smith, principal at Renaissance Capital. “We’ve been on this rocket ship of returns since the drop in March,” she said.

But Ms. Smith cautioned that Snowflake’s high price set it up for trouble if it did not keep growing quickly. “It’s nosebleed territory,” she said. “It can’t mess up on the growth side.”

Frank Slootman, Snowflake’s chief executive, agreed. “This is just a hot deal, and we’ll have to live with the consequences of it,” he said in an interview with CNBC.

The action followed weeks of mounting hype over Snowflake, which offers database software that companies use to store and analyze their reams of information. Mr. Slootman, a longtime Silicon Valley software executive who has led Snowflake since 2019, previously ran ServiceNow and Data Domain, both of which also went public.

On Tuesday, Snowflake sold 28 million shares for $120 each, a sharp increase from its initial price range of $75 to $85. It raised a total of $3.4 billion in its offering, which was led by Goldman Sachs and Morgan Stanley.

The company’s revenue has been growing quickly, jumping 133 percent in the first six months of the year to $242 million, up from $104 million during the same period last year. But it is also unprofitable, losing $171 million in the first half of this year. In its offering prospectus, Snowflake emphasized that once customers begin using its services, it often gets them to move more of their data onto its platform.

Snowflake’s largest investors include Sutter Hill Ventures, which owns 20 percent of the company, as well as Altimeter Capital, Redpoint Ventures, Sequoia Capital and Iconiq Capital. Last week, Berkshire Hathaway and Salesforce Ventures each agreed to purchase $250 million of shares in Snowflake’s public offering, stoking hype around the listing.

In recent years, public market investors have been skeptical of the richly valued, money-losing “unicorn” start-ups that enjoyed a decade of free-flowing venture capital. Last year, Uber’s I.P.O. flopped and WeWork, the co-working company, pulled its I.P.O. after intense scrutiny.

The arrival of the coronavirus in March further threatened to upend the start-up industry. But the opposite has happened. Start-ups and big technology companies alike have benefited as people work and learn from home and live more of their lives online. Now start-ups are taking advantage of the booming stock market and investor excitement for tech.

Several tech start-ups with upcoming market debuts plan to try new methods and processes for the transaction. Some, including OpenDoor, the vehicle sales site Shift Technologies and various electric vehicle makers, are agreeing to “blank check” mergers via special purpose acquisition companies. Such transactions offer more flexibility around deal terms and can be completed quickly.

Others, like Palantir and Asana, said they would go public via direct listing, which bypasses the traditional underwriting process. With a private valuation of $20 billion, Palantir could be the largest company to try such a transaction, following in the footsteps of Slack, the workplace collaboration service, and Spotify, the music streaming company. Venture capitalists have argued for this method because it does not aim for a first-day trading “pop” that indicates the company could have priced its shares higher and raised more money from the transaction.

Past direct listings have also not raised new capital, but in August, the Securities and Exchange Commission approved the New York Stock Exchange’s plan to let companies raise money in direct listings. The plan has been criticized by some as harmful to potential investors.

Other companies may explore the Long Term Stock Exchange, a new trading platform created by Eric Reis, author of tech bible “Lean Startup.” The exchange, which is intended to give longer-term investors more voting control, is backed by several of Silicon Valley’s top investors. It opened for business last week.

Posted on

What’s a Palantir? The Tech Industry’s Next Big I.P.O.

About a month before he became president, Donald J. Trump met with the leaders of the country’s top technology companies at Trump Tower in Manhattan.

The meeting included the chief executives of Amazon, Apple, Google and Microsoft and other household names like Tesla and Oracle. And then there was Alex Karp, chief executive of a company called Palantir Technologies that few outside Silicon Valley and government circles had heard of.

Palantir, the only privately held company represented in the room, had become a major player among government contractors. And, indicative of its growing prominence, one of its founders, the venture capitalist Peter Thiel, had supported Mr. Trump during the 2016 election and had helped set up the meeting.

Now, as Palantir prepares to go public in what could be the largest stock market listing of a tech start-up since Uber last year, many are wondering: What exactly does this influential but little-known company do?

Offering software — and, crucially, teams of engineers that customize the software — Palantir helps organizations make sense of vast amounts of data. It helps gather information from various sources like internet traffic and cellphone records and analyzes that information. It puts those disparate pieces together into something that makes sense to its users, like a visual display.

But it can take plenty of engineers and plenty of time to make Palantir’s technology work the way customers need it to. And that mix of technology and human muscle may lead to some confusion on Wall Street about how to value the company. Is Palantir a software company, which is traditionally a very profitable business, or is it a less-profitable consulting firm. Or is it both?

“For investors, it is a bit of a Rubik’s Cube,” said Daniel Ives, managing director of equity research at Wedbush Securities.

Palantir, which was founded in 2003, has long described its technology as ideal for tracking terrorists, often embracing an unconfirmed rumor that it helped locate Osama bin Laden. The name Palantir is a nod to spherical objects used in “The Lord of the Rings” books to see other parts of fictional Middle-earth.

Funded in part by In-Q-Tel, the investment arm of the Central Intelligence Agency, the company built its flagship software technology, Gotham, with an eye toward use inside the C.I.A.

Image
Credit…Christophe Petit Tesson/EPA, via Shutterstock

Palantir’s technologies can also help track the spread of the coronavirus, as it is now doing for the Center for Disease Control. And they can help locate undocumented immigrants, which is how U.S. Immigration and Customs Enforcement, under orders from the White House, is using these technologies, according to recently released federal documents.

The company is deeply wedded to its work inside the government. Though some Palantir employees have protested its work with ICE and other parts of the government, it has not backed off.

In a letter to potential investors, included in a filing with the Securities and Exchange Commission on Tuesday, Mr. Karp pointedly jabbed at fellow Silicon Valley companies and said he was proud of Palantir’s work with federal agencies.

“Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments,” he wrote, adding that “software projects with our nation’s defense and intelligence agencies, whose missions are to keep us safe, have become controversial, while companies built on advertising dollars are commonplace.”

In recent years, Palantir has tried to expand its work in the private sector, serving big-name businesses like JPMorgan Chase, Airbus and Ferrari and offering new software tools that businesses can use on their own. A little more than half of Palantir’s revenue now comes from commercial businesses, according to the S.E.C. filing.

