Silicon Valley venture capitalists raise more money, give less away

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0

Venture capitalists are raising money at the fastest rate in a decade, raking in about $13 billion in the first quarter of 2016.

But much of that cash won’t flow into new startups anytime soon. Rather, venture firms are bracing for a downturn and boosting reserves to keep companies they have already backed from going bust, said venture capitalists and limited partners.

“They are squirrels trying to pack their cheeks full of nuts,” said Ben Narasin, a partner at Canvas Ventures. “Everyone has been waiting for winter to start for a long time.”

The paradox of rising venture fundraising and falling venture investing is the latest sign of a tectonic shift in the tech startup realm. The extraordinary growth of so-called “unicorn” companies such as Uber and Airbnb – now valued at tens of billions of dollars, based on venture investments – has left many high-value startups with no “exit strategy,” in Silicon Valley parlance.

Burned by previous busts, Wall Street has lost its appetite for initial public offerings from money-losing companies. No venture-backed tech startup has gone public this year, and the few that did last year – including enterprise storage company Pure Storage, and cloud storage and file-sharing firm Box – have seen their share prices steadily sink. High valuations have also scared off potential acquirers.

Scale Venture Partners exemplifies the cautious approach taking hold in the VC industry. It chose to do one fewer investment from its last fundraising round and to increase its reserves by more than 10 percent.

“We will have to support our companies longer,” said Rory O’Driscoll, a partner at the firm, which raised a $335 million fund in January.

Accel Partners has reduced its pace of new investments since the middle of last year, while increasing its follow-on funding for portfolio companies, according to an analysis by venture capital database CB Insights.

The venture firm raised $2 billion in March, but it won’t tap into the new fund until late fall, said managing director Richard Wong.

Total U.S. venture investment fell to $12.1 billion in the first quarter – down 30 percent from the most recent peak of $17.3 billion in the second quarter of last year.

Chris Douvos, managing director of Venture Investment Associates, an investor in early-stage venture funds, says the funds he backs are increasing their reserves by 10 percent to 25 percent over what they had in previous funds.

The $13 billion raised by VCs is the third-largest quarter for fundraising since the dot-com peak in 2000, according to Thomson Reuters data. There is now $382 billion of dry powder – cash available to spend – held by both venture capital and private equity firms that invest in technology companies, according to investment banking and consulting firm Bulger Partners.

“It’s fast, and it’s a lot of dollars this year,” said Beezer Clarkson, managing director at Sapphire Ventures, which invests in early-stage venture funds.

Many VCs believe that more reserves will be needed for the big cash infusions that startups often need after establishing themselves but before turning a profit.

VCs are also seeing mutual funds retreat from late-stage startup financing deals. Mutual funds led just eight deals in the fourth quarter of last year, down from 26 in the second quarter, according to the research firm CB Insights.

The confluence of trends means that money-losing startups likely will struggle more for venture capital. That, in turn, could lead to more companies failing or cutting staff, cooling the red-hot market for tech talent. It could also strengthen the hand of dominant tech companies, who may face fewer disruptive rivals and attract employees tired of volatile startup life, according to tech recruiters.

CASH BURN

Until recently, many venture capitalists have had a land-grab mentality, even with more obscure startups such as Magic Leap – an augmented reality company that raised about $800 million in February – or Social Finance, a startup in the highly scrutinized fintech sector that raised $1 billion in September.

Investors competed fiercely to finance hot companies they believed could be the next Google or Facebook. Higher prices for smaller stakes drove up valuations in companies, including many who burned cash quickly in a quest for growth. Many venture capitalists say they overpaid by 20 to 30 percent, and now have to keep those companies afloat.

Over the past six months, however, nervous whispers about a tech bubble have sparked rising skepticism of venture-dependent startups with stratospheric price tags.

The same venture capitalists who jousted in bidding wars for the next great deal just six months ago are now fending off appeals.

Canvas Ventures, Norwest Venture Partners and Accel Partners – among Silicon Valley’s more prominent firms – say they are getting more calls from peers asking them to join a late-stage round for companies running out of cash.

