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Brazilian’s Minister of State of Mines and Energy goes in Depth about Brazil’s Resilience through the Pandemic

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Brazilian’s Minister of State of Mines and Energy goes in Depth about Brazil’s Resilience through the Pandemic

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Brazil has proven to be a durable country despite the peculiar situation faced globally. As Latin America’s largest country, Brazil has secured $78.2 billion in investments this year while making significant improvements to drive its sustained success. The recent changes have resulted in the country becoming a global hub for innovation and economics.

Global Trade Magazine had the opportunity to speak with Minister Bento Albuquerque, Brazilian Minister of State of Mines and Energy, through an exclusive opportunity, Albuquerque expanded on Brazil’s resilience throughout the global pandemic, notable investment opportunities, and how unique factors have affected the business of Brazil’s energy sectors.

 

 

What is the current state of the energy sector in Brazil and what are the goals for the next year?

The energy sector in Brazil is flourishing with undergoing reforms and opportunities that are being created in this context.

The national council made important decisions regarding the energy (CNPE) policy in 2019, before the pandemic. The decisions made several reforms possible and increased the number of auctions that were scheduled in advance to support investors’ decisions.

Two comprehensive and sectoral reforms are being implemented as we speak. First, the new gas law, which was sanctioned by President Jair Bolsonaro on April 8th, 2021. The new legal framework will make room for a more open, dynamic, and competitive gas market with increased opportunities for new agents. Aligned with the new gas market policy, many companies are already announcing important investments in the Brazilian Natural Gas Sector.

Secondly, in ten years our power load will increase about 27 GW on average. Brazil must enable investments in the expansion of its power system. We are fully committed to the modernization of our power sector by expanding methods and abiding by a modern, robust set of regulations. We are working towards opening our energy market to the all-out consumer, promoting efficient cost and risk allocation, making sure the power supply continues to be safe and reliable and promoting rules and regulations that incorporate all new technologies.

Finally, part of the modernization regulatory package was approved by our national congress under Law No.14.120.21. The Federal Government declared it one of its top priorities. 2022 will focus on the concretization of projects and opportunities and the upcoming auctions are the gateway to turn these projects into reality, as we count on foreign and national investors to help us push these initiatives forwards.

What are the competitive advantages Brazil’s energy sector offers business?

 When discussing the oil and gas sector beyond opening up and unbundling the natural gas market, we are promoting a strong divestment program in oil refining- a new era for our downstream. Petrobras recently approved a sale of RLAM (Landulpho Alves Refinery- 14% of Brazil’s total oil refining capacity) to a Mubadala capital for the US $1.65 billion. Moreover, the E&P expertise, the improvement of our regulatory agenda and the quality of our oil improve competitiveness in the Brazilian offshore basins, turning Brazil into a world leader in this segment.

Brazil is the world’s largest producer of sugarcane ethanol and the second-largest producer of biodiesel, which is based mainly on soy oilseed and animal fat. Our goal is to increase international cooperation in biofuels, by the transfer of technology and expertise to other countries.

The Brazilian population will grow at 6% until 2030 reaching 225.4 million inhabitants. The expectation is there will be around 83 million permanent private households in 2030, an increase of 13 million. The way our power sector is today, we have 186 thousand MW of installed compacity; 162.7 thousand KM of transmission lines; 70 million consumer units. With the increase of modernization, there will be plenty of room to expand with the incorporation of new technologies. Guaranteeing reliability in supply, suitable risk, and costs of allocation. Our region has the challenge of keeping our power matrix as clean and renewable as possible, while expanding its capacity and promoting energy security.

How is the energy sector contributing to foreign direct investment in Brazil?

Between 2019 and 2020, about USD 32 billion was invested in the energy and mining sectors in Brazil. Last year, 26% of the total foreign direct investment was directed to the energy and mining sectors alone. We are convinced that business environment improvement and agent’s confidence recovery help consolidate the pace of economic growth.

We annually update and publish our 10-year expansion plan. According to its predictions, as much as USD 44 billion is expected to be invested in the energy, oil, natural gas, and biofuels sector in the next 10 years. (E&P about the US $337 billion, supply $4.1 billion, natural gas $17.9 billion, and biofuels $12.8 billion)

For the same period, the total investment expected for centralized generation, distributed generation and transmission systems will be about USD 68 billion.

To boost economic recovery and improve the business environment we have updated our legal and regulatory frameworks, strengthened legal certainty, reinforced the governance in our institutions, introduced more predictability and transparency, and designed our projects bearing in mind OECD standards of environmental, social, and governance impact.

How do you think Brazil’s resilience during the pandemic affected the business environment and energy sectors in Brazil?

Brazil managed to look through the pandemic with good governance and method. The federal government created a committee to monitor the Covid-19 impact on the economy. At the ministry of mines and energy side, we established three sectorial committees. Three of the outcomes are the uninterrupted power supply, the guaranteed supply of fuels, and the preservation of mining activities. Several decisions were made in order to minimize the impact on consumers and preserve the attractiveness on the supply side.

As far as the power supply is concerned, 10 million households that use less than 220 KWh a month were exempted from chargers. We created a “Covid Account” in order to minimize the impact on consumers, causing tariffs to plummet from 12% to 3%. Hydrological risk -which was a concern for hydropower plants- was duly tackled by the parliament. In 2021, Energy consumption increased by 19.2% in comparison to 2020.

The whole chain of production has been monitored as of day one. Consumption of gasoline and ethanol fell significantly but resumed by the fourth quarter of last year. The LPG, the ministry of mines, and energy made awareness campaigns to put a halt on panic buying LPG and the rate was around +2.6% last May. The mandatory blending of biofuels was revised so that targets could be met under current circumstances.

Exports of crude oil and iron represented 21.1% of the total exports in 2020, reaching around USD 45.4 billion in our trade balance.

