Entrepreneurship Is Skyrocketing During the Pandemic - Foundation for Economic Education

Entrepreneurship Is Skyrocketing During the Pandemic - Foundation for Economic Education

Entrepreneurship Is Skyrocketing During the Pandemic - Foundation for Economic Education

Posted: 02 Oct 2020 11:12 AM PDT

The pandemic and related government lockdowns have caused widespread economic and social disruption over the past several months. There is much to despair about, as tens of thousands of small businesses have permanently closed and rates of depression and suicide rise. Yet, there are signs of hope. Uncertainty and fear might stop many of us from taking risks or thinking imaginatively during this tumultuous time, but recent data show that entrepreneurship is surging during the pandemic. Seizing new opportunities and spotting unfulfilled needs, entrepreneurs may help to lift our economy from its sickly slump.

According to a Wall Street Journal analysis this week, "Americans are starting new businesses at the fastest rate in more than a decade." These startups don't outpace the number of companies closing this year due to the pandemic, but they do suggest that entrepreneurial individuals are launching new enterprises to satisfy changing demands. According to government data, there have been 3.2 million applications for employer identification numbers (EIN) this year. Required to start a US company, EIN applications reached only 2.7 million at this same time last year. The Journal cites additional data to confirm an increase in entrepreneurship, beginning in June, as some individuals turned layoffs or reduced work hours into opportunities to build a business. While startups are always precarious and many small businesses fail, these new ventures can be catalysts for sustained economic growth. According to the Journal: "Even though new businesses inevitably start small, they are a critical engine of job creation. Startups have historically accounted for around one-fifth of job creation..."

Pandemic-Induced Creative Destruction

The pandemic offers a moment ripe for "creative destruction," the term used by economist Joseph Schumpeter in his 1942 book, Capitalism, Socialism, and Democracy, to describe the dynamic process of new business models and enterprises replacing legacy organizations and industries. He explained that capitalism is "the perennial gale of creative destruction," fueled by entrepreneurship and innovation. Schumpeter writes: "The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrated the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism."

Especially in times of social upheaval like today, people's needs change. As a result, solutions that worked before become outmoded. Innovation upends these old ways of doing things and offers fresh ideas and solutions that are better suited to people's current needs and preferences. It is triggered by entrepreneurs who are dissatisfied with the status quo, imagine alternatives, and successfully introduce their vision into the marketplace. The economic and social turbulence resulting from the pandemic lockdowns provides countless opportunities to meet new and changing consumer demands.

Perhaps nowhere is this turbulence more apparent than in education. Many students started this school year with remote learning only, as district schools, especially in urban areas, remain indefinitely closed for full-time, in-person instruction. Michael Strong, a longtime educator, author, and successful entrepreneur, quickly recognized that parents are dissatisfied with their children's remote district schooling and want a high-quality, affordable alternative. "There is such immense demand," he told me. "Once parents get regular school piped into their homes, they see that school isn't always a great fit. They take on significantly more ownership of their child's education and look for more options."

Strong recently launched Expanse, a virtual school that provides high-touch, project-based, live remote learning to middle schoolers throughout the US. "The whole world of edtech is one-dimensional, with teachers mostly lecturing to students. Our value proposition is rich, human interactive experiences that students find engaging," says Strong. With Expanse, students aged (approximately) 10 to 14 participate together in full-day, live remote learning led by a variety of expert educators and in partnership with top-rated organizations, such as QuantumCamp and Nobel Explorers. A typical school day begins with community discussion and goal-setting, followed by a Socratic reading and writing seminar. Midday is focused on math and science, while the end of the day emphasizes personalized, one-on-one mentoring and self-directed student projects.

