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This store sold $5 million in lottery tickets last year

Mon, 2015-04-20 02:00

Years ago, under another name, the shop at 2900 West 87th Street, on Chicago’s South Side, was a convenience store, which happened to sell lottery tickets. Then, Mr. Chan Park took over and turned it into Lucky Mart— a kind of Lottery Tickets ‘R’ Us. Park sold more than $5 million worth of tickets last year. 

Lucky Mart's tellers sit behind thick glass at the ticket windows. There are still Honey Buns and chips on the shelves, but nobody buys any—at least, not in the hour-and-change I spend here. The ticket machines, however, never stop ringing and buzzing.

Chan Park came to the U.S. from South Korea in 2001 and bought a laundromat. A few years later, he took over this store. 

However, with three big discount supermarkets right nearby, he knew he needed to reinvent the business. "I thought, I don’t have any competitive power for that kind of grocery," he says.

Not for groceries. But he knew the store had sold a $28 million lottery ticket, and that seemed worth building on. He re-branded as Lucky Mart. Park says he believes there’s something lucky about the location.

He doesn’t mention it, but the location has another advantage: This is a primarily African-American neighborhood. Research shows African-Americans play the lottery a lot more than other groups.

About ten minutes into our conversation, we’re interrupted by a visit from Park's sales rep from the Illinois lottery accompanied by three regional officials.

They say they had no idea a reporter was coming. They're here for what's become an annual ritual: Awarding Park a plaque commemorating his success as the operator of the state lottery's top-grossing location. 

The officials agree that the store’s focus— and location — explain that success.

Also, customer service — in particular a clerk named Becky Reidy, who has been selling lottery tickets here since before Mr. Park took over.

Frank Taylor, the Chicago area’s sales director, calls her the best he’s ever seen. "She’s super with the players," he says. "She knows all of our games, she knows all of our promotions. And she’s, like, really into the lottery."

To Reidy, I admit: I’ve never played the lottery.

"Don’t start," she says. "Bad habit!" 

She smiles— and laughs, a little nervously —but she seems to mean it. She says she doesn’t play anymore.

I ask her if she feels a little funny about selling it.

"Oh sure," she says. "I know the economy sucks. Money could go elsewhere."

One economist found that, when people buy lottery tickets, they’re often using money they would have spent on household necessities—like food.

"I could never work in a casino," Reidy says.

But here’s the thing: Casinos are arguably less of a rip-off than the lottery. 

In Illinois, and around the country, about 60 percent of what lottery customers spend on tickets comes back as prize money. At slot machines, where casinos make the most money, it’s often more like 90 percent.

Insurance companies get FAA approval to use drones

Mon, 2015-04-20 02:00

More drones could be coming to a neighborhood near you, and they’ll be from your insurance company.

The Federal Aviation Administration recently approved several insurers to use drones to assess property damage.

Soon our blue skies might be dotted with hundreds of little drones.

Sound like science fiction? It’s not.

“In light of the proposed new regulations from the FAA that came out a few weeks ago, there [are] going to be a lot more commercial agencies using drones for all kinds of things from insurance assessments to agriculture to fire rescue,” says Matt Sloane, president of Atlanta Drone Consultants.

Part of that, Sloane says, is because they’re so useful.

“What drones really offer is the ability to get a bird’s eye view of what’s going on, so that doesn’t help in every industry,” he says. "But certainly for things like insurance assessments where you fly something like this just a hundred feet over, over a damage scene to do an assessment, you really get a different view of what’s going on.”

During natural disasters helicopters are typically used to assess damage, but they can cost $1,000 an hour and put people’s lives in jeopardy, Sloane said.

That’s why insurance companies like State Farm are so interested in drones.

The insurer was the first to get FAA approval to use unmanned aircrafts for damage assessment.

"If we can send a drone to look over at our customer’s house and determine, 'Okay they have significant damage there,'” says Justin Tomczak, the Georgia spokesperson for State Farm. “That information could be relayed to their agent  and we can call [our client] and say I noticed your house has significant damage, we’re cutting you a check right now to cover your immediate expenses that you may have.”

If you’re worried about all those little devices recording you, Matt Sloane says you might just have to get used it.