As a timely measure taken at the beginning of the pandemic, we managed to declare mining as an essential service for the economy, taking into account that mineral goods are the basis of the Brazilian industry. We made arrangements to extend administrative timeframes in a reasonable manner, and donations by the private sector to tackle the pandemic played an important role in our collective effort., By caring for the health of our sectors, our actions focus on the health of our citizens.

How do you predict Brazil’s business environment post pandemic?

 Economic measures led to growth in 2020, focusing on the most vulnerable population. After a server downfall in April 2020, which affected primarily income, jobs, and family habits, industry, trades, and services in Brazil have made a V-shaped trajectory of recovery. Stabilization was evident in the fourth quarter of 2020. This was the result of a concerted and temporary effort involving government, associations, and the private sector.

The pension reform, the tax reform, and the administrative reform will allow the Brazilian government to save almost USD 375 billion in ten years. A more productive economy leads to higher demand for employment. Some scenarios foresee an injection of up to 370 thousand job opportunities in the labor market. Additionally, to the reforms passing at our house representatives, outstanding programs contributed to the Brazilian economic rebound.

When it comes to government expenses, it is important to stress that we do differ emergency measures from structural ones. Emergency measures are temporary. Otherwise, structural reforms are aimed at fiscal consolidation and increase productivity. Brazil believes that mass vaccination, fiscal consolidation, and structural reforms are the way to long-term sustainable economic growth.

How did Brazil’s resilience differ from other countries during the pandemic?

 I wouldn’t like to judge other country’s domestic decisions, but Brazil does attribute positive results. We can showcase today in terms of the functioning of our mines and energy sectors to the robust governance that has focused on the people’s and sector’s health.

Crosscutting decisions taken back in 2019 made it possible for us to promote sectoral reforms that are meant to dramatically change the way these sectors work. We developed robust governance and evidence-based information to support policymakers in the pandemic. Finally, we designed policy and recommendations focused on the preservation of structural arrangements, with attention to the customers and competitiveness on the supply agenda.

As demand increases, we will need a more robust energy infrastructure. Brazil is a developing country and energy is the basis for development. Furthermore, Brazil is extremely well-positioned to take advantage of the ongoing energy transition. We believe in international collaboration, partnerships, and investments to make our projects a reality in the coming years.

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What’s In Store For the 2021 Stock Market?

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The past 12 months have been an exciting and interesting time for all the stock exchanges around the world. Amid a global pandemic and political changes in dozens of developed nations, nearly all the key indicators showed surprising strength and durability, including the Dow Jones Industrial Average and the S & P 500. The Dow took a temporary hit at the beginning of 2020 when COVID struck, but since then has come roaring back.

It not only made up all those lost points but has tacked on about 4,000 more, currently hovering close to the 35,000 mark. The S&P 500 did almost the same thing, falling rapidly from mid-February to mid-March of last year, only to recoup all the loss and rise even higher, now sitting near the 4,300 mark. Here’s what the rest of 2021 could have in store for anyone interested in taking part in the global securities markets.

What’s the Purpose of the Stock Market?

Before examining what the rest of the year has in store for corporations and investors, it’s important to recall the two reasons the securities markets came into existence. Even after more than a century of daily buying, selling, and deal-making, those two purposes still underpin the existence of all the major global exchanges. The first purpose is to allow organizations, also known as listed firms, the chance to acquire capital so they can go about their daily operations, grow, and prosper. Second to that, but no less vital, is that the exchanges give ordinary investors the ability to benefit by owning a piece of any entity that is listed on the trading board.

Businesses Raise Money as Needed

For example, a new business might not have enough luck raising the funds it needs via private sources, loans, and angel investors. When that happens, it has the chance to apply to appear on the exchange’s board and accept direct capital inflow from the public, through a network of brokers.

Private Citizens Can Earn a Living

For individuals who want to own a portion of any listed entity, shares are available for sale. There’s no limit on investing timelines or amounts, as long as the purchase is legally made through a licensed agent. Many stock market enthusiasts who want to earn regular income learn how to day trade and take part in daily sessions. By definition, day traders close out all their positions each day, never holding equity shares overnight.

Corporate Earnings Estimates

After the COVID pandemic restrictions eased up and the global economy began getting back to normal in early 2021, many corporations unexpectedly exceeded earnings expectations. As is the case with share prices, earnings can sometimes travel for a while on built-up momentum. But even though most of the prognosticators and Sunday morning TV shows were expecting to see 2020’s momentum die down heading into the new year, it was not as significant as expected. Then, dozens of major companies began reporting record earnings early in the second quarter of 2021, which means there’s likely a new wave of enthusiasm and optimism coming out of the pandemic.

Overall Direction and New Leaders

Since March of 2020, the overall direction of the equity markets has been generally upward. Even in the doldrums of the later part of last year, the general trajectory of share prices was up, a megatrend that has continued to this day. What new leaders are emerging? Some of the biggest winners of the past six months have included companies in sectors like pharmaceuticals, healthcare, retail, and home improvement. Now that the economy is focused more on home delivery, online commerce, and working from home, merchants who have plugged into those major trends are enjoying broad-based success.

Low Risk, Not No Risk

Even the most diversified portfolio of blue-chip stocks still comes with risk. It’s essential for newcomers to the marketplace to understand that low risk is not the same thing as no risk. Anyone who puts their money on the line for the purposes of earning a profit from stocks, bonds, forex, options, commodities, or anything else, faces the ups and downs of the international economy. However, for prudent traders, there are multiple ways to minimize risk, keep an eye on account balances, and take part in one of the most exciting financial enterprises on earth: the international securities exchanges.

