📰 This Week…

• Unemployment reaches 4%

• Central banks have started cutting interest rates

• Investors purchased more single-family homes in Q1

• Early-stage fundraising for AI companies is slowing down

• Addiction-technology is a hot investment area

• Bankrupt Synapse is missing $85M of depositor funds

And so much more!

📊 Markets

• Interest Rates, Federal Funds: 5.33% 

  • (+0% MoM, +10% YoY)

  • Next FOMC meeting starts June 11

• 30 Year Mortgage Rates: 6.99%

  • (-0.5% WoW, +1.4% MoM, +4.2% YoY)

• Single Family Home Price Index: 423.4 

  • (+0.1% MoM, +6.7% YoY)

  • May report, data is through March

• Commercial Real Estate Index: 122.7 

  • (+0.7% MoM, -6.6% YoY)

💸 Economy

• The economy surpassed expectations last month. About 80 thousand more jobs than expected were added. Average hourly earnings grew 4.1% year over year. That was also better than anticipated. On the downside, unemployment has continued to steadily creep up, reaching 4%. (The Wall Street Journal)

• Consumer debt rose in April, but credit card debt decreased slightly. It’s been 3 years since the last time there was a monthly decline in credit card debt. (MarketWatch)

• That having been said, credit card debt is still above the trend set before the pandemic. There is also a continued, steady increase in the amount of credit card debt payments that are late. (The Wall Street Journal)

• Some people are concerned the US might enter a period of “stagflation.” But, there are also parallels to the 1950s. That was a period of strong economic expansion. If productivity can keep improving (such as through AI technology), we might see a period of growth. (Fortune)

• According to analysis from the Associated Press, there are now about 7,000 publicly traded “zombie” companies. Around 2,000 are in the US. These companies have weak businesses and a heavy debt load. With debt payments coming due, we may see a wave of these small-to-medium companies fail. That could affect employment for an estimated 140M people around the world. How this plays out likely depends on interest rate policy around the world. (Fortune)

• Central banks around the world have started cutting interest rates. The European Central Bank just cut for the first time. Prior to that, Canada, Sweden, and Switzerland had already reduced interest rates. The US is not expected to follow their lead quite yet. (Barrons)

Bottom Line: Mixed signals continue for the US economy. More jobs were added in April, but unemployment rose. Credit card debt finally saw a monthly decline after 3 years, but delinquent payments continue to rise. There’s an estimated 2,000 publicly traded “zombie” companies. The longer interest rates remain high, the more likely they are to fail. The rest of the world has started interest rate cuts, but the US likely won’t follow for a few more months.

🏠 Real Estate

• Single family housing communities that are designed to be rented have risen in popularity. In 2023, the number of constructed “build-to-rent” houses increased by 45%. They have mostly been driven by institutional investment. There’s not a consensus on how build-to-rent will affect the housing market if it continues to grow. (USA Today)

• As the housing market continues to normalize, investors have started purchasing more. According to Redfin, there was a 0.5% increase in home purchases for investment in Q1 of 2024. That’s the first increase since Q2 of 2022. (CNBC)

• The CEO of Starwood Capital Group is arguing that rents are likely to rise in the next few years. Since interest rates have increased so much, there’s also fewer projects starting to construct more housing. This means the rate of new houses available for purchase will begin decreasing. That will make the housing shortage in the US worse and lead to increased rents. (Fortune)

• The biggest landlord for office space in New York city is getting ready to start buying. They’re trying to raise $1B for real estate purchases. The company also reports they’re seeing an increase in demand for office space from technology companies. (MarketWatch)

• Some pandemic housing trends are reversing. Hot spots like Nashville, Houston, and Atlanta are seeing decreased buyer interest. Areas that saw prices fall sooner - like San Jose are seeing activity pick up now. (Fortune)

Bottom Line: Housing communities designed for renting (instead of buying) are continuing to grow. Some investors are starting to become more interested in real estate. Investors purchased more single-family homes than a year ago. There are also signs of recovery and opportunities in office space real estate. Though an increase in housing inventory across the Sun Belt has been met with slow demand. That is likely to put downward pressure on housing prices as units sit unsold for longer.

💡 Startups

• Cohere raised $450M. They now boast a $5B valuation. That’s more than double the $2.2B the company was worth last June. (Fast Company)

• Earlier fundraises for AI companies are losing steam. Pre-seed and seed funding rounds dropped by 76% comparing Q3 2023 to Q1 of 2024. (Fast Company)

• Video generation is the next AI battleground. The largest companies like OpenAI have not yet released video capabilities. That has left a space for smaller companies to race ahead. Pika just raised $80M for this effort. Runway and Synthesia have also raised large sums for AI-generated video. (The Washington Post)

• Valuations are still coming down for some companies. Nium, a Fintech unicorn, just raised funds at a 30% lower valuation. Carta is conducting a secondary sale at a 75% lower valuation from their peak. That’s a $6.5B haircut for the company. (CNBC, TechCrunch)

• In 2023, companies that had women among the founders won 24% of startup investment dollars. That’s a significant increase from 15% in 2022. (Inc)

• Unfortunately, the full picture for diversity and equality in fundraising is a bit less encouraging. DocSend’s report on 2023 seed fundraising shows underrepresented teams struggling. In general, gender and race had an influence on:

  • Time spent to raise funds

  • The amount of meetings with venture capitalists

  • How much money they were able to raise (Forbes)

• Addiction-technology is a hot area of investment. The top startups have seen over $800M of investment over the past couple of years. The sector operates in a bit of a legal gray zone and has raised concerns over things like data tracking and user privacy. (Inc)

• Many Y Combinator-backed startups have changed their fundraising strategy in 2024. They’re looking to raise a smaller amount of funds while giving up less equity in their company. This has reduced the number of institutional investors in these startups. (TechCrunch)

• Synapse continues to stall the operations of many Fintech companies. Their trustee now says there’s $85M missing. No one knows where it is or what happened to the funds. (CNBC)

• Waystar is a company that makes software that helps healthcare providers collect and manage payments. They raised almost $1B in an IPO that valued the company at $3.7B. (MarketWatch)

Bottom Line: Early-stage AI fundraising has slowed down. There’s still plenty of companies pulling in large sums of funding though. Video generation is an area of focus right now. A number of large unicorn startups are still having to take valuation cuts in additional fundraises. Companies with women among the co-founders took home a greater portion of VC funds in 2023 than in 2022. But minor teams still face disadvantages in fundraising overall. The disruptions caused by Synapse’s bankruptcy aren’t likely to be resolved any time soon as $85M is missing.

🎵 Music Royalties

• Spotify is increasing prices in the US. This increase in revenue is expected to also increase payments for music rights holders. (Billboard)

• One risk of buying music royalties is the exposure to the artist(s) themselves. Legal issues can result in decreased song plays. Depending on the severity of the issues, it could make the royalties “untouchable” to potential buyers. That removes any serious hope of a meaningful sale of the assets. (Billboard)

Bottom Line: More money for rights holders from Spotify streams from paying US subscribers. Artists encountering legal issues can also mean problems for music royalty investors.

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