Connect with us

Uncategorized

Gamestop, memestocks, and the revenge of the retail trader

Published

on

Gamestop shares are set to rally 70% this morning when trading starts, and AMC shares opened up 300%, extending a run that has perplexed market observers, irked hedge funds, and generally made crypto’s recent gains appear soft and weak.

Being a retail trader is mostly being a sucker, hoping to best the markets while lacking the infrastructure, access, and information that professionals enjoy. Hell, most professional fund managers that regular folks can invest in fail to beat the market. That’s one reason why index funds and other passive investments that merely track aggregate performance have grown so much in recent years; why pay more to have someone make you less money than simply making the same returns as the S&P 500?

Things have changed some in recent years. Robinhood blew up the trading fee economy, and now along with a host of similar companies — Public.com with its social focus, Freetrade in the UK, and so forth — has made retail investing far more accessible than it was before to more folks. And we’re all trapped inside. And a rude, jokey Reddit forum has gone from in-nerd joke to front-page news after its users started to push their weight around.

It’s something that was noted by none other than the founder of Reddit Alexis Ohanian who shared some thoughts on Twitter.

It’s an old saw that back in the dotcom boom traders would congregate in chat rooms to share tips, lie to each other, and try to pump their own equities higher. That all still happens. But what has changed is that the combination of mature social platforms and free trading has at once boosted access to the public markets while Reddit and other online congregation points have provided a simpler way for retail investors, the hoi polloi, to fuck around and make other people find out.

Again, Ohanian’s thoughts on this resonate.

A couple hundred thousand years of evolution conditioned us to believe in and rally around the immediate tribe around us. The idea of an ‘institution’ – a faceless, nameless entity we just have to trust — is actually pretty foreign to our species,” the venture investor wrote on Twitter. “I know they’re all ‘random people on the internet’ but there’s a lot more empathy and community there than people realize. It’s why I’ve been saying for 15 years that (online) community is still massively undervalued.”

This is what has happened with Gamestop, a company that until recently was unnotable, and stuck between a physical retail footprint, the pandemic, and its customers increasingly preferring digital game purchases. It was worth around $4 per share last summer. It started 2021 worth around $18. Now it’s $147.98 after rising 92.7% yesterday, and is up $69.02 this morning, or 46.6%.

How did that happen? No, the company did not get suddenly, radically stronger in short order. Instead, a coterie of Reddit users realized that Gamestop was shorted by more than 100%. That means that investors had bet more shares than existed in the company that it would lose value.

And mostly this would have been fine, a quirk of the market; other highly-shorted stocks can see a majority of their shares sold short, but to see a short-percentage of greater than 100% was eyebrow-raising.

Then came the wager: If big investors had bet more shares than Gamestop had in existence that it would lose value, what would happen if lots of individuals investors — retail interest, as they say — started buying the stock? That might drive its value up, forcing the hedge funds and other big capital pools to decide whether to hold onto their negative bet and take strong paper losses as Gamestop rallied, or cover their short, buying the stock at a higher price than they initially paid for it, losing money. Covering shorts would require buying the stock at high prices, perhaps boosting its value yet again.

It’s the wildest short-squeeze we can recall.

There’s always tension between short-sellers and investors who prefer to make positive wagers. Indeed, shorts are generally hated and the term perma-bear, slang for someone who is chronically worried about the price of assets to the point of distraction,1 is often levied at them.

But a boom in retail investing and social platforms allowing the congregation of disparate individual investors can do quite a lot, it turns out. So, users of the WallStreetBets sub-Reddit started buying Gamestop. And they kept doing so, pushing its price higher and higher.

The result was that big money got smacked in the shorts, literally. CNBC reports that short-sellers have lost more than $5 billion so far thanks to Gamestop’s rapid appreciation on the back of becoming an internet meme.

But the tug-of-war between professionals betting that Gamestop is not worth its inflated price, and that it will fall, is not over. Short interest remains high. So, even if some pro investors have cried uncle and exited their trade, the retail revenge on the so-called smart money is hardly a sure thing; what those excitable individuals may have done is merely set up a more enticing short position for hedge funds than had existed before.

Gamestop has a lot further to fall from over $140 per share than it did from $18, say.

Of course no one knows what will happen today. The investors who have taken out more short positions during the rally are set to eat their own ties this morning when Gamestop opens higher. Perhaps they will hold, and eventually their short bet will pay off. Or perhaps retail will be able to keep rallying Gamestop until, well, no one really knows.

But while most folks have their retirement accounts in investments so boring you’ve forgotten their names — Fidelity Freedom 2060 Fund, or what have you — small-time investors are sticking it to the man. This is the political war underneath the trading scrap. Retail is generally said to be mad at being pushed around, front-run, and generally speaking operating as second-class investing citizens. The Gamestop gambit is, to some degree, revenge.

Not that it will matter, per se, in the long-term. Large investing groups will still crush retail, having access to better information and tools and the like, as we mentioned up top. But today, at least, those same concerns are going to start the day with huge paper losses on their Gamestop shorts.

And that’s hilarious, because the company is obviously overvalued and individuals simply do not give a fuck.