“We get a lot more ‘special opportunities, just for you,'” said Wong, of Accel Partners. “We get the phone calls, along with everyone else.”

PAPER GAINS

For now, venture capitalists have little problem raising money, despite their new hesitance to spend it and the inability of many startups to turn profits or go public.

That’s in part because many VC firms are currently showing huge paper gains in the value of their portfolios. Many firms are raising as much as possible now, in case valuations drop in so-called “down rounds,” when later stage investors pay less for company stakes than earlier ones, and the returns on their investments plummet, according to limited partners.

Signs of falling returns are already emerging. Cambridge Associates, an investment advisor, measured a -0.4 percent return on the U.S. Venture Capital Index for the third quarter of last year, the first down quarter since 2011.

First Round Capital, an early-stage venture firm, warned its limited partners in a letter a year ago that the seed-stage venture capital deals will see much lower returns in the next several years.

But that warning didn’t scare Douvos, an investor in First Round, which was an early backer of Uber and made a bundle on the IPOs of Square and OnDeck Capital.

“Fund performance will soften,” Douvos said. But, he said, “The returns from First Round are so good that nothing else really matters.”

Read Source: http://www.reuters.com/article/us-venture-fundraising-idUSKCN0Y41DQ

 

IMF: Global corruption costs trillions in bribes, lost growth

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0

Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.

In a new research paper, the IMF said that tackling corruption is critical for the achievement of macroeconomic stability, one of the institution´s core mandates.

The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.

“While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating,” IMF Managing Director Christine Lagarde wrote in an essay accompanying the paper. “Corruption also has a broader corrosive impact on society.

It undermines trust in government and erodes the ethical standards of private citizens,” Lagarde added.

The paper, titled “Corruption: Costs and Mitigating Strategies,” follows Lagarde´s warning to Ukraine in February that the IMF would halt its $17.5-billion bailout for the strife-torn eastern European country unless it takes stronger action to fight corruption, including new governance reforms.

Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.

Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually.

But it said corruption´s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.

Source: http://www.thenews.com.pk/latest/119186-IMF-Global-corruption-costs-trillions-in-bribes-lost-growth

India’s e-commerce sector to see $120 billion revenue by 2020: Assocham-Forrester report

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0

The country’s e-commerce sector is expected to see revenues of USD 120 billion by 2020 from USD 30 billion at the end of last fiscal, a report said.

The increase would be mainly on the back of young demographic profile, rising Internet penetration and relatively better economic performance, the Assocham-Forrester study said.

India’s e-commerce sector saw revenues of USD 30 billion at the end of the financial year 2015-16. It is expected to reach USD 120 billion by 2020, it said.

“While in terms of base, India may be lower than China and other giants like Japan, the Indian rate of growth is way ahead of others. Against India’s annual expansion of 51 per cent, China’s e-commerce is growing at 18 per cent, Japan 11 per cent and South Korea 10 per cent,” the study noted.

The report further said that India has an Internet user base of 400 million in 2016 whereas Brazil has 210 million Internet users and Russia 130 million, among the BRICS nations.

About 75 per cent of the country’s online users are in the age group of 15-34 years since India is one of the youngest demographies globally and one out of every 5 (online user) visits the Indian Railways site, the report said.

In India, about 60-65 per cent of the total e-commerce sales are being generated through smart phones. Branded apparel, accessories, jewellery, gifts, footwear are among the major hits on the e-commerce platforms, it added.

Source:http://economictimes.indiatimes.com/articleshow/52172120.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

U.S. issues rule requiring banks to identify shell company owners

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, Income Tax,e-Filing- Individuals, Firms, Companies, India & International - Corporate updates | 0
A company list showing the Mossack Fonseca law firm is pictured on a sign at the Arango Orillac Building in Panama City in this April 3, 2016 file photo. REUTERS/Carlos Jasso/Files

The Obama administration is issuing a long-delayed rule requiring the financial industry to identify the real owners of companies and proposing a bill that would require companies to report the identities of their owners to the federal government, U.S. officials said on Thursday.