With an annual tuition cost of $8,000 and scholarship possibilities, Expanse is more affordable than many other private education options. Strong intends to reduce the price tag even further through growth and scalability. He believes that the education market is brimming with opportunities for aspiring entrepreneurs, as parents seek new and better learning options for their kids. Strong also thinks education won't return to the classroom status quo even after the pandemic ends:

"I think even if everyone goes to school in January, we would still have a significant portion of parents considering other options. The old system of schooling was fragile, relying on tradition and a legacy orientation. We'll see much more diversity in education models, and a greater realization that the standard path is not required. We now have countless examples of families who have eschewed standard education and they have found happiness and success."

The Art of the Pivot

The creative destruction now occurring in the education sector is poised to dramatically reshape American education, with new, more accessible, more relevant learning models replacing the conventional classroom that was already being challenged pre-pandemic. In Washington, DC, Luba Vangelova was planning to open The Hub this fall as an in-person, self-directed community learning space for homeschoolers and others who wanted a more flexible education approach. When the pandemic hit, she had to pivot to an online format and temporarily table her in-person plans, but she remains hopeful. As one parent recently told her: "You've created digital joy, which is very hard to find."

With Gallup reporting a doubling rate of independent homeschooling this year, new organizations like The Hub should continue to attract parents looking for educational support and resources. According to Vangelova: "This is a year of great flux in the world, with a lot of social, political and economic transformations that are only just gaining steam, and although it's been challenging on many fronts to pivot and adapt, I feel good about the fact that The Hub has been able to offer something valuable that is 'of the moment,' while also modeling a healthy culture and vision for learning and living in the future."

2020 has been a challenging year, with hardship and loss. There is much to lament, but millions of American entrepreneurs are showing us how to get through this difficult time with creativity, initiative, and grit. They are spotting opportunities and unmet needs, pivoting and adapting, and breaking down old ways of doing things to pioneer new models that will lead to more progress and prosperity for us all. It's a great time to be an entrepreneur.

The Pandemic Plutocrats: How Covid Is Creating New Fintech Billionaires - Forbes

Posted: 25 Sep 2020 12:00 AM PDT

Stay-at-home consumers and stimulus checks have been a boon for online installment financing, digital banks and day trading.

With additional reporting by Max Jedeur-Palmgren.

In 2015, Nick Molnar was living with his parents in Sydney, Australia, and selling jewelry from a desktop computer in his childhood bedroom. Hocking everything from $250 Seiko watches to $10,000 engagement rings, the 25-year-old had gotten so good at online marketing that he had become Australia's top seller of jewelry on eBay, shipping thousands of packages a day.

That same year, he teamed up with Anthony Eisen, a former investment banker who was 19 years his senior and lived across the street. They cofounded Afterpay, an online service that allows shoppers from the U.S., U.K., Australia, New Zealand and Canada to pay for small-ticket items like shoes and shirts in four interest-free payments over six weeks. "I was a Millennial who grew up in the 2008 crisis, and I saw this big shift away from credit to debit," the now 30-year-old Molnar says today. Either lacking credit cards or fearful of racking up high-interest-rate debt on their credit cards, Molnar's generation was quick to embrace this new way to buy and get merchandise now, while paying a little later.

Five years later, Molnar and Eisen, who each own roughly 7% of the company, have become billionaires—during a pandemic. After initially tanking at the start of lockdowns, shares of Afterpay—which went public in 2016—are up nearly tenfold, thanks to a surge in business tied to e-commerce sales. In the second quarter, it handled $3.8 billion of transactions, an increase of 127% versus the same period a year earlier.

Buy Now, Pay Later

After a steep drop in Afterpay's stock in March, the e-commerce boom and credit-card-weary Millennials have propelled the installment payment company's stock to record highs, nearly doubling its value in six months. 

They are not the only ones whose fortunes have taken off in the last few months. According to Forbes' analysis, at least five fintech entrepreneurs including the two Aussies have been vaulted into the billionaire rankings by the pandemic. Others include Chris Britt, founder of digital bank Chime, and Vlad Tenev and Baiju Bhatt, the co-CEOs of "free" stock trading app Robinhood. Several other founders from such companies as Klarna and Marqeta have also gotten boosts and are suddenly approaching billionaire status. 