The 2,500-employee company holds about a 3 percent share of what has become a $25 billion “data analytics” market, according to PitchBook, a firm that tracks the performance of private companies. “That is a small but significant share,” said a PitchBook analyst, Brendan Burke.

Palantir has raised more than $3 billion in funding and is valued by private market investors at $20 billion, but it has not turned a profit since it was founded in 2003. In 2019, Palantir’s revenues topped $742.5 million, a nearly 25 percent increase over the previous year. But it lost more than $579 million, about the same as it lost in 2018, according to the financial documents made public on Tuesday.

The company recently announced that it was moving its headquarters to Denver, which could cut expenses.

A Palantir spokeswoman declined to comment for this article.

Though the company has won an impressive array of federal contracts — in the last four years, it landed at least $741 million in guaranteed money and potentially as much as $2.9 billion, according to the documents — it has also stoked controversy among competitors and federal employees.

Image

Credit…Shannon Stapleton/Reuters

In 2016, the company sued the Army over the procurement process for a new version of an intelligence analysis system, claiming the process was unlawful and wasteful. Palantir ended up winning the contract, which accounts for $1.7 billion of the $2.9 billion in potential federal contract money it has won since 2016.

In April, an anonymous government official sent a lengthy memo to Joseph D. Kernan, the under secretary of defense for intelligence, describing the inner workings of a flagship Pentagon operation called Project Maven.

An effort to remake American military technology through artificial intelligence, Project Maven has drawn on the expertise of more than 20 American companies, including Palantir.

The project points to how Palantir works with customers. It often deploys specialists, called “forward deployed engineers,” who spend weeks, months or years customizing and expanding its software for the task at hand. The company builds whatever data software that needs building — databases and software connections and on-screen visual displays that help people get their work done.

The details of Palantir projects can vary. It usually connects different sources of data and provides a way for everyday employees to search through it. But in Project Maven, it is offering tools that help seasoned, artificial intelligence specialists build complex mathematical systems, called deep neural networks, that can recognize objects in images.

Inside Project Maven, Palantir provides software that holds enormous amounts of video footage captured by flying drones operated by the Army and the Air Force. A.I. specialists then use this software to build systems that can automatically identify buildings, vehicles and people in the footage.

The memo, obtained by The New York Times, said that although Palantir had come late to Maven, the company had grown to “touch almost every aspect” of the project through contracts worth approximately $40 million a year. The document accused Maven leadership of skirting Pentagon rules and ethics in giving preferential treatment to the start-up, whose employees had developed unusually close relationships with their partners inside the military.

The memo and related emails showed the company’s considerable influence inside the government.

Image

Credit…Andrew White for The New York Times

Among other complaints, the memo to Mr. Kernan claimed that a Palantir employee had sat in on a meeting where government officials — some of whom did not know the Palantir employee was in the room — discussed future contracts and their dollar amounts, which could give the company an “astounding” advantage when bidding for new work.

After the memo, the Defense Department began a formal inquiry into Project Maven, according to two people familiar with the matter who were not allowed to speak about it publicly. The outcome is not yet known. A Defense Department spokesman for Project Maven declined to comment.

Palantir’s unusual business model is not always a perfect fit for military contracts. Though Palantir sells a combination of software and consulting services, all costs are folded into a single software license negotiated with the customer. In other words, the consulting work done by its engineers is layered into the software licensing fees, according to company financial documents. Typically, the government pays for consulting work separately from software licenses.

This means customers often pay for technology that is not yet built. “It is very unusual,” said Jeff Peters, head of global business development at Esri, a longtime government contractor that competes with Palantir. “The business model is different from almost any other technology company.”

Image

Credit…Peter DaSilva for The New York Times

VMware Pivotal Labs, a division of Dell, has adopted a similar model to Palantir, saying that it helps customers produce software that actually does what it is supposed to do.

This unusual business model has led to complaints, including in the memo to Mr. Kernan, that Palantir locks customers into its technology. Though the company is in ways building custom software, that software is still owned by Palantir because it is sold under a commercial software license. That means Palantir can sell that customized software to other clients.

All this hangs over the company as it prepares to go public. If Palantir stumbles, many competitors are poised to build similar technology for the government, including traditional government contractors like Oracle as well as Amazon, Microsoft and a growing number of other tech companies.

“There has been an assumption that Palantir is the only major player in this space,” said Jack Poulson, executive director of Tech Inquiry, which tracks the government work of tech companies. “But it is clear that is not the case.”

Posted on

Ant Group, the Alibaba Payment Affiliate, Files to Go Public

Ant Group, the payment- and finance-focused sister company of the Chinese e-commerce titan Alibaba, filed paperwork on Tuesday to list shares in Hong Kong and Shanghai, the first steps toward what could be a blockbuster initial public offering.

Online finance has exploded in China in recent years, and Ant’s flagship service, Alipay, has been a key driver. Relatively few people in China had credit cards when e-retail and other internet services began taking off in the country. That has helped app-based payments become far more ubiquitous in China than they are in the West.

In China, $67 trillion in transactions were conducted on mobile devices in 2018, according to estimates by the research firm Bernstein. Many of those took place through Alipay and WeChat, a rival digital wallet and messaging app owned by another Chinese internet giant, Tencent.

Once people were using Alipay to stash their cash and pay for online purchases, Ant could begin offering them other kinds of services through the app, including personal loans and insurance policies. Alipay says it has 900 million users in China.

“That super-app approach — where you create an ecosystem that’s enabled by payments, and then you layer on the other products and services both financial and nonfinancial — is something that no other company around the world has successfully done,” said Zennon Kapron, the director of Kapronasia, a research firm focused on the financial technology industry.

Ant’s share sale is likely to be big. The company raised funding two years ago at a valuation of $150 billion, which made it one of the most richly valued private businesses in the world.

The company’s filings on Tuesday did not indicate how much it hoped to raise through the share sales. Investors did, however, get their first detailed look at key company financials.

Ant said it generated $17 billion in revenue last year, a jump of more than 40 percent from 2018. More than half of its 2019 revenue came from financial services such as lending, wealth management and insurance that were offered through Alipay. The fees it earned from processing payments and serving merchants accounted for almost all of the rest.

The company said that transactions worth $16 trillion took place on Alipay last year, a one-fifth increase from the year before. It also noted that the platform had enabled $290 billion in credit to individuals and small businesses, as well as $500 billion in investments.