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Archives, Banking, Global Trade Daily

Solving Supply Chain and Security Problems with Blockchain Technology

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In the last few years, blockchain has become a buzzword in the tech industry. The concept entered the public consciousness through Bitcoin, which uses a specific blockchain as a core component of its consensus algorithm. Back in 2017-2018, many experts were proclaiming “blockchain, not Bitcoin,” while today, Bitcoin’s latest meteoric rise and ensuing crash has flipped that narrative on its head. But while blockchain technology is often associated with cryptocurrencies, its application is powering the fourth industrial revolution and mainstreaming applications. In cybersecurity, blockchain technology can help improve security and resiliency, at a cost.

To understand blockchain-based cybersecurity, one must first understand some basic principles of how a blockchain works. A blockchain is one form of distributed ledger technology (DLT), meaning that it is used in distributed systems. Distributed systems offer greater resiliency than centralized systems since a decentralized network has no single point of failure, but that resiliency comes at a cost. Without a single source of truth for the network, reaching consensus can be difficult. A blockchain typically serves as part of that consensus mechanism—establishing a reliable record for the system to use.

Implementations vary between different blockchains, but in general, a blockchain takes some chunk of data and connects it cryptographically to the previous chunk of data, forming a chain of data blocks—a blockchain. That data can itself be encrypted using public-private key pairs so that only authorized users (or owners) can access the records.

Typically, each block of data includes a header, which summarizes the contents of the block. That header includes a cryptographic hash of the previous block’s header, and that hash forms the link between each block. Because each block builds on and explicitly references the contents of the previous block, a properly implemented blockchain is extraordinarily difficult to alter. In order to change a block’s data, every block after that block must also be edited to build on the new hash of the altered block. Consequently, older blocks are much harder to change than newer blocks.

The immutability and decentralization of a blockchain make it well-suited to certain applications. For example, financial institutions can benefit from unambiguous, cryptographically provable ownership records. Bank of America recently announced that it joined the Paxos network to speed up settlement times for stock trades, while JPMorgan has settled billions of dollars of transactions on a private version of Ethereum. From healthcare records to private genetic data, blockchain technology is also revolutionizing the medical industry. Legally, blockchain implementations could help businesses by providing a reliable, auditable data record.

As we digest the takeaways from the late spring 2021 crypto-crash, gas fees required to process transactions over Ethereum blockchain networks and environmental costs associated with Bitcoin mining need to be reexamined. But what are gas or transaction fees? While “gas fees” refers to the computing power required to securely execute a transaction on the Ethereum blockchain, they can be analogized to the transaction fees to process any crypto-currency transaction. On the Bitcoin blockchain, fees are required to pay the network’s miners to accept and verify a transaction.

While these gas fees and mining fees are an essential part of the security behind the scenes, they have become substantial deterrents to the growth of the digital asset marketplace. Startups that can create cost-savings in gas or mining fees to process transactions will be well-positioned to lead the next generation of blockchain security solutions.

If your company is considering implementing blockchain technology, consider carefully what information needs to be stored. My advice is to evaluate whether you need to use a blockchain. It is a powerful and useful technology, but it is not the right tool for every job, regardless of how popular it is. Unlike a traditional database, data stored on a blockchain effectively cannot be altered, so you need to make sure that whatever records you include compliance with all applicable laws and regulations. A mistake here could be extraordinarily difficult to fix. In some industries, the benefits will be well worth the risks. In other industries, the transaction costs need to first come down.

Some solutions to consider for industries where blockchain makes sense today:

-Bide your time. Wait it out. The market is evolving rapidly, decentralized and dynamic. With so many costs with no consolidation, new competitors are entering the market every day, and chances are that fees will reduce as a percentage of the transaction over time.

-You could also look for new blockchains or wrappers that “wrap around” existing blockchains to support more transactions, relieving congestion and offering lower fees.

-Partnering with value-priced wallets offering scaling technologies enabling lower fees is also an avenue to explore.

In the end, blockchain cybersecurity simply leverages the immutability and decentralization of a blockchain to make tampering with data more difficult while reducing centralized points of failure and giving users more control over their data. Ignore the hype, and evaluate whether this technology is right for your use case. Periodically reevaluate. This is a dynamic technology, and so is the market.

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Louis Lehot is an emerging growth company, venture capital, and M&A lawyer at Foley & Lardner in Silicon Valley.  Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from the garage to global.

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Archives, Global Trade Daily, Special Reports

Staying Away from Bubbles and Fads

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Here is a story that has been floating around for years: Once upon a time in a village, a man appeared and announced he would buy monkeys for $100 each. The villagers, seeing that there were vast amounts of monkeys around, went into the forest and started catching them. The man bought thousands of monkeys at $100 and as supply started to wane, the villagers stopped their efforts.

The man announced that he now would buy at $200, so the villagers redoubled their efforts and went back to capturing monkeys. Soon the supply diminished even further and people in the village started returning home. The offer then increased to $250 and the supply of monkeys became so scarce, it was an effort to even spot a monkey let alone catch it. Finally, the man announced that he would buy monkeys at $500. But he had to go to the city for business and his assistant would buy them on his behalf.

While the man was out, the assistant told the villager; “Look at all of these monkeys in the cages the man has collected. I will sell them to you for $350 and when the man returns you can sell them to him for $500 each.” The villagers rounded up all their savings and bought all of the monkeys. Then the assistant left, and they never saw him or the man ever again, only monkeys everywhere.

This could be an allegory for the current ‘monkey business’ with meme stocks and a host of other “hot” items. The modern-day “man” has been selling his goods to all the villagers sitting home during the pandemic. A shortlist of today’s “monkeys” could include:

Cryptocurrency – last March, bitcoin was trading just above $5,000, today it is around $56,000. Even more exciting: the dogecoin, a crypto that is based on a meme, has risen over 1,000% this year.

SPACs – AKA Blank-check companies. Of the 302 IPOs this year, 80% have been via SPAC. This is an area that’s starting to look “bubbly.”