  1. I, Alex Wilhelm, am like this before coffee.

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

Continue Reading
Comments

Uncategorized

InsurGrid raises pre-seed financing to help modernize legacy insurance agents

Published

on

Insurance agents spend hours handling paperwork and grabbing client information over the phone. A new seed-stage startup, InsurGrid, has developed a software solution to help ease the process, and make it easier for agents to serve existing clients — and secure new ones.

InsurGrid gives agents a personalized platform to collect information from clients, such as date of birth, driver’s license information and policy declaration. This platform helps agents avoid sitting on long calls or managing back-to-back emails, and instead gives them one spot to understand how all their different clients function. It is starting with property and casualty management.

The startup integrates with 85 insurance carriers, serving as the software layer instead of the provider. Using the InsurGrid platform, insurers can ask clients to upload information and within seconds be registered as a policyholder. This essentially turns into a living Rolodex that insurers can use to access information on the account, and offer quotes on a faster rate.

Image Credits: InsurGrid

There’s a monetary benefit in providing better service. Eden Insurance, a customer of InsurGrid, said that people who submit information through the platform converted at an 82% higher rate than those who don’t. Jeremy Eden, the agency owner of Eden Insurance, said they were able to show consumers that its plan was $300 cheaper than its existing rate.

At the heart of InsurGrid is a bet from the founding team that legacy insurance agents aren’t going anywhere. Co-founder/CEO Chase Beach pointed out that the majority of the $684 billion of annual property and casualty insurance premiums in the United States is distributed by approximately 800,000 agents working in 16,000 brokerages. So far, InsurGrid works with more than 150 of those agencies.

When asked if InsurGrid ever had plans to offer its own insurance, similar to insurtech giants Hippo, Lemonade and Root, Beach said that it is solely working on innovating around the sales process for now. He said that these big companies, which have either recently gone public or are planning to, still rely on agents to be successful.

“Instead of us replacing the insurance agent, what if we gave them that same level of technology of a Hippo or large carrier,” Beach said. “And provide them with the digital experiences so they can compete in 2021.”

As time goes on, he sees insurance agents taking the same role that financial advisors or real estate agents take: “very much involved in the process because they are that expert.”

Other startups that have popped up in this space include Gabi, Trellis and Canopy Connect. The differentiator, the team sees, is that Beach comes from a 144-year-old insurance legacy, giving him key insights on how to sell to agents in a successful and effective way. It is starting with sales, but expect InsurGrid to expand to other parts of the insurance process as well.

To help them compete with new and old startups, InsurGrid recently raised $1.3 million in pre-seed financing to help it fulfill its goal to be the “underdog for the underdogs,” Beach said. Investors include Engineering Capital, Hustle Fund, Vess Capital, Sahil Lavingia and Trevor Kienzle.

Continue Reading

Uncategorized

Backed by Blossom, Creandum and Index, grocery delivery and dark store startup Dija launches in London

Published

on

Dija, the London-based grocery delivery startup, is officially launching today and confirming that it raised £20 million in seed funding in December — a round that we first reported was partially closed the previous month.

Backing the company is Blossom Capital, Creandum and Index Ventures, with Dija seemingly able to raise pre-launch. In fact, there are already rumours swirling around London’s venture capital community that the upstart may be out raising again already — a figure up to £100 million was mooted by one source — as the race to become the early European leader in the burgeoning “dark” grocery store space heats up.

Image Credits: Dija

Over the last few months, a host of European startups have launched with the promise of delivering grocery and other convenience store items within 10-15 minutes of ordering. They do this by building out their own hyper-local, delivery-only fulfilment centres — so-called “dark stores” — and recruiting their own delivery personnel. This full-stack or vertical approach and the visibility it provides is then supposed to produce enough supply chain and logistics efficiency to make the unit economics work, although that part is far from proven.

Earlier this week, Berlin-based Flink announced that it had raised $52 million in seed financing in a mixture of equity and debt. The company didn’t break out the equity-debt split, though one source told me the equity component was roughly half and half.

Others in the space include Berlin’s Gorillas, London’s Jiffy and Weezy, and France’s Cajoo, all of which also claim to focus on fresh food and groceries. There’s also the likes of Zapp, which is still in stealth and more focused on a potentially higher-margin convenience store offering similar to U.S. unicorn goPuff. Related: goPuff itself is also looking to expand into Europe and is currently in talks to acquire or invest in the U.K.’s Fancy, which some have dubbed a mini goPuff.

However, let’s get back to Dija. Founded by Alberto Menolascina and Yusuf Saban, who both spent a number of years at Deliveroo in senior positions, the company has opened up shop in central London and promises to let you order groceries and other convenience products within 10 minutes. It has hubs in South Kensington, Fulham and Hackney, and says it plans to open 20 further hubs, covering central London and Zone 2, by the summer. Each hub carries around 2,000 products, claiming to be sold at “recommended retail prices”. A flat delivery fee of £1.99 is charged per order.

“The only competitors that we are focused on are the large supermarket chains who dominate a global $12 trillion industry,” Dija’s Menolascina tells me when I ask about competitors. “What really sets us apart from them, besides our speed and technology, is our team, who all have a background in growing and disrupting this industry, including myself and Yusuf, who built and scaled Deliveroo from the ground up”.