Unlike some other fast-growing tech companies that have listed shares in recent years, Ant is not losing money. It said its profit last year was around $2.5 billion.

Ant’s offering signals confidence in Hong Kong’s status as a financial hub at a time of upheaval. The central authorities in Beijing have used a new national security law to clamp down on antigovernment protests in Hong Kong, a Chinese territory, and in the process have cast doubt on its status as freethinking and laissez-faire. The city has also been strained by waves of coronavirus infections.

Ant’s choice of Chinese exchanges over American ones is meant to capitalize on the interest of local investors, for whom Alipay is a household name. Alibaba held a giant share sale in New York in 2014 and a second listing in Hong Kong last year.

But it also reflects the uneasy state of affairs for Chinese technology companies in the United States. President Trump has vowed to restrict apps including WeChat and TikTok in the name of safeguarding Americans from data gathering by the Chinese Communist Party.

Last week, Alibaba’s chief executive, Daniel Zhang, referred to the situation between Chinese companies and the Trump administration as “fluid.”

“We are closely monitoring the latest shift in U.S. government policies,” Mr. Zhang said during a conference call with analysts.

Alibaba created Alipay in 2004 as a tool for building trust between buyers and sellers on its online bazaars. At the time, internet retail was nascent in China. By holding payments in escrow, Alipay helped assure customers that they would not lose money if merchants turned out to be scammers.

Over time, Alipay evolved into an all-purpose payment tool, and Alibaba spun it out as a separate entity, which was rebranded as Ant Financial in 2014. The two companies had a profit-sharing deal until Alibaba acquired a one-third stake in Ant last year.

Recently, the company has begun dropping the “financial” from its English name, saying it wants to emphasize its technology.

Ant has sought to broaden its global reach by partnering with payment companies in India, Southeast Asia and Britain. But its ambitions in one giant market have been thwarted by politics. In 2018, it broke off talks to buy the American money transfer company MoneyGram after the deal failed to win the blessing of a Washington committee that scrutinizes investment transactions for national security risks.

Posted on

Electric Vehicle Makers Find a Back Door to Wall Street

Steve Burns pulled together several pieces of a business venture over the last year: His company, Lordstown Motors, designed an electric pickup truck, acquired a plant and machinery from General Motors, and racked up thousands of orders.

Yet Mr. Burns was still struggling to raise enough capital. This month, he nailed down that critical piece by agreeing to merge Lordstown Motors with a special purpose acquisition company, or SPAC, a transaction that will net the truck maker $675 million and a listing on Nasdaq.

Another upside: Unlike a conventional initial public offering, a SPAC merger will take just a couple of months, Mr. Burns said. “The traditional I.P.O. time is maybe a year and a half,” he said. “We are in a race to be first with electric trucks. We wanted to get it done and get to the business of building the vehicle.”

SPACs are suddenly in the limelight.

These companies have long existed on the sidelines, providing small or distressed companies with capital and the ability to list their shares on a stock exchange — things they might not have access to otherwise. Sometimes called blank-check companies, SPACs raise money from investors without having a detailed business plan. Their sole purpose is to find another business to buy within two years. If that doesn’t happen, the company folds and investors get their money back.

Although industry watchers say SPAC frauds are rare, one SPAC’s purchase last year of Modern Media Acquisition, a music-streaming business whose books were later alleged to be fraudulent, gave some investors pause. And some aspects of the SPAC business model — namely, the fact that sponsors of these acquisition companies are frequently able to buy substantial stakes in the business they merge with at minimal cost — have raised questions about their benefit to typical shareholders.

In recent months, investors behind SPACs have become particularly enamored with electric vehicle businesses amid rising expectation that such cars and trucks will soon begin displacing vehicles powered by fossil fuels. Shares of Tesla, the world’s leading electric carmaker, have soared so much that its market capitalization is nearly twice as big as Toyota Motor’s.

SPAC transactions with automotive businesses have so far totaled nearly $10 billion — a trend that Kristi Marvin, a former investment banker who now runs the data site SPACInsider, called the summer of “deals with wheels.”

In June, Nikola, which intends to make heavy trucks powered by electricity and hydrogen fuel cells, merged with a SPAC. Investors have set its valuation at about $15 billion — more than half of what the market thinks Ford Motor is worth — even though Nikola hasn’t begun commercial production.

Image

Credit…Ross Mantle for The New York Times
Image

Credit…Lordstown Motors/via Reuters

Another electric hopeful, Fisker, has agreed to merge with an acquisition company backed by Apollo Global Management, the private equity firm.

Apollo is just one of several prominent investors that have embraced SPACs. In late July, Pershing Square Tontine Holdings, which is run by the hedge fund manager Bill Ackman, raised $4 billion in an offering on the New York Stock Exchange. Social Capital, which is run by a former Facebook executive, Chamath Palihapitiya, has backed a handful, including one that merged with Virgin Galactic last year.

Michael Klein, a former Citigroup executive, has raised a handful of acquisition companies under the name Churchill Capital. Last month, one of his firms announced a $11 billion deal with the health care services provider MultiPlan.

So far this year, SPAC activity by dollar volume has almost doubled from all of last year, setting a record of $31.3 billion, according to SPACInsider. Credit Suisse has been the most active bank in underwriting the deals, SPACInsider reports, followed by Goldman Sachs and Citigroup.

“It’s always challenging to do a big I.P.O. above $1 billion, especially in today’s volatile environment and the time it takes to file and tell your story to investors,” said Boon Sim, the founder and managing partner of Artius Capital Partners, a private equity firm. Last year, for example, WeWork shelved its I.P.O. after investors grew wary about the office-space company’s management and financial prospects.

In June, Mr. Sim teamed up with Charles Drucker, a former chief executive of the payments company Worldpay, to start a $525 million SPAC that is looking to buy a technology or fintech company.

Pension funds, mutual funds and other investors have warmed to SPACs partly because low interest rates have forced them to search for higher returns.

Since 2018, SPACs have primarily acquired tech and industrial businesses, followed by energy and finance companies, with a typical deal value of close to $1 billion, according to a recent analysis by Goldman Sachs. Soon after offerings were announced, the average SPAC outperformed the stock market, Goldman found, but lagged the broad market after it completed an acquisition.

Mr. Ackman’s SPAC is the largest ever. His company says that because it has the right to buy additional shares of the target business, Pershing Square Tontine’s buying power could be as high as $7 billion. To make the deal more attractive to future investors, Pershing plans to eliminate a feature typical of acquisition companies that allows the sponsor — in this case Pershing — to buy 20 percent of the company it has merged with practically for free.