“Although I will say most of them don’t have cameras with the ability to zoom so it’s not going to be a sort of satellite situation from a 1,000 feet you could zoom in and see every little detail,” says Sloane. “You really need to get a lot closer with a drone to be able to see a detailed image.”

The FAA currently has a public comment period open to address concerns; it ends on April 24.

Good times are rolling at investment banks

Mon, 2015-04-20 02:00

Investment firm Morgan Stanley on Monday became the last of the major banks to report earnings, and it was more good news for investment banking. The firm beat forecasts. Net revenue was up 10.3 percent. 

Last week, other major U.S. banks also reported mostly good news and, in almost all cases, profits were boosted by the firms' investment banking businesses — the very same businesses that came under increased scrutiny and regulation after the 2008 financial crisis, and that were the subject of tighter regulations. 

"After the crisis, a false narrative developed" about investment banking, says Charles Calomiris of Columbia Business School. Banks that engage is investment activity are not necessarily taking big risks with money. "There's a wide variety of activities that actually have very little risk, that are fee for service, that actually add a lot to the stability of the banking system," Calomiris says.

Those services include facilitating stock trades, advising corporations and wealth management. Fees for such services are playing a big role in bank profits now, and the timing has to do with soaring stock prices, according to Lawrence White, an economics professor at New York University.

"The stock market has been doing well lately, and the volume, the pace of mergers and acquisitions has been increasing," which in turn increases banks' revenues from fees, says White. 

But, White cautions, big banks are under increased regulatory scrutiny because there is still risk involved in their dual practices of investment banking and traditional banking, especially if the current good times come to an end and banks looks for riskier ways to bring in profits. 

 

Why NBA is first U.S. pro league to go to Cuba

Mon, 2015-04-20 02:00

The NBA and the International Basketball Federation are playing host to a basketball development camp in Havana this week.

That propels the NBA into sports history: it will be the first American sports league to visit Cuba since President Barack Obama restored diplomatic relations. Cuban Basketball Federation President Ruperto Herrera was quoted in an NBA press release as saying, “This is a great day for Cuban basketball and our federation.” It’s also pretty savvy on the NBA’s part.

Click the media player above to hear more.

Celebrity gossip comes to Instagram

Mon, 2015-04-20 02:00

Traditional celebrity gossip—be it in print, on television, or written about online—deals in the real world goings-on of celebrity life. But a popular Instagram account is garnering attention for looking at the social media lives of those in the entertainment industry. The Shade Room, as it’s known, focuses on how well-known personalities interact in forums like Twitter and Instagram. 

“It’s very much kind of an intra-instagram kind of network,” says Jenna Wortham, technology reporter for The New York Times, who recently wrote about The Shade Room, calling it Instagram’s very own “TMZ.”

“You’re going to see lot of things very specific to social media,” says Wortham. “It tends to focus on when Rihanna and Nicki Minaj are having a back and forth on instagram. It captures that and posts it. It aggregates all of that it in one space.”

Wortham met and interviewed the founder of The Shade Room, a 24-year-0ld woman named Angie, who wants to be known only by her first name.

Given the popularity of her ‘Insta-blog,’ why is she so secretive?

“She knows that the appeal of Shade Room is that it kind of has this sort of Oz-like omnipotence,” says Wortham. “To show the wizard behind the curtain would remove some of  the mystique and the mystery.”

It’s smart decision on her part, adds Wortham, because the mystery keeps things more fun and interesting.

Angie runs the blog with the help of a handful of employees. The Shade Room started out on Instagram, but since then it has launched a regular blog. It also has accounts on Facebook and Twitter, and advertises on all of these platforms.  

Could this turn into a breaking news site for celebrity news?  “I think down the line absolutely it could be a place where people break news or want to make announcements or talk about an album release or a new concert tour,” says Wortham. “I dont think thats’ out of her reach at all.”

 

Weekly Wrap: Inflation, Greece and IPOs

Fri, 2015-04-17 16:58

Joining Kai to talk about the week's business and economic news are Fortune Magazine's Leigh Gallagher and John Carney from the Wall Street Journal. The big topics this week: inflation at the retail level and consumer sentiment, Greece's debt problems and the eurozone, and Etsy's and Party City's stock market debuts. 

 

German luxury carmakers make a mass-market push

Fri, 2015-04-17 13:13

The German luxury carmakers BMW, Mercedes-Benz and Audi are reporting record levels of global sales after the first quarter of 2015.