Menolascina was previously director of Corporate Strategy and Development at the takeout delivery behemoth and held several positions before that. He also co-founded Everli (formerly Supermercato24), the Instacart-styled grocery delivery company in Italy, and also worked at Just Eat. Saban is the former chief of staff to CEO at Deliveroo and also worked at investment bank Morgan Stanley.

During Dija’s soft-launch, Menolascina says that typical customers have been doing their weekly food shop using the app, and also fulfilling other needs, such as last minute emergencies or late night cravings. “The pain points Dija is helping to solve are universal and we built Dija to be accessible to everyone,” he says. “It’s why we offer products at retail prices, available in 10 minutes – combining value and convenience. Already, Dija is becoming a key service for parents who are pressed for time working from home and homeschooling, as one example”.

Despite the millions of dollars being pumped into the space, a number of VCs I’ve spoken to privately are sceptical that fresh groceries with near instant delivery can be made to work. The thinking is that fresh food perishes, margins are lower, and basket sizes won’t be large enough to cover the costs of delivery.

“This might be the case for other companies, but almost everyone at Dija comes from this industry and knows exactly what they are doing, from buying and merchandising to data and marketing,” Menolascina says, pushing back. “It’s also worth pointing out that we are a full-stack model, so we’re not sharing our margin with other parties. In terms of the average basket size, it varies depending on the customer’s need. On one hand, we have customers who do their entire grocery shop through Dija, while on the other hand, our customers depend on us for emergency purchases e.g. nappies, batteries etc.”

On pricing, he says that, like any retail business, Dija buys products at wholesale prices and sells them at recommended retail prices. “Going forward, we have a clear roadmap on how we generate additional revenue, including strategic partnerships, supply chain optimisation and technology enhancements,” adds Menolascina.

Dija testing on Deliveroo

Image Credits: TechCrunch

Meanwhile, TechCrunch has learned that prior to launching its own app, Dija ran a number of experiments on takeout marketplace Deliveroo, including selling various convenience store items, such as potato chips and over-the-counter pharmaceuticals. If you’ve ever ordered toiletry products from “Baby & Me Pharmacy” or purchased chocolate sweets from “Valentine’s Vows,” you have likely and unknowingly shopped at Dija. Those brands, and a number of others, all delivered from the same address in South Kensington.

“Going direct to consumer without properly testing pick & pack is a big risk,” Menolascina told me in a WhatsApp message a few weeks ago, confirming the Deliveroo tests. “We created disposable virtual brands purely to learn what to sell and how to replenish, pick & pack, and deliver”.

Continue Reading

Uncategorized

Daily Crunch: Square acquires Tidal

Published

on

Square buys a majority stake in Jay-Z’s Tidal, WhatsApp improves its desktop app and Hopin raises even more funding. This is your Daily Crunch for March 4, 2021.

The big story: Square acquires Tidal

Square announced this morning that it has purchased a majority stake in Tidal, the music streaming service founded by Jay-Z. It sounds like an odd fit at first, which Square CEO Jack Dorsey acknowledged in a tweet asking, “Why would a music streaming company and a financial services company join forces?!”

His answer: “It comes down to a simple idea: finding new ways for artists to support their work. New ideas are found at the intersections, and we believe there’s a compelling one between music and the economy. Making the economy work for artists is similar to what Square has done for sellers.”

Square is paying $297 million in cash and stock for the deal, which will result in Jay-Z joining Square’s board.

The tech giants

WhatsApp adds voice and video calling to desktop app — This should provide relief to countless people sitting in front of computers who have had to reach for their phone every time WhatsApp rang.

Apple’s App Store is now also under antitrust scrutiny in the UK — The U.K.’s Competition and Markets Authority announced that it’s opened an investigation following a number of complaints from developers alleging unfair terms.

Google speeds up its release cycle for Chrome — Mozilla also moved to a four-week cycle for Firefox last year.

Startups, funding and venture capital

Hopin confirms $400M raise at $5.65B valuation — For Hopin, the round is another rapid-fire funding event.

Coursera is planning to file to go public tomorrow — The company has been talking to underwriters since last year, but tomorrow could mark its first legal step in the process to IPO.

Luxury air travel startup Aero raises $20M — The startup describes its offering as “semi-private” air travel.

Advice and analysis from Extra Crunch

As activist investors loom, what’s next for Box? — A company with plenty of potential is mired in slowing growth.

Unraveling ThredUp’s IPO filing: Slow growth, but a shifting business model — ThredUp is a used-goods marketplace approaching the public markets in the wake of Poshmark’s own strong debut.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

Everything else

SITA says its airline passenger system was hit by a data breach — Global air transport data giant SITA has confirmed a data breach involving passenger data.

How to successfully dance the creator-brand tango — What makes creators succeed, and how should brands work with them?

Announcing the Early Stage Pitch-Off Judges — On April 2, TechCrunch will feature 10 top startups across the globe at the Early Stage Pitch Off.

The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.

Continue Reading

Trending