Mr. Ackman’s seven-person investment team is prospecting broadly for an acquisition target. It is looking for what it calls a “mature unicorn”: a high-quality, venture capital-backed business that was considering an I.P.O.; a distressed company owned by private equity backers; or perhaps a family-owned business. Pershing hopes to sign a deal by next summer.

“There are more large-cap private companies today than ever before,” Mr. Ackman said. In contrast to some of the more speculative deals he has observed, he contended, “we’re trying to merge with a business we can own for a decade.”

Mr. Burns of Lordstown Motors said his deal had come together after he made little headway raising money from investors through conventional means. Many people he spoke to were reluctant to take a chance on an untested company, especially once the coronavirus pandemic took hold this spring.

Executives at Goldman Sachs connected him to David Hamamoto, a Goldman alumnus who had a successful run in real estate investing. Mr. Hamamoto’s SPAC, DiamondPeak Holdings, had considered more than 150 companies for a potential deal.

Image
Credit…Ross Mantle for The New York Times

Meeting early June, the two men traveled to Los Angeles to see a prototype of Lordstown Motors’ truck, the Endurance, and toured the company’s factory, a former G.M. plant in Lordstown, Ohio. In July, they began holding six to eight Zoom calls a day with institutional investors. After three weeks they had raised some $500 million in what is known as a private investment in a public entity, from companies like G.M., Fidelity, BlackRock and Wellington Management.

The deal gives Lordstown Motors an estimated valuation of $1.6 billion, and Mr. Burns said the company was now planning to start cranking out pickups next year.

Mr. Hamamoto said he was keen to invest in electric vehicles. He acknowledged that electric cars made up only about 2 percent of the U.S. market, but added that number could climb to more than 50 percent within 20 years, according to some analysts.

“You see what Tesla has done over the past year, and now everybody is taking note of this secular shift to electric,” he said.

Image

Credit…Ross Mantle for The New York Times
Image

Credit…Ross Mantle for The New York Times

Other start-ups are trying to compete head to head with Tesla, which also plans to make an electric pickup, but Lordstown Motors is focusing on what for now is a relatively uncrowded space — work trucks bought by electric utilities, construction companies and other businesses.

“The fact that we are going after the commercial fleet market is a differentiated value proposition,” Mr. Hamamoto said.

Lordstown Motors had orders for 15,000 trucks before the SPAC deal was announced at the start of this month, a number that quickly shot up to 27,000, or about $1.4 billion in potential sales, Mr. Burns said.

Of course, the company still faces challenges. Each wheel of the Endurance is powered and controlled by its own electric motor. That eliminates many moving parts like drive shafts and axles, but the design is relatively untested. Mr. Burns also has to hire engineers, line up suppliers and set up an assembly line.

Few start-ups have succeeded in the auto industry. Tesla, for example, struggled for years before recently reporting four consecutive profitable quarters. In 2019, its stock tumbled as sales sputtered.

Lordstown Motors’ transaction with DiamondPeak is scheduled to close in October. Mr. Burns said he hoped that the infusion of capital would be enough to get trucks rolling off the assembly line.

“We want enough upfront to get us all the way to the promised land,” he said.

Anupreeta Das contributed reporting.

Posted on

Palantir, Tech’s Next Big I.P.O., Lost $580 Million in 2019

SAN FRANCISCO — Palantir, a Silicon Valley company with strong links to the defense and intelligence communities, is poised to be the latest in a string of tech companies to offer shares on Wall Street well before turning a profit.

The company sent financial documents to its investors on Thursday night, ahead of its planned debut on the public markets this year. The documents, obtained by The New York Times, offer the first full look into the company’s financials and operations and show growing operating expenses as well as deep losses.

Palantir’s revenue in 2019 was $742.5 million, nearly 25 percent more than the year before. Its net loss of $580 million was about the same as 2018. And expenses were up 2 percent in 2019 to a little more than $1 billion.

The company, which has raised more than $3 billion in funding and is valued by private market investors at $20 billion, has not turned a profit since it was founded in 2003. As early as 2014, Palantir had fanned expectations that it would soon hit $1 billion in revenue. Six years later, it appears to be closing in on that goal. In the first six months of this year, Palantir’s revenue was $481 million.

A Palantir spokeswoman declined to comment. Details from the financial documents were reported earlier by the tech news site TechCrunch.

Palantir was founded by an eclectic group of Silicon Valley entrepreneurs, including Peter Thiel, who helped create PayPal before making an early investment in Facebook, and Alex Karp, Palantir’s chief executive and a former classmate of Mr. Thiel’s at the Stanford University Law School.

The company gained notoriety for its secrecy and government ties, spurred by an investment from In-Q-Tel, the investment arm of the Central Intelligence Agency and encouraged by cryptic comments from Mr. Karp about Palantir’s counterterrorism work.

But Palantir has recently been the subject of sustained protests over its government contracts, particularly its work with Immigration and Customs Enforcement, and critics have called on the company to stop assisting the agency with deportations.

The company licenses two pieces of software, Gotham and Foundry, and provides cloud-computing services and in-person technology support. Its software is designed to aid in data analysis and is widely used by government agencies for tasks like managing complex supply chains or tracking terrorism suspects.

Despite efforts to land more commercial customers, Palantir earned $345.5 million from its work with government agencies in 2019 and $397 million from commercial entities, the documents said. It had 125 customers in the first half of 2020, but did not name them in descriptions of its work.

Mr. Karp had been vocal in the past about his aversion to going public, citing the secret work of Palantir’s customers. An initial public offering “is corrosive to our culture, corrosive to our outcomes,” he said in 2014.

The documents describe Palantir’s plan to go public via a direct listing, in which no new shares are issued and no new funds are raised. This nontraditional method of going public has become more popular among large, high-profile tech companies in recent years, because they can easily raise money from private investors. The direct listings of Slack, the work collaboration software company, and Spotify, the music streaming company, helped popularize the strategy.

In most direct listings, shareholders are not bound by a traditional lockup period before they can sell their stock. But Palantir has imposed a 180-day lockup period. It will allow shareholders to sell 20 percent of their common stock immediately, but they must wait for the lockup to expire to sell more.

The company submitted its confidential filing to go public via direct listing on July 6.