The news marks a bit of a turning point for an industry that was founded on notions of exclusivity.

As entry-level prices drop, more and more car buyers can hope to buy a piece of fine German engineering, but the move does come with a few risks.

It used to be the case that owning a luxury car was something to aspire to. These days, luxury carmakers are even targeting millenials buying their first car.

“They're more concerned about keeping you in the fold and making sure that there is something there for each of your life stages,” Huge Marketing Director Megan Malli says. “That's really where they're headed with respect to the marketplace.” 

Lower starting prices and a broader range of models may translate into higher sales, but it also risks diluting the brand’s cache.

They are now competing against the Hondas and the Fords of the world, and frankly, often those other vehicles can really beat them on options and pricing,” Malli says.

That’s where marketing strategy comes in to play. If would-be buyers still believe that BMW equates with say, “performance,” then being more mass-market is actually a good thing.  

"They really preserve their brand messaging, even if they produce cars that are less expensive," says NYU Stern School Professor Thomaï Serdari. She also notes that the German's mass-market strategy won’t work for every luxury car brand.

"Cadillac is a brand that had a lot of cache a few years ago, but also it was associated with people of a specific type and background, perhaps much much older," says Serdari.

In recent years Cadillac has had little to tout besides its high end Escalade SUV. In order to become relevant again, Serdari believes the brand needs to cut back its offerings, and go upmarket to firmly re-establish itself on the high end of luxury, a place BMW, Audi and Mercedes already occupy.

"Then perhaps they can reverse their strategy and start targeting the mass market with less expensive models."

"Jeopardy!" tried to sponsor a mustache

Fri, 2015-04-17 13:00

Remember that giant hack at Sony from late last year? Well, Wikileaks published the whole stack of leaked documents this week.

Buried in there was one from "Jeopardy!" executive producer Harry Friedman, who was looking to grow revenue, I guess.

Here's what he wrote:

After 13 years , Alex Trebek has grown back his mustache. We have a plan to take advantage of the seemingly never-ending interest in his upper lip, and monetize the interest that will be generated when he shaves it off again. So, yes, we're looking for someone .....Gillette, Dollar Shave Club, Harry's , Schick, Bic....to be the Official Razor of Alex Trebek's Mustache.

Never did go anywhere, which is kind of a pity.

Why markets freaked when Bloomberg crashed

Fri, 2015-04-17 11:00

Service from the financial data giant Bloomberg cut out Friday morning, just as trading got underway in London, staying out of commission for more than two hours. Bloomberg terminals — which cost $20,000 a year — are a lifeline for workers in the financial industry. Trading in some markets nearly stopped, and the U.K. government actually postponed the sale of a series of bonds.  

In addition to an array of market data and news, many traders use Bloomberg's built-in chat system as a kind of virtual trading pit.

"That messaging system has become a critical lifeline for many people in the industry," says Douglas B. Taylor, a consultant to financial-data companies, including Bloomberg and competitors like Thompson Reuters.

The "network effect" — the fact that so many traders already use Bloomberg this way — is one reason the company has outgrown those competitors, and why it is likely to remain dominant, according to Matt Turck, a partner at First Mark, a venture capital firm.

For traders who use Bloomberg's chat system this way, an outage would be like trying to organize 20 people to go out to dinner, and finding that your phone has stopped working. 

"It’s like being shut out of the rest of the world," Turck says. "Suddenly, there’s no information coming in, and you have nobody to call."  

So during the outage today, a lot of traders just sat around. Some sought solace on Twitter:

[<a href="//storify.com/danweissmann/bloomberg-goes-down-traders-freak-out" target="_blank">View the story "Bloomberg goes down, traders freak out and make jokes" on Storify</a>]

How to catch a flash sale before it's over

Fri, 2015-04-17 09:01

Whether it's a coupon arriving in your inbox, a time-limited Groupon offer or a tweet alerting you to a right-in-the-moment quickie deal, we've entered an era of instant retail. In other words, flash sales.

Valerie Folkes, marketing professor at USC's Marshall School of Business, says although it may seem counter-intuitive, flash sales can make sense for merchants. Advertising is changing as retailers adapt to new media and younger consumers migrate away from more traditional outlets like TV, commercial radio and newspapers.