NFTs – Non-fungible tokens. These monkeys utilize the blockchain to prove ownership of original pieces of internet “art.” The piece by Beeple below sold for $69 million (he never sold a piece of art for more than $100). And Jack Dorsey’s first Tweet went for $2.5 million.

Meme Stocks – AMC just announced they intend to offer an additional 500 million shares of stock, while GameStop intends to offer 3.5 million shares. Not sure if the villagers will be around for the man this time.

The ‘villagers’ – AKA retail investors – seem to be going back to their farms and slowly walking away from the monkey business. NYSE volumes are at 80% of the 30-day average while the Nasdaq is at 90%, while GameStop is far off their January high. The pandemic cleared calendars, boosted savings, and led many to the stock, crypto, sneaker, and baseball card markets.

The US equity market posted positive returns for the quarter, outperforming the developed international markets as well as emerging markets. Market participants cheered on the push for higher levels of vaccination as well as the government’s printing press.

With the vaccines coming on strong, market participants are eyeing companies that would benefit, including value stocks such as industrials, materials, travel, and banks. There was a heavy rotation out of growth stocks to value. Value stocks outperformed growth stocks across large and small-cap stocks in the last quarter, and small caps outperformed large caps. Most of that was the “opening up trade.” The top searches on Google are now for “airlines” and “hotels,” not GameStop, Bitcoin, or NFTs. Boredom may be over; calendars are filling up and money will be spent.

The rotation out of the high-flying stocks and sectors into companies with actual earnings and are not on the brink of bankruptcy is a welcome sight. Bubbles and fads have always been around, but they don’t last.

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Morgan Christen, CEO and Chief Investment Officer of Spinnaker Investment Group, has more than 28 years of investment management experience. He earned a Bachelor of Science in Business Finance from the University of Southern California and an MBA from Pepperdine University. In addition, he is a Chartered Financial Analyst (CFA), Certified Financial Planner (CFP) and Certified Divorce Financial Analyst (CDFA) and serves on the board of directors for the Pepperdine Graziadio Business School.

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Why You Should Outsource in Kosovo

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Not very long ago, companies that were looking to hire highly-skilled talent were limited to candidates that lived within a certain area of an office location.

However, nowadays, an organization can hire the exact talent or team if they need them for a specific project, and it doesn’t really matter if this person or team is located near their office location or halfway around the world. Thanks to modern technology, the internet, and lately COVID-19 and the influx of remote work, accessing experts is easier and more affordable than ever before.

Outsourcing is a new trend. The two main reasons that organizations decide to outsource are to reduce costs and to have the ability to focus on business goals and planning. But lately, outsourcing is more than just saving money. It’s seen as a critical tool in innovation.

As a result of this, business owners and entrepreneurs from around the world are seeing forward outsourcing to Southeastern Europe as the new outsourcing destination for many reasons and advantages that build and enable better collaboration & communication, apart from the lower costs.

Kosovo is also one of the top locations that has gained a lot of recognition for outsourcing services that is growing stronger day by day.

We may ask ourselves why we should consider outsourcing to Kosovo. Can Kosovo maintain a high quality of services while the costs are low?

Well, there is an enormous range of benefits when outsourcing IT services, customer care, market research, and other shared services to Kosovo, check out below the following advantages:

1. The population is one of the youngest in Europe

As we know, Kosovo is a country shaped by its youth, who are well-educated, highly motivated & satisfied with their work. The work-force is characterized by the high literacy of foreign languages, such as English and German. Almost every citizen in the workforce now in their mid-20s, speaks and writes fluent English, often with an American accent, and being in the GMT+1 time zone makes for a perfect staff augmentation scenario.

In addition to this — because of the number of young people in employment and the political involvement from the UK, USA & Germany — the country of Kosovo has a heavy focus on education and training, meaning that most IT trained employees will have certifications, that would cost a large sum of money elsewhere, already achieved and will hold in education typically at least one if not two bachelor degrees in addition to a masters degree at an early age.

They also are characterized by a very rapid cultural and intellectual adaptation with people of different backgrounds. This is a great advantage when it comes to working with different companies abroad.

2. Strategic location

Kosovo is an attractive destination for nearshore outsourcing services due to its strategic location as they say “Kosovo is located in the heart of Europe.” The close proximity of Southeastern Europe allows for regular and cheap visits for both parties. The duration of the flights is also a big advantage. For example, the direct flight from Berlin to Pristina is around three hours. This is very important, especially for long-term cooperation. Because, we would love to have our partners or clients come over for visits every time they see it necessary, so they learn more about us or with whom they’re working.

Also, the weather is one of the best things in Kosovo. During the wintertime, you get to experience the real cold and a lot of snow. Summers are usually hot, and very enjoyable. You get to visit a lot of places which in the summer can be very delightful, you can take the time to go out for a beer or dinner with teamwork because the sunset is usually set-down around 9 p.m. And so, this is how u get to know Kosovo as an outsourcing-friendly destination.

3. Attractive Price / Cost-cutting

The most obvious reason for outsourcing to Kosovo is the cutting of costs. Outsourcing companies in this region pay their employees lower wages. Outsourcing also brings significant reductions in capital investments – you only pay for the work that you need to be done and don’t have to worry about any additional overheads. You also can be able to invest your capital in other departments, leading to increased profits and greater growth.

Conclusion

For the past couple of decades, the prosperity in outsourcing services has furthered, significantly due to the improvement in applied sciences such as telecommunications, technology, fast-paced and competitive environment. Outsourcing is a very important aspect of the business now. In the same line, these improvements have followed Kosovo as well. A well-equipped country in terms of multilingual and well-educated youngsters that make more than half of the population, technology trends’ acquisition and low costs, Kosovo is your next place for outsourcing!

Source: https://outsourcing-journal.org/10-facts-about-kosovo-as-sourcing-destination-for-it-services/

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When Cash Is Devalued, Where Should Investors Look For Salvation?

