• This VC firm is bringing something unique to the table…
  • Meta is collecting more data than ever before…
  • Would you gamble a second time on this guy?

Dear Reader,

The headlines are painful to read – “US gasoline hit new record on Memorial Day weekend.”

This article went on to outline how average US gasoline prices reached $4.619 per gallon, an all-time record high. It cost me $127 to fill up my tank over the weekend, a number that would have been unthinkable two years ago.

Price inflation is running rampant everywhere. I know that we’re all feeling it. I’ve seen it in the price of new tires, a dinner out with the family, vegetables at the farmer’s market, our grocery bills, a piece of furniture, basically everything.

So it’s no surprise to see consumer sentiment levels at historical lows:

I thought it would be interesting to step back and look at the last five decades and see where we stood today in comparison. Doing so is useful to put things in context, especially at times like these when there is so much volatility and uncertainty.

And what we can see is pretty incredible. This is only the fourth time that we’ve seen levels like this…

The first was back around 1981, when interest rates were at their highest levels in modern times. The average annual 30-year mortgage was 16.63%. Can you imagine what that would have been like? Who could possibly pay that kind of interest on a mortgage? 

Naturally, it collapsed the housing market at the time, but there was a sharp rebound in sentiment immediately after the index bottomed out.

The next window of low consumer sentiment was during the global financial crisis and its aftermath. What followed was a decade-long bull run, powered by a new breed of technology and biotechnology companies designed as “digital-first” empowered with leading-edge software and hardware technology, that enabled the acceleration of product and service development.

What followed the global financial crisis was the first time in history when a company worth just tens of millions could become worth more than a billion in just two or three years, and then in two or three more become worth more than $10 billion. 

Even more remarkable was that most of these incredible success stories were creating that kind of value and have become extraordinary businesses today.

Given the chaos and uncertainty of the last six months, it’s no surprise that the consumer sentiment levels have fallen to where they are. What’s most frustrating to me is that they are self-inflicted. This could have all been avoided.

And while we may bounce along the bottom for a couple of months, we’ve already seen a major correction. The asset classes where we saw inflated valuations have largely been popped. And where we are seeing price inflation is entirely due to monetary, fiscal, and foreign policy. Fortunately, those are problems that can be fixed. 

In the last three months, we’ve seen corporations make sharp adjustments.

Some companies have been using this window as an opportunity to make some long-needed changes in their organizational structure. I’ve seen a lot of companies refine and focus where they are investing in research and development. And of course, households are also making their own necessary changes in their spending habits in light of rising prices.

This is a healthy market response to economic conditions like this. And these adjustments always lead to a rebound in not just the consumer sentiment index, but also in growth.

When I think about the companies that came out of the rubble of the global financial crisis (which I might add was another crisis caused by politicians, the Federal Reserve, and the investment banks), it’s hard not to be excited. Incredible wealth was created.

And that’s why I’m so excited today. The technology available to us back in 2008/2009 feels so archaic, as it was more than a decade ago. What will follow the mess that we’re experiencing today will be that much more revolutionary.

We’re about to experience something extraordinary. We have so much to look forward to.

Private capital is still flooding into crypto…

Big news on the digital assets front…

Andreessen Horowitz just raised its fourth crypto fund. And at $4.5 billion, it is twice as massive as its previous one.

If we remember, Andreessen raised its third crypto fund in July of last year. That one raised a historic $2.2 billion. It was the largest raise in the history of the blockchain industry at the time.

But Andreessen didn’t stay on top for long. Venture capital (VC) firm Paradigm raised a $2.5 billion crypto fund in November of last year, claiming the top spot.

It seems Andreessen wasn’t to be outdone…

What’s so telling here is that Andreessen was able to raise this record fund amid a broad downturn in the crypto markets. Bitcoin (BTC) and Ethereum (ETH) are each down over 50% from their November highs. And some of the weaker blockchain projects are down over 80%.

Yet there’s still an avalanche of private capital that wants access to this asset class.

Clearly, Andreessen believes this crypto pullback is temporary. I share the feeling, and this is a very consistent sentiment in the broad blockchain industry. 

With the right timeframe in mind, Andreessen sees this as an opportunity to take advantage of depressed prices, and more attractive valuations, to invest in the most promising projects.

And the fact that Andreessen is raising $4.5 billion is also telling. The firm sees enough promising projects out there to justify such a large raise. Even venture capital firms know that it’s not good to raise more capital than you can deploy.

As for its focus, Andreessen will invest heavily in decentralized finance (DeFi) and Web 3.0 gaming projects. The firm is also focused on blockchain infrastructure, decentralized autonomous organizations (DAOs), and non-fungible token (NFT) communities. These are, of course, all areas that we’ve been following in The Bleeding Edge.

And Andreessen brings something unique to the table…

Most funds employ a “2 and 20” compensation structure. That means the firm charges a 2% annual management fee. Then it keeps 20% of all profits produced by the fund.

Well, if we think about all the funds Andreessen is running right now… That 2% management fee is a massive number. That amounts to $90 million a year in management fees on a $4.5 billion fund, and gives Andreessen the money to hire talented teams of researchers and software engineers.

Then, when it invests in a promising blockchain project, Andreessen’s makes its team of engineers available. These engineers can help design the protocols and “tokenomics” that will make the project a success.