A flash sale can entice consumers, make a brand or a restaurant seem exclusive and crowded, or force a potential buyer to stop procrastinating and spend. Take the Groupon example: as the clock ticks down on a deal, the number of buyers climbs. With limited time and limited number of offers, a deal might seem more exclusive. A restaurant might begin to look more popular, and the influx of customers can do a business good.

Folkes notes this short-term satisfaction might not lead to a lasting relationship, but done well, a flash deal can help with brand loyalty. She cites JetBlue, which posts deals that may seem like obvious losses: $32 tickets out of New York City (a deal that only lasted 32 minutes, while it was 32 degrees out) and 90 percent-off sales (on 90 degree days). These sales force customers to act fast, and even though JetBlue might be losing money on some tickets, overall, the sale works as an ad.

"It's kind of a fun idea. It gets people thinking about JetBlue because it reminds people: JetBlue offers all these great deals, I really need to pay attention to Jet Blue, because who knows what they'll next," Folkes says. "What they're really doing here is buying great publicity. They're getting people talking about their airline, and about travel, and if you miss out on this, if you don't actually get on their airplane, you are now thinking about going someplace, and you're thinking about going someplace that JetBlue flies."

But businesses have to be careful not to foster the idea that you should never pay full price. Timing is important, and people buying during a sale should feel that they got lucky. And many people do, especially when they score a great deal that seems like a secret.

George Hobica, head of AirFareWatchdog.com, specializes in secret deals. His company mines flight searchers for the lowest possible fares: the advertised on-sale tickets, the unadvertised super-sale tickets and the blooper fares — mistakes that make flights way, way cheaper than they ever should be.

Getting in on the sweetest deals requires a lot of focus, patience and luck. There are frequently very few seats available and very little time to book. And if you do find out about a deal in time to make a big purchase?

"You really have to jump on it very, very quickly," Hobica says. "What I tell people is put it on a 24 hour hold ... and then talk to your spouses and your friends and get the hotels and get all your ducks in line."

Hobica recommends keeping a vigilant eye on social media and signing up for alerts from sites like AirFareWatchdog, Hopper and Kayak. Even then, it's a little bit like playing musical chairs — except when the music stops, a million people want to sit down.

Syncing club beats with heart beats

Fri, 2015-04-17 09:01

Will Bensussen is an alternative hip hop producer and DJ. You might know him by his nom de clubThe Gaslamp Killer.

After moving to Los Angeles in 2006, he helped found Low End Theory, a weekly experimental hip hop and electronic music club night.

Speed is particularly important to Bensussen. If attend one of his gigs, you might notice that the beats of his music are frequently in sync with the beat of your heart. A healthy human heart beats between 60 and 120 beats per minute, he says.

"I come in so quiet and so weird you don't even know it's starting yet," he says. "I build up from 60 BPM to 100 BPM, to 120 if I'm feeling really frisky. ... I sort my experience using the BPMs. I like to stop whatever party was happening before I showed up and I like to start my own."

His new album, "The Gaslamp Killer Experience," comes out April 28th.

Your Wallet: Invisible money

Fri, 2015-04-17 09:00

The money you hide away: Do you bury it in the back yard? Stuff it in a mattress, or maybe stash it in a 401k?

Tell us where you keep your money! Does it work? We promise, we won't give away any super specific secret hiding places.

Send us an email, or reach us on Twitter @MarketplaceWKND to give us the scoop.

Fast food service pumps the breaks

Fri, 2015-04-17 09:00

The pace of fast food service has been getting slower as menus grow more complex.

Sam Oches is editor of QSR Magazine, the bible of the fast food industry. He says consumer demand for quality ingredients in fast food is changing the game across the board.

"You even see something like Taco Bell has some menu items that have 10, 11, 12 ingredients, whereas it didn't used to be the case. So in order to be able to put together these menu items, it takes a little bit more time," he says.

A survey by the magazine found that as a result, drive-through service is now about 20 seconds slower on average. But the industry wants to work to both simplify, and kick into a higher gear.

Click the media player above to hear the full story.

From "promposal" to dress, everything must be unique

Fri, 2015-04-17 07:37

Prom season is in full swing. And if you're thinking to yourself, "That's not a business story," keep reading. 