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With a difficult 2020 receding into the past, investors are left to wonder what lies ahead for them, the economy, and their portfolios in 2021.

Unfortunately, they may find that some investing decisions are still tied to the events of last year.

Because of how the COVID-19 pandemic affected the economy, the Federal Reserve saw to it that enormous amounts of money were printed in 2020. That effort to shore up the economy also set off debates about inflation.

Reports show that in excess of 23% of the U.S. dollars now in circulation were created in just the last year, says Toby Mathis, a tax attorney, founding partner of Anderson Law Group (www.andersonadvisors.com) and current manager of Anderson’s Las Vegas office.

“This bodes well for gold and cryptocurrency as hedges, but really means investors need to be in dividend-paying stocks and real estate to avoid the hard blow of the effect of the U.S. monetary policy,” he says.  “Essentially, your cash is being devalued, so you need to buy assets that pay you.”

Mathis’ tips for investors in these tenuous times include:

When investing in real estate, target low-priced rental properties. For inexperienced investors, real estate shouldn’t be the first option, Mathis says. But for those with some investing savvy, it’s a good addition to their overall investing strategy – if they are careful about making the right moves. “You want to save up for your first property, and buy with cash,” he says. “This is the best bet for this investment actually making you money. You should pull that extra cash from stocks, or savings, and purchase a rental property between $70,000 to $120,000. Yes, properties at that price do in fact exist. You’ll find them outside of the big cities with increasing populations.”

Realize that stocks are more liquid than real estate. While Mathis praises real estate as an investment, he acknowledges it has its drawbacks if you suddenly need cash. Stocks can be bought and sold much more quickly. “I can buy a share of a stock and I could sell it tomorrow and get access to that cash within two days,” he says. “If I buy real estate, I could buy it today but I’m probably not going to be able to close tomorrow. Even if I buy with cash, it’s still going to be a week or two. And usually, your closing is going to take 30 to 60 days.” The same is true when selling real estate. “If you have an unexpected life event — your car breaks down, you lose a job, you have a medical emergency — stocks are much more liquid,” Mathis says. “You can turn them into cash much easier than you can real estate.”

Look for stocks that pay dividends. Mathis says investing in stocks is a smart move for both experienced and inexperienced investors, but he also cautions that not all stocks are equal. Some pay dividends, some don’t. He recommends avoiding the latter. “If you’re investing in stocks that don’t pay dividends you’re leaving close to half of the benefits by the wayside,” he says. “And you’re not going to do as well. You have to invest in dividend-producing companies to see true growth.”

“When people ask me whether to invest in real estate or the stock market, my answer is always ‘yes,’ “ Mathis says. “Either one can be great. I still say stocks are best for investors who are just starting out and need to gain some knowledge and experience, but ultimately you would like to have both.”

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Toby Mathis, author of the upcoming book Infinity Investing: How the Rich Get Richer And How You Can Do The Same, is a founding partner of Anderson Law Group (www.andersonadvisors.com) and current manager of Anderson’s Las Vegas office. He has helped Anderson grow its practice from one of business and estate planning to a thriving tax practice and national registered agent service with more than 18,000 clients. In his work as an attorney, Mathis has focused exclusively in areas of small business, taxation, and trusts. Mathis has authored more than 100 articles on small business topics and has written several books on good business practices, including Tax-Wise Business Ownership and 12 Steps to Running a Successful Business.

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How The Economic ‘Reset’ Can Work In Your Favor

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While news of vaccines on the horizon signal hope, some analysts think a sizable chunk of the U.S. economy has been damaged permanently by COVID-19, with more layoffs and business closures still to come in 2021.

But to others, the future of a “new economy” in the post-COVID world is bright, opening doors for entrepreneurs, working professionals and small-to-medium business owners, says Rod Robertson, Managing Partner of Briggs Capital (www.briggscapital.com), international entrepreneur, and author of Winning at Entrepreneurship: Insider’s Tips on Buying, Building, and Selling Your Own Business.

“While about 40 percent of the American economy has been turned into debris, the playing field has been cleared, and the whole business environment has gone through a reset,” Robertson says.

“At the same time, people who upgrade their skill-sets and broaden their thinking won’t be left behind. So instead of people saying, ‘How lost I am, how crushed I am, woe is me,’ this is an exciting time, especially for young people, who don’t have to wait for 10, 20, or 30 years for their turn to be a business leader. They can make a generational jump by stepping up and embracing technology, and by understanding in the rubble and chaos what kernels of business are sprouting up.”

Robertson says these points are worth considering when planning for success in a changing U.S. economy:

Don’t buy the theory that COVID will destroy entrepreneurship. “It’s a great time to invest in or buy a business because the playing field has been reset,” Robertson says. “There is going to be a whole new generation of fortunes made in the next three to five years. These are small businesses, companies that are nimble and can shift easily.”

Investment in tech is trending. Robertson notes that over $50B has been spent by private equity on tech deals in 2020. “This fact dwarfs the issues that have swamped legacy or regular businesses that have seen a huge retraction in investments,” Robertson says. “The pivot to tech has accelerated and beware those firms that cling to their old ways of doing business.”

Make the necessary cuts and stay streamlined. “Seismic shifts are coming in 2021 as companies prepare for the new world economy,” Robertson says. “Some businesses must make drastic cuts and changes in directions. Pivot quickly and don’t be among the last firms to embrace change; it could be your demise. It is more important than ever to streamline operations and create an implicit trust with employees to ensure your business thrives in the post-pandemic world.”

Remote workers can’t afford to coast. A report on remote work productivity during the pandemic found that global productivity among employees working from home due to COVID-19 has dropped. “U.S. employees are leading the pack both in terms of the amount still working remotely, and productivity declines,” Robertson says. “Salespeople without direct supervision aren’t producing like they used to. Remote workers who are coasting need to get in tune with their organizations to keep their jobs.”