Palantir has arranged a structure to ensure that its founders retain power. They have a special class of shares, Class F, that will have a variable number of votes to ensure the founders control 49.999999 percent of the company’s voting power, even if they sell some of their shares. The company argued to its investors that this structure would allow it to stay “Founder-led” after it went public.

In the documents, Palantir made the case that its strong ties to government contractors were an opportunity, citing the “systemic failures of government institutions to provide for the public.”

“We believe that the underperformance and loss of legitimacy of many of these institutions will only increase the speed with which they are required to change,” the document said.

But the documents also list many risks, including privacy and data protection laws, negative media coverage, the potential loss of Mr. Karp, and customer concentration — 28 percent of Palantir’s revenue came from its top three customers in 2019.

Mr. Karp, who received roughly $12 million in compensation last year, controls 8.9 percent of the company’s voting power. Mr. Thiel controls 28.4 percent of voting through various entities with titles often borrowed from “The Lord of the Rings,” like Rivendell and Mithril.

The name Palantir refers to spherical objects used in “The Lord of the Rings” to see other parts of fictional Middle-earth.

Other stockholders that own more than 5 percent of the company are Founders Fund; Sompo Holdings, the Japanese corporation that operates a joint entity with Palantir in Japan; and UBS. Smaller investors, according to PitchBook, include Fidelity, RRE Ventures, Morgan Stanley and Tiger Global Management.

Cade Metz contributed reporting.

Posted on

Airbnb, a ‘Sharing Economy’ Pioneer, Files to Go Public

SAN FRANCISCO — Airbnb said on Wednesday that it had confidentially filed to go public, taking a key step toward one of the largest public market debuts in a generation of “sharing economy” start-ups.

A public offering by the company, which lets people rent out their spare rooms or homes to travelers, would cap a volatile year in which its business was devastated by the spread of the coronavirus. Airbnb had been privately valued at $31 billion before this year, and the company must now convince investors that it can thrive and turn a profit in a new era of limited travel.

Airbnb declined to comment beyond its brief announcement.

Airbnb’s offering would signal the end of an era for the first wave of highly valued start-up “unicorns,” many of which were founded in the recession of 2008 and then rode a wave of growth fueled by smartphones, gig work and copious amounts of venture capital. In recent years, many of Airbnb’s well-known “sharing economy” peers have gone public (Uber and Lyft), sold themselves (Postmates), or unraveled spectacularly (WeWork).

Its debut will most likely be helped by an ebullient stock market, which has remained robust despite the economic destruction caused by the pandemic. On Tuesday, the S&P 500 hit a new high as investors focused on signs that the worst might be over, and on Wednesday, Apple became the first U.S. company to hit a $2 trillion market value.

Airbnb’s initial public offering plan shows the resilience of the tech industry in the pandemic and an investor appetite for tech stocks, said Ted Smith, president of Union Square Advisors, a tech-focused financial advisory firm.

“There’s going to be some choppiness in the short term until we get through the pandemic,” he said. “But I think it mirrors the overall faith that the market seems to have in the long term.”

Start-ups have taken advantage of the excitement for technology. Tech companies including Lemonade, an insurance provider, and ZoomInfo, a business database company, watched their prices soar after listing over the summer.

Other start-ups such as Palantir, a data company founded by Peter Thiel, and Asana, a collaboration technology provider run by the Facebook co-founder Dustin Moskovitz, are also planning to go public this year. Many are pushing to reach the market before the November election, which typically creates volatility in the stock market. Palantir and Asana declined to comment.

Airbnb was founded in 2008 by Brian Chesky, Nathan Blecharczyk and Joe Gebbia as a way to help people make extra money renting out their spare rooms. The platform has spread to almost every country, amassing seven million listings and attracting $3 billion in funding from venture capital firms including Andreessen Horowitz, Founders Fund and Sequoia Capital.

Airbnb takes a cut of the stays and activities that its rental operators book. It has come closer to turning a profit than Uber or WeWork — until the coronavirus evaporated more than $1 billion of bookings almost overnight. In the spring, Airbnb projected its revenue for 2020 would drop to half of the $4.8 billion it brought in last year. The company quickly cut costs, raised emergency funding, laid off almost 2,000 employees and shelved its plans to go public.

Image
Credit…Jessica Chou for The New York Times

“It really did feel like a moment of truth, a bit of a test,” Mr. Chesky, Airbnb’s chief executive, said in an interview this year.

In May, Airbnb’s revenue began bouncing back as people took summer road trips and sought to stay in private homes away from crowds. The company’s gross bookings — which is its total revenue before it pays commissions to hosts — rose to last year’s levels in June and July, according an internal presentation attended by The New York Times.

Perennially an I.P.O. candidate, Airbnb has been officially preparing to go public since last year when it announced plans to do so in 2020. Pressure for the offering has mounted as some of its early employees have sought a payday from the company shares that they own, which begin expiring this fall.

Last month, Mr. Chesky announced to employees that Airbnb had resumed its plans to go public, declaring that Airbnb “was down but we were not out.”

The company is likely to pitch investors on its fast rebound and ability to adapt to the new reality, but some forms of travel — like international vacations, business travel or anything related to large events — are unlikely to return anytime soon.

Airbnb also aims to make its public market debut stand out by highlighting its business philosophy, called stakeholder capitalism. The philosophy focuses on what is good for society over short-term profits.

Yet Airbnb has tussled with regulators and local communities. Local regulators have battled the company over taxes and enforcement, while community members have criticized the platform for turning neighborhoods into tourist areas and contributing to housing shortages.

Safety has also been an issue. Last year, after a fatal shooting at a party at an Airbnb rental in Orinda, Calif., Airbnb announced it would ban unauthorized parties and crack down on those responsible. It also sought to verify all of its listings to prevent bait-and-switch situations after a viral article about fraudulent listings.

The problem persists. In August, a fatal shooting at a party at an Airbnb rental in Sacramento prompted Airbnb to pursue legal action against the guest who threw the party, a first for the company.

Airbnb has also struggled with hosts who discriminate against nonwhite guests. In June, the company teamed up with the racial justice group Color of Change to try to measure and evaluate discrimination on its site with the aim of preventing it.

Airbnb has also endured scrutiny from its own rental operators. When travel shutdowns began in March, the company allowed customers to cancel nonrefundable bookings, a move that prompted an outcry among its hosts, who relied on the income. Mr. Chesky later apologized for how the decision was communicated.