An amazing statistic from Visa: the average prom-going teen will shell out $919 in preparation this year. With that much at stake, formal wear boutiques are courting as much business as possible away from department stores and online retailers, who have the advantage of endless selection and cheaper prices. 

One strategy they've hit upon: prom dress registries, so that no two girls from the same high school show up to prom in the same gown. 

"I worried about a lot of things as a teenage girl. This was not one of them," said Elizabeth Holmes, senior style reporter for the Wall Street Journal, who recently wrote about prom registries. 

The "OMG, Mom!" sense of embarrassment over a twin-effect at prom is nothing new. Beverly Hills, 90210 had a dramatic spring dance moment back in 1993. 

 

 

To avoid Kelly and Brenda's embarrassment, stores are keeping registries so that each girl has her shining moment on prom night. 

Holmes spoke with one Silicon Valley formal wear boutique that tracks 600 high school proms. 

"They have this massive computerized dress registry where they're tracking who is wearing what, to which prom," she said.

For store owners, it may be uncomfortable to tell an excited teen, "No, you can't have that dress." But particularly in smaller markets, formal boutiques rely on repeat business and hope that customers will see the value. 

Holmes said, it's a "play to the parents," who more often than not are footing the bill for $400 and up gowns. 

"They're dealing with a dramatic teenager and they don't want to have — come prom night — tears if someone else had my dress."

Because prom has always been about the pictures as much as the dance, teens now document everything from the dress-buying experience to their "promposals" through social media. And while boys don't have to worry about suit or tuxedo registries (yet, anyway), Holmes said, they tend to foot the bill for increasingly popular promposals,be they elaborate or goofy. 

 

What pushes people up the economic ladder

Fri, 2015-04-17 07:00

I went to Dayton, Ohio a few weeks ago because I had been reading about just how bad people's chances are of climbing out of poverty there. Dayton is a lovely city in many ways, with a lot of things going for it, but its metro area has one of the worst rates of economic mobility in the country, according to research by a team of Harvard and UC Berkeley economists.

Forty percent of kids who grow up in poverty stay poor as adults.

I met plenty of people around town who were not surprised by this statistic. They had seen or lived it firsthand. But then I met Amira Yousif, who lives with her family in a poor neighborhood on the east end of Dayton. When I asked her if she expected her children to do better than her financially, she said “Absolutely!”

“Especially my oldest son,” she said. “He want to become doctor. Then after he finish he will have a lot of money. Then I have to relax and sit and he pay money for me.”

That's your plan? I asked her.

“Yeah, this is my plan,” she said with a laugh, and seemed to be only half-joking.

Yousif may be naturally optimistic, but she also may also be on to something when it comes to the particular confidence she feels in the face of her city's grim statistics on economic mobility.

That’s because even though her family started with almost nothing when they moved to Dayton five years ago, they did have a few things going for them that make their odds of achieving that proverbial American Dream better than most low-income Daytonians. 

First off, they are immigrants.

“There's a lot of evidence out there that the United States is a pretty good place for immigrants,” says Nathan Hendren, a professor of economics at Harvard who has been studying rates of economic mobility across the U.S. “We know there are decently high rates for social mobility for immigrants— from an immigrants’ perspective it's a place that has always been known as this land of opportunity.”

To understand what can make some immigrants' experiences so different when it comes to “getting ahead” compared to native born low-income Americans, it might help to know a bit more about Yousif and her family.

When I visited their home one afternoon recently, the Yousifs’ two daughters were playing that classic American basketball game “Pig,” in the back alley. From that vantage point out on the street, the Yousifs’ house, a unit in an old two-story bungalow, looked like most of the houses on the street: slightly run-down, with a crumbling set of concrete steps leading up to the porch.

But where some might see signs of poverty, the Yousifs say they feel rich relative to where they started. Amira Yousif was born in Kuwait, the daughter of Palestinian refugees. Her husband is from Iraq. Both fled to Jordan during the Gulf War, where they lived in uncertain immigration status. Life was hard.

“It's hard to find a job. It's hard to feed the family. Everything is expensive,” says Amira Yousif of that time. “Finally my husband said, ‘There is no future for the kids.’”

In Jordan, Amira and her husband lived in a crammed apartment with their four children. Their 13-year-old daughter Malath says compared to that world, their new home in Dayton feels luxurious. “It’s bigger. We have more space.”