As in other sectors, the Covid recession has created both fintech winners and losers. For example, LendingClub, which offers personal loans to higher-risk consumers, laid off 30% of staff; small business lender On Deck was sold in a fire sale.

But for a sizable crop of consumer-facing and payments-related fintechs, the virus has delivered a gust of growth, just as it has for e-commerce behemoth Amazon and work-from-home players Zoom, Slack and DocuSign. 

"Consumer fintech adoption was already strong prepandemic, especially among the 20s to early-40s age group," says Victoria Treyger, a general partner who leads fintech investing at Felicis Ventures. "The pandemic has become a growth rocket, fueling the rapid acceleration of adoption across all age groups, including 40- to 60-year-olds."

Several Covid-driven developments are helping specific types of fintech players. For example, consumers' shift to more online spending and delivery services is a boon to certain companies powering payments. Marqeta, a specialized payments processor whose clients include Instacart, DoorDash and Postmates, has been in talks to go public at an $8 billion valuation, four times what it was valued at in March of 2019. That would give CEO Jason Gardner, who owns an estimated 10% of Marqeta, a stake worth $800 million.

Meanwhile, the $2 trillion-plus CARES Act Congress passed in March, with its $1,200-per-adult stimulus checks, student loan payment holiday and (now expired) $600-a-week unemployment supplements, helped many Americans keep financially above water—and some digital banks like Chime to prosper. 

Debit It!

Spending on the travel and luxury items U.S. consumers typically put on credit cards has fallen with the pandemic, while spending on debit card necessities is up.

Source: MoffettNathanson analysis of Visa's U.S. credit and debit transaction volumes.

In the second quarter of 2020, amid Covid lockdowns and fears, consumers slashed spending on travel, restaurants and luxury items they usually put on their credit cards, but continued to spend on necessities and smaller items—the sort of things they're more likely to pay for with debit cards. During that quarter, Visa credit card transaction volumes were down 24% from the year before, while debit card transactions were up 10%, according to research firm MoffettNathanson. And debit cards (rather than checks or credit cards) are the spending vehicle most frequently offered by fintech neobanks like SoFi, Dave and MoneyLion.

San Francisco-based digital bank Chime, in particular, has used the stimulus payments to its advantage. In mid-April, about a week before the $1,200 government-stimulus checks started hitting Americans' accounts, the company advanced customers that money, eventually extending over $1.5 billion. "Following the stimulus advance, we had the largest day for new enrollments in the history of the company," CEO Britt reports.

The pandemic has depressed total consumer spending, and the unemployment rate remains at a high 8.4%—two factors that affect Chime's middle-income customer base. Yet, on a per-user basis, the "average spend per customer is up over last year," Britt says. "Part of the reason for that is the government programs around stimulus payments and unemployment." 

Today, Chime's annualized revenue is running at a $600 million rate, according to a person familiar with the private company's numbers. At its eye-popping new valuation of $14.5 billion announced along with a $485 million fundraise in mid-September, venture capitalists are valuing the company at 24 times its revenue. Some investors are asking if Chime should get such a lofty value when Green Dot, a publicly traded fintech that offers checking accounts and prepaid debit cards for low-income customers, trades at two times revenue. "We really look more like a payments-processing business," answers Britt. That's because virtually all of Chime's revenue comes from interchange—the fees merchants pay when Chime's users swipe their debit cards. The company doesn't make money on interest through its new secured credit card (that's a starter card where the holder puts up money to cover his or her credit limit), although Britt says he doesn't rule out lending in the future. 

Now Britt himself has sailed into the "three-comma club." Forbes estimates his Chime stake is at least 10%, meaning his holdings are worth $1.3 billion-plus (Forbes applies a 10% discount to all private company holdings). And he's planning an IPO. "Over the next 12 months, we have a number of initiatives to get done to make us even more IPO-ready," he says. 