In the July staff meeting, Mr. Chesky said Airbnb planned to get back to its “roots” by focusing more on its hosts.

“We realized it is just more pressing than ever that we have to get back to what made Airbnb special,” he said. The realization would not have been so clear to him, he said, “had our business not flashed before our eyes a couple months ago.”

Posted on

Can’t Afford a Birkin Bag or a Racehorse? You Can Invest in One

Antonella Carbonaro, a consultant to financial technology companies, saved up to buy her Birkin bag, a luxury tote made by Hermès that sells new for tens of thousands of dollars. Since getting her bag in 2018, Ms. Carbonaro has stored it in her closet, bringing it out only on special occasions.

But when she heard that there was a marketplace to buy shares in other Birkins, including more exotic versions that can fetch six figures, she was in. It is not a lark. Ms. Carbonaro, 30, sees her shares in an exclusive bag as an alternative investment, no different than stakes in private equity funds that invest in a basket of companies.

“This is a visual way to participate in different asset classes that aren’t as accessible,” Ms. Carbonaro said. “Investing in shares of Birkin bags, even though I have one, is getting more exposure.”

She bought 10 shares in a Bleu Lézard Birkin bag that was valued at $61,500 in an offering last year. Earlier this year, she bought 25 shares in a gray Himalaya Birkin. It was valued at $140,000 in an offering in May.

Unlike owning a fractional share of a condominium, she will never be able to use her investment. Shares are traded until the owner of the marketplace sells the asset.

Ms. Carbonaro’s first Birkin investment is trading up 6 percent from the purchase price on Rally Rd., a platform that deals in fractional investments in collectible items. The other one is still in the lockup period and its shares cannot be traded yet.

The market for investing in fractions of items otherwise seen as collectibles — and largely reserved for the wealthiest people — has seen an uptick in interest during the pandemic as people spend more time at home.

Image
Credit…Rally Road

Rally Rd. began by selling shares in exotic cars several years ago but has expanded to art, books, wine and whiskey, memorabilia and Birkin bags.

“In the beginning, it was like equity markets: just safe, blue-chip investments,” said Rob Petrozzo, a founder and the chief product officer at Rally Rd. “Over the past few months, we’ve seen with people being inside, they’ve gotten access to more information and they have been exploring the app more fully.”

He said existing investors on the platform had doubled the number of items they owned shares in. Initial offerings have sold out five times faster than before the pandemic, as new investors on the platform began buying up shares more quickly.

To accommodate growing interest, MyRacehorse, which sells shares in racehorses that are far smaller stakes than those sold by traditional racing syndicates, has partnered with a top stud farm, Spendthrift, to extend the length of the investments. Before, its model had been to sell the horse when it was done racing. Now, investors can participate in the breeding fees, which can be many times any racetrack winnings.

The fractional movement is not limited to luxury items. Fidelity, the mutual fund giant, offers “stocks by the slice” where you can buy a portion of a share starting at $1. And many private equity funds, which have high minimum investments and long lockup-periods, have created mutual fund versions of their funds.

Eugene Olmstead, a retired internet technology executive, said he had 1 percent to 1.5 percent in 11 horses, all bought through his self-directed individual retirement account.

“You’re not going to get a worthwhile return on your investment unless you have a certain percentage,” said Mr. Olmstead, 58. “I’ve done my research, and I’m investing in ones that I think in the long run will give me a decent return.”

Of the 11 horses he has bought shares in, only two are old enough to race. He said both had average winnings of $12,000 a race. He has received some dividends from those races, but said the money was not substantial yet.

“It’s money I don’t need right now,” he said. “It gives me a chance to wait for those returns.”

Another owner of fractional shares in horses, David Falo, 58, compared buying stakes in young horses to investing in companies on private platforms before their initial public offering. “The horse may not do well, or the horse could get injured,” he said, “but it gives you a little thrill along the way.”

Image

Credit…Jeenah Moon for The New York Times

There are many caveats. Trading through Rally Rd. and MyRacehorse are done through apps, which makes buying and selling easier and creates a community. But the apps turn investing into games, as has happened with the stock-trading app Robinhood. That can distort the financial consequences of ill-considered investments.

Compounding the risk, an asset typically bought for personal enjoyment or bragging rights cannot be analyzed the same way that a private equity investment would be.

“There could be return potential, but who knows?” said Jack Ablin, chief investment officer of Cresset Capital. “There’s no liquidity and no control. When do you get your money back? You don’t know. The other is the carrying costs could be high.”

In the case of the shares in the racehorses, expenses like training and boarding are shared just as profits are. “You own full equity in the horse,” said Michael Behrens, founder of MyRacehorse.

Another issue is that buying these assets in slices can mean a person is paying more than she or he might if the person could buy the whole asset, and that could dampen returns or make it hard to resell the asset.

“You’re buying an overvalued slice of the whole,” said David Abate, senior wealth adviser with Strategic Wealth Partners. “If you decide you want to get out of this investment, you’d better understand how the secondary market works.”

The fees are disclosed but baked in. With MyRacehorse, 15 percent of the offering of a horse goes to the company upfront. But each horse is part of an entity that has been registered with the Securities and Exchange Commission.

“This is high risk; I’d never tell people otherwise,” Mr. Behrens said. “We’re not trying to build a platform that says this is going to be a really good asset class. Many horses have been bought for $1 million and never made it to the racetrack.”

As with other alternative investments, buyers are restricted from the selling of these fractions until after the lockup period ends. But when the asset itself — the bag or the horse — is sold is determined by the platform, not the individual investors.

Image

Credit…Jeenah Moon for The New York Times

Jimmy Lee, chief executive of the Wealth Consulting Group, a wealth adviser, questions the notion of buying a passion asset with an eye toward profit. “When it comes to art, you only see the ones that go up in value,” he said. “If someone buys a piece of art for $1 million and it doesn’t go up in value, it’s not going to be sold.”

There are other drawbacks. These marketplaces do offer the possibility of a return on the investment, but they deprive people of the joy of owning a painting or a fast car: having it in your possession. (Although with MyRacehorse, investors can at least go to the track and see their horses.)

“You lose the intimacy of what it’s meant to be,” Mr. Ablin said. “It’s normally an asset you can touch, enjoy, ride in, ride on or drink.”