The Yousifs’ oldest son, Suhaib, 16, says he feels access to more opportunities in Dayton. “It motivates us to work hard. In Jordan because I was Iraqi, it was different. You wouldn't have scholarships to colleges. You had to pay for tuition. And I wanted to be a doctor. We couldn't afford it down there.”

Still, when the Yousifs came to the U.S. through a United Nations refugee program, they worried about what they were getting into.  Amira says when she found out they had been randomly assigned to Dayton, Ohio, a place she had never heard of, she Googled it.

“I learned that Dayton is a poor city,” she says. “You cannot find jobs — the life is hard there.”

Amira Yousif came to Dayton, Ohio in 2010 with her family through a refugee program.

Krissy Clark/Marketplace

And yet, the moment she stepped off the plane with her family after a 17-hour flight, and walked in to the Dayton airport, her she felt she had been reborn. “You cannot imagine,” she says. “I feel like finally, God sent angel to us to help us.”

The help came in many forms: local church and non-profit groups helped find them a house, helped with the first few months of rent, donated furniture and clothes and appliances.

But even more than the physical support the Yousifs received from various community groups, what may have been more important to their hopes for upward mobility was being tapped in to those groups in the first place. Hendren calls this access to "social capital."

“Social capital you generally can think of that as trust, or measures of civic engagement,” Hendren says. “To what extent do you live in a community as opposed to just a collection of individuals?”

In many cases, research shows that immigrants build special forms of social capital as they connect with other families from their home country, and form cultural and sports and religious organizations together. And all that social capital can help promote upward mobility.

“It could be through role model effects,” Hendren says. “Or through actual connections that a broader community can provide as opposed to just your own parental background.”

Social capital can partly explain why some immigrants are able to climb the economic ladder faster than other low-income people around them. But there's another really important reason why families like the Yousifs have higher rates of economic mobility.

Amira and her husband may have been arrived in Dayton with almost nothing. But the family did have one key thing: education. Amira's husband was trained as an engineer. Amira has a degree in computer programming. At first, that didn't seem to matter in Dayton. After applying for dozens of jobs that matched their qualifications, they both ended up with relatively low-paying jobs in a college cafeteria. The husband worked as a cook. Amira’s job was to wash dishes and wipe tables.

At least at first.

But when I go to visit her at that same cafeteria where she has now worked for five years, her name tag reads “Production Manager.” Partly because she had so many untapped skills, she was quickly promoted.

People often look to immigrant success stories like the Yousifs and ask, if they can climb out of poverty so quickly, why can't anyone?

But Hendren says their story of upward mobility — like those of many immigrants who arrived in the U.S. through legal channels — comes with caveats.

“You do not necessarily want to compare them to the next below-income family,” Hendren says. “There’s a lot of things that are potentially different. They have a very highly educated background.”

All that aside, for Amira Yousif and her family, coming to this country was like coming to a place where, she says, “your dream becomes real.”

With good grades and a college scholarship, their oldest son could have a pretty good shot at becoming a doctor. And once she finishes the night classes she's taking, Amira might be able to start teaching again.

PODCAST: Fashion at Coachella

Fri, 2015-04-17 03:00

As this week comes to an end, we have a consensus that the fed will not raise the cost of borrowing in June anymore. But then came some inflation data today. For more on that, we consult Christopher Low, chief economist at FTN Financial in New York.

Next, Yale University's med school is weighing its next move failing to win accreditation for an online version of its Master's program for physician assistants.

Finally, Coachella is wrapping up in Southern California this weekend. The shows are about having a good time listening to music, but it's also about what people are wearing, and it's a big business. 

HBO's Silicon Valley nails VC deal details

Fri, 2015-04-17 02:01

If you’re not watching HBO's "Silicon Valley," it may be because you think it’s a weekly half hour of puerile, sexist drivel about a bunch of nerds blundering their way up the most elitist food chain on earth. And you may be right about that. But if you’re not watching, you’re missing one of the most vivid, granular and entertaining explainers out there of the way venture capital works.