Then there's the Robinhood phenomenon. The boredom of being stuck at home, wild stock market swings and government stimulus checks have turned some Millennials and Generation-Zers into day traders and options players. Robinhood's most recent fundraising round in September gave it an $11.7 billion valuation and its cofounders a paper net worth of $1 billion each. But considering Morgan Stanley's $13 billion February acquisition of E-Trade and Schwab's earlier purchase of TD Ameritrade for $26 billion, some think Robinhood could garner a $20 billion valuation if it went public or were acquired.  

If there's one fintech segment that has been an unalloyed pandemic winner, it's the business Afterpay is in: online point-of-sale installment financing. It's benefiting from both consumers' shift to online buying and their reluctance, in these uncertain economic times, to take on new credit card debt.

While Afterpay's Nick Molnar and Anthony Eisen hit billionaire status in July, their competitors aren't far behind. Take Klarna, which was founded in Stockholm in 2005 and entered the U.S. market in 2016. Two of the three founders, Sebastian Siemiatkowski and Niklas Adalberth, met while flipping patties at a Burger King in Sweden. They pioneered the buy-now, pay-later model in fintech, calling it "try before you buy" and letting people own products for 30 days before making their first payment. (That's a lot more attractive than old-fashioned layaway, the store system once popular for Christmas gifts and large appliance purchases, in which buyers had to make all their installment payments before getting an item.) 

Klarna charges retailers 3% to 4% of each transaction—slightly lower than the 4% to 5% Afterpay charges—to offer its service. One key difference that separates the two companies: Klarna is becoming a full-fledged financial services business. It became a licensed bank in Sweden in 2017 and offers longer-term financing of up to 24 months, with interest charged, for high-ticket items like laptops sold through a small number of retailers. Siemiatkowski has already turned Klarna into a digital bank in Europe with a debit card for spending on everyday purchases. He'll likely do the same in the U.S. soon.

The pandemic has catapulted Klarna's business onto a steep trajectory. By the end of 2020's first half, its U.S. customer base hit 9 million, up 550% from the same period the year before. Globally, 55,000 consumers are downloading the Klarna app every day, more than two times last year's pace. Klarna is now available in 19 countries, has 90 million users and expects to bring in more than $1 billion in revenue this year. When it raised a new round of funding last week, its valuation nearly doubled from a year ago, hitting $10.7 billion.

Cofounder Victor Jacobsson has a 10% stake, while Siemiatkowski's has 8% in the still-private company. (Niklas Adalberth retains just 0.4% after selling some shares to fund his philanthropic organization and investing in startups. Neither he nor Jacobsson are still involved in Klarna.)

Not surprisingly, as the installment purchasing fintechs gain more customers and attention, they're also facing additional scrutiny from regulators. In March, Afterpay agreed to fork over $1 million, including $905,000 in consumer refunds, after California's Department of Business Oversight (DBO) concluded the late fees Afterpay charges meant it was running an unlicensed lending business. "Afterpay rejects the view that the Company operated illegally," the Australian company said in a statement. "While Afterpay does not believe such an arrangement required a licence from the DBO, Afterpay has agreed to conduct its operations under the DBO licence as a part of this settlement." A spokesperson adds that Afterpay "has been applying for, and has been granted licenses [in other states] where needed." In 2017, Klarna was fined $15,000 in New Hampshire for operating without a lending license. Today Klarna has such licenses in every U.S. state. 

Another fintech winner in the installment-payment business is Silicon Valley-based Affirm, the creation of serial entrepreneur Max Levchin, a founder of PayPal, which itself jumped into the installment business just last month. Between November 2019 and July 2020, Affirm nearly doubled its U.S. users to 5.6 million. It raised $500 million last week at a valuation of more than $5 billion, up from $2.9 billion last year. While Levchin's exact stake is undisclosed, it's likely worth hundreds of millions. 

Affirm has also enjoyed a special Covid kicker from pricey home fitness gear. Since 2015, it has powered financing for Peloton, whose sales have surged as affluent young consumers, missing the motivation of group exercise classes, have flocked to buy the $2,000-plus stationary bikes with their streaming workout classes. Affirm also now finances purchases of Mirror, the hot $1,495 in-home fitness coaching device acquired by Lululemon this summer. 