Going solo isn’t a bad thing for boomers. Robertson says older workers who may get displaced can make the most of opportunities to fly solo. “The people over 50 and 60 are not grasping technology,” Robertson says, “and a lot of them are going to be pushed off the playing field. How do they switch to being an independent contractor, and stretch out their working years to 70-72? It’s time to reinvent and reinvigorate themselves.”

“Businesses and their best workers must shift with the times or invite extinction,” Robertson says. “The good news is, the reset opens great new opportunities, and people can take the blessing coming from all this chaos and turn it into business success.”

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Rod Robertson (www.briggscapital.com) is an international entrepreneur and author of Winning at Entrepreneurship: Insider’s Tips on Buying, Building, and Selling Your Own Business. Robertson is the owner of Briggs Capital, a boutique international investment bank. He has conducted business in over 15 countries while focusing on developing small-to-medium-sized businesses and taking them to market worldwide. Robertson’s 20-plus-year career in transaction experience and entrepreneurship includes guest lecturing around the globe at institutions such as Harvard Business School and other top-flight MBA schools as well as business forums and news outlets worldwide. He sits on numerous boards, guiding firms to streamline operations and make businesses more profitable before selling.

equity
Archives, Banking, Executive Education, Global Trade Daily

Tales from the Trenches: Founder Equity and Founder Agreements in the Pandemic

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From day one, it’s crucial to put your company on the right path. With proper planning, you can avoid a number of common problems that would make investors run for the doors, such as co-founder disputes, tax issues, and cap tables. Startup equity is one of those things that most founders struggle with unless they have an MBA.  But as with all of life, founders’ paths may grow apart for different reasons. It’s one thing when the “divorce” is peaceful, but sometimes situations become very complicated. In a blink of an eye, you’re fighting over the “custody” rights with someone who was previously on your side.

With the added stresses of the pandemic—working from home or working from anywhere—and the pivots required for businesses to adapt their models and work styles to the new normal, we are seeing significant pressure placed on the relationships between founders and other founders, between boards and founders, and between investors and founders.

Founder equity splits. When considering how to initially split founder equity among the various co-founders, some of whom may be present, and some of whom are merely a twinkle in your eye, startups should think long term.

First, consider the relative contributions each person will make.  While everyone says they are “all in” at the start, are they quitting their jobs? Have they invented something? Is their role critical to fundraising or engineering? Who is adding the most value now, and who will add value later? What cash is available? Get clear on these issues from the start and understand that they will evolve over time.

Types of startup equity. As to the types of startup equity, they are generally structured as common stock at formation. The price per share is usually insignificant, or what is referred to as “par value,” a “peppercorn,” or close to zero. This is referred to as “sweat equity,” which is vested over time.

Founder stock terms can also include some of the elements typically found in preferred stock, such as governance rights, liquidation preferences, and super-voting rights. Special founder terms can be a red flag for venture capital investors, and for that reason, particular consideration should be given as to whether such terms are reasonably obtainable.

At formation, cash investors typically receive a convertible note, a simple agreement for future equity, or series seed preferred stock. Some founders put in cash at the formation and structure the cash investment in one of these instruments.

Who gets what? There are four groups of people who typically get equity in the early stages:  founders and co-founders, advisors, investors, and employees, and consultants. Who gets what is more art than science, and there is no simple answer. Numerous websites offer purported “co-founder equity split” calculators and practical advice.

Equity incentive plans. Stock options are the typical currency for employees, consultants, and advisors of startup companies. Restricted stock units, restricted stock awards, phantom stock, and a large assortment of hybrid instruments may also exist.  In early-stage and venture-backed startups, the currency is usually a stock option. Stock options can be structured in a number of ways for tax purposes. Typically, they can be “incentive stock options” or “ISOs.” If options do not qualify for ISO status, they are referred to as “non-qualified” stock options, or “NSOs.” An ISO gives an employee the right to buy shares with the profit taxed at the capital gains rate, not the higher rate for ordinary income.

Vesting. Founder equity, like stock options, typically vests over time. Founder equity is usually subject to repurchase by the company, with one-fourth of the equity ceasing to be subject to repurchase, or vested, after a one-year cliff. After that, founder equity vests monthly or quarterly until the culmination of four years from the formation. Sometimes, repeat entrepreneurs can obtain equity without offering the right of repurchase or reverse vesting, or with reduced vesting, but four years is the standard.

Stock options are not actual ownership, and there is no cash outlay upon grant. These options become exercisable after one year from the initial vesting date, which is usually the date of grant, and they vest in monthly or quarterly installments until four years have transpired from the initial vesting date. In order to exercise stock options, the holder pays the exercise price, which for tax purposes must correspond to fair market value upon the date of the grant. Unless the option has ISO status, upon subsequent exercise and sale, it would be taxed at ordinary income tax rates.

Cap tables. Founders are well served to ensure that their companies use a technology-enabled vendor to store the company’s capitalization records in an automated, secure, and cloud-available format.

409A valuations. In a nutshell, Section 409A of the Internal Revenue Code provides a safe harbor. It suggests that the IRS will not challenge an exercise price as being below fair market value if a third-party independent valuation firm established the fair market value, and that value was approved by the board of directors, all within the prior year of the grant. While there is much fine print and some exceptions, a 409A valuation is generally important to obtain once a year and after each financing round. This risk of doing nothing is that the IRS could argue that the option was granted below fair market value and impose a higher tax rate on the income or gain.

When things change. After your company’s formation is complete, the founder equity has been divided, the equity incentive plan approved, and stock options doled out, life goes on. The world turns, and things change. Co-founders join, co-founders leave, co-founders fight, key employees join and depart, venture capital is raised, and M&A transactions come and go.

