Startup formula: Big data + lawsuits = profit. Legalist, a startup founded by two Harvard undergrads that launched at Y Combinator’s summer Demo Day this week, tries to figure out who’s going to win business lawsuits — then bankrolls the winning side to collect a share of the award or settlement (Business Insider). Yes, this is similar to what Peter Thiel did to Gawker, except he was out for revenge, not returns. Maybe it’s just a total coincidence that one of Legalist’s founders is a Thiel Fellow. But the company’s concept shares the financier’s traits: It’s appealingly radical in its thinking, and disturbingly casual in its disregard for collateral damage. Once upon a time, Legalist’s business model was known as “champerty,” and was against the law. Today it’s called “litigation finance” and has become a growth sector. Hedge funds are already investing in lawsuits, so why not apply some big-data-fueled, deep-learning-powered smarts to win such bets? Maybe because that’s just begging for a backlash. A sustained public outcry might could get federal, state and local governments to reform their legal systems to make them less easily influenced by infusions of cash. That’s an outcome we could get behind.
Is Vanguard un-American? A lot of investors like index funds because they charge low fees and therefore deliver higher returns in the long run. The folks at brokerage Sanford C. Bernstein & Co. want you to know that such “passive” investing, however attractive it may look, is actually anti-capitalist and probably un-American, too (Bloomberg). They’ve written an article — titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism” (but curiously unavailable on their website) — that attempts to make a moral and social case for the value-add that active investment managers provide. “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” they write. Of course, this is one big hypothetical; nobody has advocated outlawing stock-picking fund managers, and there will always be people who think they can beat the market. Mostly, it sounds like Bernstein & Co. are frustrated that so many investors have finally started taking the market’s common-sense cues and abandoning the active funds along with the high fees they charge.
How Romania’s communists set the stage for its entrepreneurs. Bucharest might not be the first city that comes to mind when you think about startup clusters in Europe. But Romania, which joined the European Union in 2007, has some unique traits that are fostering its new-business growth (Quartz): great internet connectivity and schools fine-tuned for training scientists and engineers. Ironically, these advantages are the positive legacies of the nation’s otherwise dismal four decades of communist rule. Today they are enabling the early stages of a tech ecosystem. One thing remains in short supply: investment capital.
Airbnb isn’t driving up housing prices significantly — yet. Critics charge that when an owner rents out a unit on Airbnb full (or nearly full) time, that unit isn’t available for conventional rental, and the price of housing will rise. But a study by Fivethirtyeight.com finds that’s not the case, mostly, for now — mostly because the number of such listings is still pretty low (in New York, 2500 such “commercial” Airbnb units are just a drop in the total bucket of 2.2 million rentals). But Fivethirtyeight did lay out a case that Airbnb may aim to grow its full-time rental business: in major urban markets, these “commercial” listings may make up only 10 percent of the total number of listings, but they account for 30 percent of the revenue. As Airbnb seeks to boost profits, it could find itself making these full-time rentals a larger share of its offering. If it becomes big enough, the bogeyman of Airbnb-driven rent hikes could become a reality.
Two different reasons Millennials aren’t taking out mortgages. We know that younger Americans are buying fewer homes. The Atlantic looks at why, and finds two distinct Millennial populations feeding this trend. Better off, better educated twenty-somethings are moving to cities and prioritizing their jobs, keeping their options open to move as career needs demand. These “supermobiles” are probably just postponing the mortgage. Meanwhile, their age cohorts lower down on the economic ladder aren’t buying because they can’t afford it. Similar choices, opposite motivations: Together, these two groups are putting a dent in the home-ownership stats for their generation. But the differences between them are telling, and suggest that what looks like a housing trend might be more like a facet of the inequality problem.
Featured in NewCo Shift: Welcome to the Executive Team. It’s Messy Here. Taskrabbit chief product officer John Vars looks behind the doors of the exec meeting: You learn that the Plan is fuzzy, the team is divided, and it’s not exactly clear how you’re going to get to a decision.
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