This is unusual in the industry… Not many VC firms employ large engineering teams, at scale, specifically to help upstart projects succeed.

This is the real motivation of such a large fund. The management fees give Andreessen a competitive advantage in terms of what kind of support they can offer to portfolio companies.

Needless to say, Andreessen’s new crypto fund is incredibly bullish for the digital asset space.

We’re going to see the crypto markets rebound in the coming months… and my readers will benefit when it does. For more about trading in the crypto arena, simply go right here.

Meta Platforms’ researchers are taking to the streets…

Meta, formerly Facebook, just launched an unsettling program to assist with its augmented reality (AR) goals…

Meta researchers are donning “research glasses” to begin capturing data on city streets as part of “Project Aria.”

On the surface, Meta appears to be going a similar route as Niantic, producer of the wildly successful Pokémon Go game. It overlays the game’s visuals on the user’s actual surroundings.

To enable this, Niantic first created an extensive map of real-world locations that its developers use to anchor game content.

And that brings us to Meta’s new mapping initiative… If we see someone in this outfit, it’s a Meta employee:

Project Aria on the Streets

Source: Meta

This woman is wearing something of a worker’s vest. And the pocket reads “Recording for research.” This is unnerving, to say the least.

The glasses are not meant as an AR prototype. They are for data collection only. These glasses are recording video and audio, as well as tracking the wearer’s eye movements and location info.

Soon, roughly 3,000 Meta employees and contractors – along with other paid participants – will be prowling cities around the world to capture data.

Longtime readers won’t be surprised that I find this move disturbing…

Allegedly, Meta will only use this data for its AR technology development. And Meta is saying it is keeping the data safe by blurring people’s faces and using encryption.

Yet this gives me little comfort.

If Meta deploys even a fraction of Facebook’s 1.9 billion active daily users as “researcher assistants,” it would create a massive surveillance system across the world… Are we comfortable with someone walking down the street recording us without our knowledge or consent? 

Sadly, the reality is that it is already happening to a certain extent – Whether it is people recording other people for the purpose of posting on social media, or surveillance camera systems to surveil on a population like we see today in the U.K.

And given Meta’s poor stewardship of its customers’ data in the past, we can imagine it being misused, or making this new data available to advertisers or other interested parties.

Regular readers know I believe AR glasses are the next mass-market consumer product. And it’s possible that this is simply Meta’s next step to becoming the market leader in this space.

But we should remain wary about how Meta puts its Project Aria into action. And as we are seeing, data privacy is going to be even harder to achieve in this new augmented world.

Adam Neumann is at it again…

Adam Neumann is back at it again. He just launched a new blockchain-enabled carbon credit trading platform called Flowcarbon.

Flowcarbon has managed to raise $70 million in its first major funding round. I’m amazed that anyone would back this guy after his previous antics…

Longtime readers may remember Neumann. He was the founder of shared workspace company WeWork.

For the sake of new readers, I pointed to WeWork as the perfect example of an initial public offering (IPO) that investors should avoid back in 2019.

And sure enough, private equity giant SoftBank ended up losing over $10 billion on its investment in WeWork.

It all comes down to Neumann’s gross mismanagement. It certainly bordered on fraud.

WeWork was one of the world’s largest providers of modern shared workspaces. The company leased office space to start-ups, small businesses, individual consultants, and remote workers. At one point, its valuation rose to $47 billion.

But Neumann engaged in all kinds of questionable transactions with the company.

He took out multimillion-dollar loans from WeWork at very favorable terms to himself. Neumann also bought real estate and then leased it back to the company at above-market rents.

Further, Neumann put on incredibly lavish company events. He basically used WeWork as a giant slush fund. 

And get this – Neumann even licensed the name “We” to WeWork, his own startup. What a joke. That would be like me licensing the name “Brown” to Brownstone Research.

All of this came out ahead of WeWork’s planned IPO, and this caused some major banks to walk away from the deal. As a result, the IPO fell apart.

That left VC investors like SoftBank holding the bag. In fact, SoftBank paid Neumann about $1.7 billion just to leave the company.

The events surrounding Neumann and WeWork were so spectacular that they warranted a documentary, “WeWork: Or the Making and Breaking of a $47 Billion Unicorn” and a series, “WeCrashed,” recently released on AppleTV+.

The whole ordeal was quite embarrassing for the VC industry. That’s why I’m shocked that VCs are willing to back Neumann’s new company.

I’m even more surprised that a firm as reputable as Andreessen Horowitz is backing the venture.

Typically, we can think of Andreessen as the “smart money.” I’m not so sure that’s the case with this one. Maybe Andreessen is simply willing to take a shot at the $851 billion carbon credit markets despite Neumann’s reputation.

What’s more, a portion of Flowcarbon’s raise wasn’t even in exchange for equity in the company. Flowcarbon raised about $38 of the $70 million through a token sale.

The project’s native token is the Goddess Nature Token (GNT). And a group of certified carbon credits makes up its only backing.

I couldn’t make this up if I tried.

As regular readers know, I am a big proponent of Web 3.0, blockchain technology, and tokenization. And I’m an even larger proponent of clean energy and the technology, that is going to get us there.

So I still wish Flowcarbon well… But I would not trust Neumann for a second.

At Brownstone Research, we focus exclusively on exciting companies with reputable founders, not those that misuse the capital that they raise. That will never change.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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