Founder roles adjust over time. It’s only natural. So, as well, should their salaries, bonuses, commissions, downside protections, and equity stakes. These are all easy to adjust when things are going well, but what about when things go sideways? Management carve-out plans can provide incentives for people to struggle through a tough spot.

Founder break-ups and departures. When founders leave, the first questions asked are whether the equity is vested and what happens to it. If unvested, the company should repurchase it at the issue price. For vested equity, founders will want it bought back at fair market value, and investors won’t want precious dollars going out the door to provide liquidity to someone who is leaving. Deals are struck where founders have something that investors want, like super-voting rights, board control, and exit rights. When the parties can’t agree, founders who push the envelope too far risk getting recapitalized and diluted, being terminated for cause, undergoing investigation, and having their information rights clipped. Does the founder have the right to severance? Is it enough to buy peace?  Non-competition agreements post-termination of employment are generally not enforceable in California, so this can be another carrot that departing founders can dangle in exchange for a buyout of their shares. Will the remaining team know where the bodies are buried, or is a consulting agreement with the departing founder required to make sure her or his services are available when needed? Was there a bonus due? A commission? Inevitably, companies and departing founders will need to get along to ensure a good exit.

Mergers and acquisitions. It is not uncommon for companies to be put up for sale when a founder departs, and market participants expect it.  So for boards and founders in a deadlock, is it the right time to bring things to a boil? Who constitutes the universe of potential strategic and financial buyers? Is it feasible to raise a growth equity round or “minority recap” with primary and secondary capital to reshuffle the C-suite and the cap table? Is a management carve-out plan needed? A new retention plan? Or restructuring? Potential scenarios abound…

What happens next. Invariably, after a founder divorce, the parties need to find a way to get along…in the board room…to raise capital…to help sell the business…to market the message…to evangelize the mission.

Things sometimes fall apart. Founders have to know how to keep things together until the next off-ramp is in sight.

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Louis Lehot is the founder of L2 Counsel. Louis is a corporate, securities, and M & A lawyer, and he helps his clients, whether they be public or private companies, financial sponsors, venture capitalists, investors or investment banks, in forming, financing, governing, buying and selling companies. He is formerly the co-managing partner of DLA Piper’s Silicon Valley office and co-chair of its leading venture capital and emerging growth company team. 

L2 Counsel, P.C. is an elite boutique law firm based in Silicon Valley designed to serve entrepreneurs, innovative companies and investors with sound legal strategies and solutions. 

on-demand economy
Archives, Global Trade Daily, International Trade

5 Trends for Latin America’s On-Demand Economy in 2020

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Latin America’s on-demand economy has been at the top of the region’s startup headlines for over a year. At the end of 2018, Brazil’s iFood raised $500M in the largest startup round of all time in Latin America, beating the total VC investment for 2016 with a single round. Just four months later, Colombia’s Rappi doubled the record, raising $1B from Softbank to attack the region.

A significant portion of Softbank’s massive investments in Latin America has been in on-demand economy startups, such as Loggi and Buser. Cornershop’s acquisition saga, ending in a $450M deal with Uber for 51% of the company, also makes it clear that the gig economy will play a major role in developing Latin America’s tech-driven economy.

The rapid growth of this business model has raised questions about regulations, workers’ rights, safety and fraud, and long-term profitability for investors. It has also created work for thousands of migrants, made consumers’ lives easier, and started generating liquidity and ex-employee groups who can start new companies using their startup experience. As Latin American consumers become accustomed to the on-demand economy, here’s a look at how this market will evolve throughout 2020.

1. Regulatory challenges for the Latin American gig economy.

International on-demand startups like Uber experienced (and continue to experience) a regulatory gray area while entering the Latin American market. As homegrown companies like Rappi, Cornershop, and iFood have become a dominating force across the region, governments may start taking a closer look at workers’ contracts and rights.

In particular, on-demand startups that rely on massive, external workforces have been a significant source of work for migrants who can start working from day one without a contract. Rappi admits that up to 30% of its workers are migrants, many of whom are from Venezuela and are escaping a crisis at home. In 2018, Colombia’s Domicilios (acquired by DeliveryHero) became the first delivery startup to provide social security for its workers.

Governments across the region may begin to expect gig economy startups to provide certain benefits like these to their workers in 2020 as these companies begin to employ a significant portion of Latin American workers.

2. The market opens for companies that support the gig economy.

The need for further regulation and protection of workers in the gig economy is creating a new market for startups that serve these large companies. Tech startups that provide insurance, fraud prevention, and benefits to on-demand economy workers now have a pool of millions of potential clients who are connected to the region’s mega-startups.

For example, Colombia’s Truora can provide instant background checks for gig economy employees to prevent hiring bottlenecks and fraud. Companies that can offer tech-driven solutions for market research, insurance, healthcare, and financial inclusion for the on-demand economy will continue to grow in parallel to this booming market in 2020.

3. VC funding for on-demand startups holds firm.

Over the past two years, international VCs have poured billions into the Latin American on-demand economy, creating a market for dozens of competitors in the region’s biggest countries like Brazil, Colombia, Mexico, and Chile. The growth of the Latin American middle class, almost all of whom has access to a smartphone, is also bolstering the rise of on-demand startups to serve every niche.

While most of these startups struggle to become profitable, even in markets like Latin America and Asia, investors who have backed the on-demand economy in the US and Asia understand the model and are willing to support Latin American versions. As these startups burn a lot of cash quickly, investors will likely continue dropping large checks on the winners as they try to capture the market. Startups that bring an on-demand model into new industries may also benefit from this influx of capital over the next year.

4. Niche copycats from the US and Asia enter the market.

Latin American consumers have proved to be rapid adopters of on-demand economy solutions, driving new business models to serve an increasingly sophisticated public. For example, Latin America’s ghost kitchens and supermarkets are beginning to raise large rounds in markets like Brazil and Mexico. Brazil’s Mimic, a cloud kitchen startup, recently raised a $9M Seed round to expand locally, while Mexico’s Justo, the first “cloud supermarket” for Latin America, raised $10M to consolidate in the Mexican market.