Take episode one of season two, which just aired last week. The boys of hot startup Pied Piper are doing a tour of venture capitalists, to get funding for their first round. Early stage companies raise the money they need in several chunks. After entrepreneurs have maxed out their credit cards, raided their 401(k)s and drained their parents’ bank accounts, the first place they go is the “angel round,” which Pied Piper secured last season. Angel investment are kids’ stuff in the startup world: it’s literally like wee Janie on your block getting fifty bucks from her parents’ work colleagues to buy lemons and a Sodastream and open a lemonade stand. The “first round” is more serious. In this phase of the money-raising process, the wannabe CEO has to go to begging, or pitching, to a real institution – a venture capital fund.

And "Silicon Valley" nails this process. For one thing, the dress codes are dead on. The startup guys are dressed in grubby jeans, nerdy T-shirts and, of course, hoodies. The VCs are all wearing half-zip lightweight sweaters, or golf shirts adorned with crocodiles or ponies. And we all know what that means.

Next, the money: Pied Piper’s tour of the Valley VCs shows how hot and sweaty the startup scene is right now. VCs are literally throwing money at startups, valuing them at crazy prices. The valuations Pied Piper gets are ludicrous, but no more ludicrous than those bestowed upon real early stage companies. In the past, startups valued at $1 billion by the VC market before they go public were called unicorns, because they were so rare. Today there are herds of them.

Finally, the deal details: I don’t know who the technical advisor is on "Silicon Valley," but he or she sure is doing the business. Episode 1 showcased one of the biggest issues facing startups right now: the down round.

A quick explainer: when you get venture money, the fund gives you a big chunk of cash, but in return takes a huge share of your company. It also takes a number of seats on your board.

But that’s cool! For just 10 percent of your company you’ve snagged $100 million in cash! That makes your company worth a billion dollars! Dude! You’re a unicorn!

Unfortunately, you’re not making money yet, and over the next six months, you a) burn through half your money and b) read in TechCrunch that a class of Singaporean schoolgirls have just built a similar prototype to yours that looks as though it may do the same job in half the time.

Your partners panic. Why? Because they’re worried about a down round. They think that when you go to VCs for your second round of financing, they might say that they want to buy a ten percent stake in your company, but because of this new competition, maybe they’ll only give you $50 million. That would mean that your existing VC investor’s stake would be cut in half. It would also make those investors look kinda stupid. And while VCs don’t like losing money, they really, really hate looking dumb.

In the show "Silicon Valley," we hear what happens to a young entrepreneur called Javeed. His VC investors react to the possibility of his company getting a down round by forcing him into a $200 million acquisition. Remember, VCs get a seat on the board - at least one seat - which gives them a great deal of say in the way the company is run. Javeed would rather not sell his company, but the VCs have panicked, and want to cash out now. They are, in the vernacular, looking for an exit strategy. And because they are on the board, they are in a great position to arm-twist. So they force Javeed to agree to sell his company for $200 million. The VCs get a check, and avoid being embarrassed. Javeed, on the other hand, loses control of his company, and has to accept a reverse-vest, with no triggers. And what the hell does that mean? Well, let’s just say he got screwed.

 

Oil layoffs start at wellheads and work their way up

Fri, 2015-04-17 02:00

Oil prices dropped, and jobs had to go. The first ones were at the oil service companies like Halliburton and Schlumberger. "They've quickly moved to reduce their amount of operations in the field, and the first phone call they make is to that service company," Jeff Bush, president of CSI Recruiting, which places workers in oil and gas jobs, says.

Next come layoffs at the major oil companies. And now, Bush says, job cuts are trickling down to the independents—companies that just focus on oil and natural gas extraction.

"It just follows the course of who feels the pain the first," he says.

In Texas, just in the last three weeks, more than 500 workers—from drillers to crane operators— have lost jobs, according to the Texas Workforce Commission. And since November, the unemployment claims keep coming, Lisa Givens, spokeswoman for the commission says.

"We have just over 50,000 claims filed for that time period," Givens says."And then last year for this same time period we saw just over 23,000 claims filed."

 

What makes economic mobility possible.

Fri, 2015-04-17 02:00

Kathleen Somerset-Fields has something she whispers to herself when her hands start to sweat and the doubts crowd in.

I'll be fine. I'll be fine. I'll be fine.

She picked up the habit almost a decade ago, in a GED class. When she was worried about a new challenge, she says her teacher would tell her the same thing: “Go ahead Kathleen, you'll be fine. You'll be fine!”

“Every time, she’s been fine,” said Diane Brogan-Adams, remembering those days back in the GED class she taught.