But many investors in shares seem unbothered by this. Ms. Carbonaro said not being able to touch or hold the bags she had invested in was not an issue for her. “If I had a Michael Jordan rookie card, I don’t think I’d want to touch it,” she said.

John Cochran, who works in sales in Baltimore, has invested in shares of 76 different collectibles including a shirt Mr. Jordan wore in a basketball game, a Muhammad Ali fight contract, a portrait of Abraham Lincoln and a 2006 Ferrari f430 manual.

He said he was happy receiving a photo and some information on the object and was unfazed that he could not hold or touch it. “I like the idea that, just like my stocks, it’s all in an electronic portfolio,” he said. “I don’t have to have the resources to store these things.”

Posted on

Airbnb Was Like a Family, Until the Layoffs Started

SAN FRANCISCO — On May 5, after almost two months of working alone in his San Francisco apartment, Brian Chesky, Airbnb’s chief executive, cried into his video camera.

It was a Tuesday, not that it mattered because the days had blurred together, and Mr. Chesky was addressing thousands of his employees. Looking into his webcam, he read from a script that he had written to tell them that the coronavirus had crushed the travel industry, including their home rental start-up. Divisions would have to be cut and workers laid off.

“I have a deep feeling of love for all of you,” Mr. Chesky said, his voice cracking. “What we are about is belonging, and at the center of belonging is love.” Within a few hours, 1,900 employees — a quarter of Airbnb’s work force — were told they were out.

The moves thrust Airbnb into the center of a growing debate in Silicon Valley: What happens when a company that has positioned itself as family to its employees reveals that it is just a regular business with the same capitalist concerns — namely, survival — as any other?

Start-ups that sell everything from mattresses to data-warehousing software have long used “making the world a better place”-style mission statements to energize and motivate their workers. But as the economic fallout from the coronavirus persists, many of those gauzy mantras have given way to harsh realities like budget cuts, layoffs and bottom lines.

That now puts companies with a “commitment” culture at the highest risk of losing what made them successful, said Ethan Mollick, an entrepreneurship professor at the University of Pennsylvania’s Wharton School.

“Part of the compensation is being part of this family,” Mr. Mollick said. “Now the family goes away, and the deal is sort of changed. It just becomes a job.”

In many ways, Airbnb was the ideal example of a commitment culture company. Founded by Mr. Chesky, Nathan Blecharczyk and Joe Gebbia in 2008, the start-up grew quickly as an online platform that helped homeowners rent out rooms to travelers. Along the way to a $31 billion valuation, it built a reputation as the polar opposite of its sharing economy peers such as Uber, which prized ruthless competition, and WeWork, which collapsed under a partying culture and its founder’s self-dealing.

Instead, Airbnb stood for earnest idealism. Mr. Chesky, 38, a stocky designer from upstate New York, spoke frequently of trustworthiness, authenticity and a desire to build a business that valued principles and people over the short-termism of Wall Street. Mr. Gebbia delivered a TED Talk on designing for trust. And Airbnb’s former chief ethics officer, Rob Chesnut, wrote a book called “Intentional Integrity.”

Image
Credit…Jim Wilson/The New York Times

Inside the San Francisco company’s airy, plant-filled offices, the posivibes were also plentiful. Employees surprised one another by raising their arms to form celebratory human tunnels, held dog “pawties” in conference rooms designed to look like actual Airbnb listings and were serenaded on their birthdays by the company’s a cappella group, Airbnbeats. New employees, who were screened for empathy in job interviews, were welcomed “home” and told: “You belong here.”

So in March, when the coronavirus hurtled in, the rupturing of the “Airfam” was painful. Airbnb, which had been on track to go public this year, suddenly faced an avalanche of travel cancellations. Revenue evaporated. Weeks later, Mr. Chesky announced the layoffs and scaled back the company’s ambitions.

“Everything that kind of could go wrong did go wrong,” he said in an interview. “It felt like everything stopped working at the same time.”

From the outside, Airbnb’s commitment culture appeared intact. Mr. Chesky’s layoffs script, which was published on the company blog, got more than one million views and was praised as compassionate, empathetic and a “lesson in leadership.” At a question-and-answer session about the job cuts later, Mr. Chesky and his co-founders offered a standing ovation to the employees they had let go. Clapping and heart emojis from audience members filled the screen.

But more than a dozen current and former Airbnb employees, most of whom declined to be identified because they had signed nondisparagement agreements with the company, said in interviews that they had experienced a sudden disillusionment when the carefully crafted corporate idealism cracked.

Kaspian Clark, 38, who worked in customer support in Portland, Ore., for around two years, said he had fully bought into Airbnb’s mission and felt denial and grief when he was let go.

“There are a lot of people who feel very betrayed by this,” he said. “I deeply hope that Airbnb is able to remain the thing that I believed in.”

A company spokesman said it “has been a difficult time for everyone.” He added, “The more than 5,000 people who work at Airbnb are incredibly motivated and enthusiastic because they believe in our mission.”

In a podcast interview in May with Eric Ries, a fellow entrepreneur, Mr. Chesky acknowledged a disconnect.

“How does a company whose mission is centered around belonging have to tell thousands of people they can’t be at the company anymore?” he said. “It was a very, very difficult thing to face.”

Image

Credit…Jason Henry for The New York Times

Airbnb was built not on a genius technological innovation or a meticulous business school PowerPoint, but on the idea that people might trust one another enough to stay in strangers’ houses. Basically, the goodness of humanity.

Its network of home rentals quickly spread across the United States and into almost every country. Airbnb raised more than $3 billion in venture capital and expanded into activities, luxury vacations, experiments with flights and even a print magazine.

As the company grew, Mr. Chesky began talking of a world where digital nomads healed divisions with in-person connections.

“I think in the future, people won’t travel — they’ll just be mobile,” he predicted in 2013. “People are going to be living a month here, a few weeks there, four months somewhere else.” Airbnb was not just renting vacation homes, the idea went, it was building a “United Nations around the kitchen table.”

His philosophy crystallized in 2018 when he presented a plan for something called “stakeholder” capitalism. In contrast to Wall Street’s focus on quarterly financial reports and daily stock moves, Mr. Chesky aspired to a capitalism that had an “infinite time horizon” and was good for society.

That philosophy imbued many areas of work for Airbnb employees. Part of their performance reviews, for instance, were based on how well they embodied the start-up’s core values, three former employees said. “Embrace the adventure” was sometimes used to justify difficult situations, they said, and “champion the mission” was code for putting a positive spin on things. (A company spokesman disputed the characterization.)