While these models are still in the early stages of development, the on-demand economy will continue expanding into new industries and business models in 2020. Startups are now using gig economy-style workforces for market research, AI precision-testing, and other crowd-sourcing models, as well as new niche delivery markets. As capital continues to flow into on-demand economy startups in 2020, these new applications of the gig worker model will likely proliferate.

5. Competitors consolidate in the biggest markets.

Just as investments are driving the growth of new on-demand business models, VC support is also helping consolidate the region’s largest startups into “super-apps” that can solve users’ problems within a single platform. Rappi is one of the best examples of these apps, where users can now book an e-scooter, get money delivered, buy food and groceries, and even pay and send money. While all of the Rappi features are not well-known by users yet, this model hints at a trend toward Asian-style all-in-one apps like WeChat.

Brazil’s Movile has also acquired several regional startups to provide a marketplace of options within its platform, including on-demand delivery (iFood/Mercadoni), video content (PlayKids), and payments (Zoop). These well-funded companies will continue to grow and consolidate in 2020, potentially acquiring smaller startups that can add value for their customers and injecting liquidity into the on-demand startup market.

There are over 415 million mobile phone users in Latin America, over two-thirds of whom access the Internet almost exclusively through their phones. The region’s first on-demand startups have opened the market to reach these consumers by providing them with convenient and affordable services directly through mobile apps. These companies have even found workarounds for payment challenges through cash payments and integrations with local convenience stores to onboard the booming Latin American middle class rapidly. There is still tremendous opportunity to reach Latin Americans with on-demand services in new industries and expand current offerings to new cities and customers throughout 2020.

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 Geoffrey Michener is the CEO and Founder of dataPlor.

strategies
Archives, Commentary, Global Trade Daily

Five Strategies That Can Take Your Business From Pretender To Contender

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“By failing to prepare, you are preparing to fail.”

That quote, attributed to Benjamin Franklin, summarizes why some businesses and other endeavors fall short and end up in the scrap heap of lost dreams.

The importance of preparation for success in business is much like it is for professional sports teams trying to win a championship, says Paul Trapp (www.eventprep.com), founding owner/CEO of EventPrep, Inc., a full-service meeting planning and management company, and co-author with Stephen Davis of Prep for Success: The Entrepreneur’s Guide to Achieving Your Dreams.

“Every single significant opportunity in life is a Super Bowl if you really want to be successful,” Trapp says. “The New England Patriots frequently reach the Super Bowl, but they don’t get there if they don’t practice with purpose every week, watch countless hours of video, and rise above the inevitable pain and struggles that come with high-level competition.

“Being prepared for every situation along the way leads to earning their biggest opportunity, and it’s the same way for a business looking for big opportunities to grow. The key to mastering the art of preparation is constant practice.”

Trapp and Davis offer five strategies for businesses to take their preparation to the next level:

Become a disruptor. “You want your business to stand out from the competition,” Trapp says. “To do that, ask yourself, ‘How can my company disrupt the industry? How do we position ourselves in the marketplace so that people will go out of their way to do business with us?’ ”

Attract the right talent. Picking the right person – one who can be a long-term employee vital to the company’s success – should be a slow and strategic process. ”For a business owner, hiring people is very much like investing,” says Davis, who is EventPrep’s founding owner/president/COO. “Before you offer someone a job, do research, check references, and ask many questions. Do people you are considering have the attitude and motivation to succeed? Would they be a good fit with your existing culture?”

Establish a winning culture. “A business culture is created at the top and cascades downward,” Davis says. “It takes great effort and dedication to build a winning business culture where everyone feels valued as contributors. It goes beyond the professional relationship to the personal – showing compassion for employees in times of need, and recognizing exceptional efforts with tangible rewards.”

Befriend Murphy. As in Murphy’s Law – ”Anything that can go wrong, will go wrong.” Although all businesses encounter problems in a variety of ways, Trapp says, a strong organization can properly prepare in a way to withstand them and solve them quickly. “Because Murphy is going to show up in any number of forms,” Trapp says, “when preparing to do anything, there has to be a list of solutions in place before a problem ever happens.”

Recognize and seize opportunities. “The key to seizing an opportunity is identifying a need greater than your own – that of your customer,” Davis says. “Imagine you meet someone who can help you solve a need because he or she has the tools and experience to give you what you really need. Think about what real estate agents do for home buyers. They ask specific questions about what the clients are looking for, relate to their excitement about finding the right kind of home, and create a vision of that.”

“Preparedness is the key in any and all situations,” Trapp says. “The only way you learn and grow as an individual, and as a business, is to perfect your unique abilities and a team’s winning strategies through repetition.”

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Paul Trapp is a founding owner/CEO of EventPrep, Inc. (www.eventprep.com), a full-service meeting planning and management company that supports 16 franchises across the U.S. He is co-author of the book Prep for Success: The Entrepreneur’s Guide to Achieving Your Dreams. Trapp is a former senior military leader who served as chief of recruiting for the Army National Guard and holds over 30 years of experience in contract management, event planning, and organizing conferences, seminars, and meetings.

Stephen Davis is a founding owner/president/COO of EventPrep, Inc., and co-author of  Prep for Success: The Entrepreneur’s Guide to Achieving Your Dreams. Davis is a multi-state operations director who focuses on conference development, implementation, management, and conference design. He currently serves as a chief warrant officer and CID special agent in the Army Reserves. Davis deployed twice in support of the global war on terrorism. In 2016, Davis and Paul Trapp launched  Federal Conference, Inc., which provided professional event planning and management services to the government and commercial marketplaces. Federal Conference, Inc., twice was an Inc. 500 award recipient and executes over 3,000 events annually around the world.