When student and teacher first met, Somerset-Fields was a struggling young mother, whose own mother was battling drug addiction.

“You get people that look at you and think, ‘She's only 16 with two kids? Oh my god. She's a trouble maker,’” Somerset-Fields says. But “Miss Diane,” as she called her teacher at the time, was different.

“She was welcoming.”

Miss Diane remembers their first meeting well.

“Kathleen pulled up in a station wagon with wood trim and came in with these two children, very confident, I remember later after she filled out paper work and I saw how old she was, I was kind of surprised.”

Brogan-Adams took a special interest in her student. Somerset-Fields remembers that whenever she missed class, her teacher would call to find out what was going on, and when she was coming back.

Eventually, Somerset-Fields did come back and graduated. Then they lost touch, until several years later, when Somerset-Fields walked out of a parenting class she was taking at a community center. Her old teacher was now working at that center. They saw each other in the parking lot.

“Seriously I think god had me walking across that parking lot because he knew I needed guidance at that time,” Somerset-Fields says of that reunion with her teacher. “Honestly she has been my guidance.”

By that point, Somerset-Fields had worked a series of low-paying jobs: nursing aid, quality control at a bacon factory. Eventually Brogan-Adams offered her old student a job at the community center. Today, Somerset-Fields is the Assistant Manager of a youth program there.

“Kathleen is like one of my children,” Brogan-Adams says of her former student. “She just adds a lot to my life.”

The networks of support and community that Somerset-Fields found when she met “Miss Diane” teacher long ago at that GED class, and that she passes on now to a new generation of kids at the youth program—they are key parts of what economists call social capital. And research shows that places high in social capital have better rates of upward mobility for kids born in to poverty. 

At Coachella, fashion steals some of the limelight

Fri, 2015-04-17 02:00

Here's the big news so far from the Coachella music festival. Madonna made out with Drake and Justin Bieber was reportedly escorted out in a headlock.

For many festival-goers though, what's more important than the gossip or the music, is what everyone is wearing.

Coachella draws hundreds of thousands of people into the desert east of Los Angeles for two weekends. Sure there are big names in music like AC/DC, Jack White, and Ryan Adams. But as Pret-a-Reporter fashion writer Kathryn Romeyn puts it, the fans are as concerned about their image as hearing the bands.

“They want to Instagram good pictures of themselves,” Romeyn says.

In other words, selfies.

Yes, the festival is chock-full of teens and twenty-somethings, many from LA.  Picture this—a hoard of impressionable minds with disposable incomes and social media followers, all transported to the blank desert landscape for two weekends of pop-music-infused, millenial partying.  It's a marketing opportunity that makes the fashion industry salivate.

Coachella has become big business, says PR-firm-owner Lori Riviere, and fashion brands have jumped on the bandwagon.

The handbag giant, Coach, hosts backstage performances. Cosmetics colossus Sephora brings a tent for beauty touch-ups. Need eyewear? Glasses.com is there too.

Sarah Call is Glasses.com's director of content. She says the festival is part of the company's brand relaunch strategy.

“We felt it was sort of the perfect place to celebrate self-expression,” she says.

Fashion companies see dollar signs in the festival's free-spirit-Woodstockian vibe. H&M now has its own Coachella clothing line. The festival style is a hippie-LA-Boho mishmash. Think fringe shirts, big sun glasses, and lots of skin.

Music festivals are a great place to see and be seen says Jim Andrews of sponsorship consultant IEG. 

“There's lots of downtime,” he says. “Lots of walking around time.”

Andrews says festivals are better than say a sporting event—where fans could get distracted by actually watching the game. At festivals “there's a lot more time for quality interaction,” Andrews says.

Everyone is cashing in. Celebrities and musicians get paid to wear clothes. Fashion magazines stuff their pages with glossy Coachella photos and articles about how to preserve your beauty in the hot desert. Nobody wants to be sweaty and gross. It's not Woodstock.

Music critic Jim Farber says the audience doesn't seem to care that festivals have gotten super corporate.

“If they are offended by it they generally are pretty quiet about it,” he says, “or else they enjoy it.”

It hasn't always been this way. Farber remembers when he want to the first Lollapalooza music festival back in 1991.  There was just a bunch of bands and one guy with a falafel stand.

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