Airbnb’s rental listings grew from 2,500 in 2009 to seven million this year. The company landed funding from top venture firms including Andreessen Horowitz, Founders Fund and Sequoia Capital. Its valuation, which topped $2 billion in 2012, skyrocketed to $31 billion by 2017. An initial public offering this year was set to make its executives, investors and employees rich.

Enter the virus. As travel ground to a halt in March, Airbnb cut its 2020 revenue projection to less than half of the $4.8 billion it hauled in last year. Its I.P.O. filing, which Mr. Chesky had been tweaking with ideas for stakeholder capitalism and planned to submit by late March, went into a drawer.

Instead, Mr. Chesky said, he drew up a list of principles for operating in the virus. They included being decisive and emerging “on the right side of history.”

He compared the situation to a fire. “You’re in a house, it’s burning, you have to put out the fire while getting the furniture out of the house and also rebuilding the house,” he said.

Mr. Chesky asked Airbnb’s board of directors to call in to virtual meetings every Sunday and set up a daily “war room” meeting with his executive team. He said he had remained glued to his computer most days till around midnight, occasionally baking chocolate chip cookies or going on walks during calls.

There were stumbles. When guests wanted out of nonrefundable bookings because the pandemic had forced them to change their plans, Airbnb changed its policy to allow refunds. But the move outraged the company’s rental operators, who relied on the income. Mr. Chesky eventually apologized for how Airbnb had communicated the decision.

“Was everything done perfectly? No,” said Alfred Lin, an Airbnb board member and investor at Sequoia Capital. “It was about speed and being directionally right.”

Airbnb soon cut $800 million in marketing costs, dropped bonuses and halved executive pay for six months. It also ended contracts with roughly 490 full-time freelancers. With cancellations pouring in and call centers closed because of the virus, Airbnb directed employees across the company, including its recruiters, who had frozen hiring, to assist customers. The backlog took weeks to get through.

In April, the company raised $1 billion in emergency funding, followed by another $1 billion in debt.

Then came the May 5 layoffs. To blunt the shock, Airbnb’s severance packages included three months of salary and a year of health benefits, which was more generous than many other start-ups doing layoffs.

Mr. Chesky has since described a “second founding,” in which Airbnb will be more focused on its core home rental business. It will look different, he said, with fewer customers booking international travel, less flocking to crowded cities, more local trips and more long-term stays.

Image

Credit…Jessica Chou for The New York Times

Two days after the layoffs, the questions came thick and fast in the employee Q. and A. inside Awedience, Airbnb’s virtual meeting software, according to five people who attended.

Some workers asked why there weren’t furloughs or broader pay cuts instead of layoffs. Others asked why certain groups had been chosen for cuts and why the company couldn’t trim more perks, like its budget for renting office plants.

Mr. Chesky said the situation was too uncertain for furloughs and pay cuts, calling those temporary measures. Layoffs were mapped to the future business strategy, he added. A spokesman said the company spent only a small amount on landscaping and related services.

One area hit by layoffs was Airbnb’s safety team, which handles situations like shootings and assaults at its rentals. When a fatal shooting at a party in Orinda, Calif., made national headlines last fall, the company banned unauthorized parties at rentals and announced plans to confirm that all of its listings were what they advertised.

In the employee Q. and A., Mr. Chesky reiterated past statements that safety was a priority for the company. Workers piped up with written heckles — the equivalent of shouting in a crowded theater — with messages like “Safety was never a priority!” It was an unusual public show of dissent.

Within a week of the layoffs, new safety cases had piled up, two people with knowledge of the situation said. Airbnb asked some laid-off employees to return temporarily to work through the cases, they said. Workers on the regulatory response and payments teams were asked to come back temporarily as well, they said.

An Airbnb spokesman said that the groups focused on user safety were the same size as before the layoffs and that the company assessed its support staffing levels daily. “Brian has always made clear that safety is our priority,” he said.

During that time, Leonardo Baca, an information technology professional who was laid off, joined colleagues to attend a virtual magic performance presented by Airbnb Experience — part of the company’s activities booking service, which had moved online because of the virus. It was meant to be a team-building exercise but instead became a goodbye party.

Some laid-off colleagues were devastated, Mr. Baca said, while those who remained expressed dismay over why they had been spared. “We don’t know why people were cut,” he said. “You lose a piece of the team.”

Later, on a Slack channel for former employees, some lamented that Airbnb was gutting its culture, according to messages viewed by The New York Times. In June, an Airbnb contractor who had recently been let go wrote an editorial for Wired that quoted peers calling the company “hypocritical” for its “remarkably callous” treatment of contract labor during the pandemic.

An Airbnb spokesman said its contractors “were more than contractors, they were our teammates and friends.” He said the company had provided them two weeks of pay and other benefits.

Other issues bubbled up. In a chat room for female Airbnb employees after the layoffs, one laid-off worker described three instances of sexual harassment while at the company, saying that human resources was unhelpful and that co-workers brushed it off, according to an image of the conversation viewed by The Times. The latter, the person wrote, “hurt the most.”

The company said it does not tolerate harassment and discrimination and investigates all claims.

Last month, some employees in Airbnb’s China division sent a letter to management outlining what they said was inappropriate behavior by Yanxin Shi, engineering director for its China business, according to one of the employees responsible for the letter, which The Times viewed. They alleged that Mr. Shi had ranked female colleagues by attractiveness and had said he didn’t believe in the company’s “core values” but could perform them well enough to pass the job interview and teach others to do the same.

Airbnb said it had concluded that the letter’s “most serious allegations” were not supported and had taken “appropriate action,” but it did not specify what that was. Mr. Shi did not respond to a request for comment. Skift earlier reported on the letter.

Mr. Chesky said he remained optimistic. The company has been promoting signs of recovery, like a growing number of bookings within driving distance and adoption of its “virtual experiences.” In a virtual meeting on Wednesday afternoon, Mr. Chesky told Airbnb workers that the company would resume work on its plans to go public.

He also reflected on the last four months, which he said had been “traumatizing in some ways.” The crisis showed him that Airbnb had strayed from its roots as a place for people to connect, and he planned to rectify that.

“Something we can never lose,” Mr. Chesky said, “is being true to ourselves, being different, being special.”