Of course, the fintech companies' current lofty valuations depend on consumer spending staying strong and consumers retaining some of the online shopping habits they've developed over the past six months. With a preelection agreement between Congress and the White House on a new stimulus package looking unlikely and the future course of Covid-19 unknown, there are no guarantees. But for now, these fintechs are riding high.

The Shift of Enterprises to Digital has been Made Easier - Manila Bulletin

Posted: 05 Oct 2020 10:00 PM PDT

The pandemic has caught the world off guard. Many local businesses had to quickly adapt to this new reality — from minor tweaks on how they resume their business to major overhauls like changing their distribution or business models, just to survive.

As many industries steer through this challenging landscape, most will try to recover by embracing new innovations and opportunities. Across the board, many have raised a common major concern — how can I run my business digitally? 

"Prior to this pandemic, heavy users of our digital cash management solutions were mostly larger corporations. However, at the onset of ECQ, the clamor to shift suddenly emerged," SVP Jones Diokno, Cash Management Head, recounts.  

The shift of enterprises to digital has been made easier by Security Bank's BusinessPlus account. More than just a business account, it also comes with free access to the award-winning and easy-to-use cash management solution, DigiBanker. This helps business owners accomplish secure fund management and execute operations such as eGovernment payments, payroll processing, auto-check cutting, auto-debit, credit facilities, and many more in their homes. "For businesses using traditional collection methods like messengers or scanned deposit slips, Security Bank's electronic collection platforms offer real-time view of received payments for easier reconciliation," shares FVP Robbie Pablo, Head of Sales and Service Delivery.

The BusinessPlus account also comes with 10 payroll accounts and 5 BusinessPlus debit cards that can be distributed to key work-from-home employees, with their own set monthly limits! "If clients are able to maximize and outsource the administrative work by using our tools, they can focus better on their business," Pablo adds.

Customers no longer need to go to a branch to submit their requirements. Business owners can now open a Security Bank BusinessPlus account securely through Skype for a maintaining balance requirement of Php 50,000. "With safety and convenience as the bank's primary concerns, we had to make sure the process was seamless!" EVP John Cary Ong, Head of Transaction Banking Group shares. 

The application comes in 6 easy steps:

1. Fill out the online form and attach the opening requirements.

2. Take note of the reference number that will be provided upon submission of the form.

3. Print the application details that will be sent via email.

4. Attend the Skype interview for validation.

5. Start funding the account!

6. Kindly wait for a Security Bank representative to deliver the passbook and checkbook. Don't forget to also hand over the required documents.

When managing a business, turn-around time in cash flow is crucial. For businesses that have check transactions from clients based in the USA, Security Bank streamlined clearing of checks drawn from a USA bank (or even US Treasury Warrants) in as early as 8 days, instead of the usual 30-45 days. 

In addition, Security Bank has also established partnerships to help their clients navigate these challenging times. In the early parts of ECQ, they partnered with Sprout.ph to offer free access to cloud-based HRIS solutions to all local businesses (even non-Security Bank clients) to help make the shift to digital a little easier.

Aligned with the advocacy to boost start-up companies and help jumpstart the economy, they have also partnered with AFFI for their Buyanihan project, https://buyanihan.shop/, that supports Micro, Small and Medium Enterprises (MSMEs) during this pandemic.  "We are hopeful that our MSMEs will bounce back.  They just need the right support and tools to help give that boost," Diokno shares.

As a simple gesture and a way to support their local business clients, the Bank created a directory of its business clients, which they promote weekly on their Social Media pages and website at https://www.securitybank.com/our-clients-businesses/

Entrepreneurship can be a big risk especially during this disruption. To navigate wisely through new challenges in the new normal, choose the right banking partner that prioritizes customers' interest and needs.

Partner with Security Bank today. Visit https://www.securitybank.com/business/.




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