The Customer Due Diligence (CDD) rule, in the works since 2012, and the proposed legislation are meant to hinder criminals from using shell companies to hide ownership and launder money, finance terror, and commit other threats to the global financial system.

The use of shell companies to hide assets and avoid taxes is in the spotlight following a massive leak of data from the Panama-based law firm Mossack Fonseca, which embarrassed several world leaders and sparked government investigations around the globe into possible financial wrongdoing by the wealthy elite. The International Consortium of Investigative Journalists said it will release a searchable database of more than 200,000 offshore entities next week.

“Fundamentally our financial system should not provide the rich, the powerful, and the corrupt with the opportunity to shield their assets,” said Wally Adeyemo, the U.S. deputy national security advisor for international economics, in a call with reporters on Thursday. “Nobody should be able to hide in the shadows from their legal obligations.”

The final CDD rule will require banks, brokers, mutual funds and other financial institutions to collect and verify the identities of the real people, or “beneficial owners,” who own and control companies when those companies open accounts.

Financial institutions will have to verify the identity of any person or company who owns more than 25 percent of the company, and one live person who controls the company even if that person owns less than 25 percent.

Banks will have two years to get their systems into compliance, said Jennifer Fowler, the U.S. Treasury deputy assistant secretary for terrorist financing.

The U.S. Treasury said in 2012 it planned to propose a rule that would clarify and standardize financial institutions’ obligations to know the identities of their customers.

But the proposal generated opposition from the financial industry, which argued it would be costly, ineffective, and difficult to implement because the United States lacks a national database of corporate information.

To address one of those industry concerns, Treasury will propose legislation requiring companies to report to the Treasury the identity of beneficial owners when a company is incorporated. The legislation would create a central registry of beneficial ownership, something the U.S. currently does not have, Fowler said.

U.S. secretaries of state have lobbied against similar legislative action in the past, arguing that the Internal Revenue Service already has corporate ownership records that it could make available to law enforcement.

Adeyemo said the Obama administration had been “consulting actively” with secretaries of state. “This is a place where we need Congress to act,” he said.

Taken together, the measures would make the financial system more transparent and close loopholes that allow for abuse or illegal activity, officials said.

More than 1,000 prosecutions are brought each year in the United States for money laundering, Fowler said. “This is a record that no one in the world can match.”

But, she added, “there are vulnerabilities that we need to address in order to maintain an effective regime.”

The Treasury is also proposing a regulation that would increase requirements for some foreign-owned companies operating in the United States to report information to the government, which officials said would prevent the use of those companies for tax avoidance purposes.

In addition, the Justice Department is proposing amendments that would strengthen its ability to pursue foreign corruption cases, including issuing subpoenas for records in money laundering investigations, obtaining overseas records, and using classified information in civil cases.

Source: http://www.reuters.com/article/us-usa-regulations-finance-idUSKCN0XX02O

IMF Sees Rising Debt Challenge as Asia Stays Global Outperformer

by | posted in: Corporate & Business Advisory Services, Corporate Updates, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0

The International Monetary Fund said rising debt levels in major Asian economies have become a significant risk, even as the region remains on track to post solid economic growth.

Asia-Pacific economies as a group will decelerate only slightly, to 5.3 percent this year and next, from 5.4 percent in 2015, the Washington-based fund said in an annual regional report published Tuesday. The IMF last month trimmed its global forecasts, and said the world was more exposed to negative shocks thanks to a prolonged weaker pace of expansion.

In Asia, domestic demand, particularly consumption, should be a key driver, but worsening global conditions and high leverage in the region may curb growth, the fund said.

“Downside risks continue to dominate the economic landscape,” the IMF said. “In particular, the turning of the credit and financial cycles amid high debt poses a significant risk to growth in Asia, especially because debt levels have increased markedly over the past decade across most of the major economies in the region, including China and Japan.”

Downward Spiral

The IMF’s singling out of debt as a growing worry is in line with recent statements. The institution warned in a report last month against what it called a self-reinforcing “spiral” of weakening growth and rising debt that could require a coordinated response by the world’s major economies.

In Asia, the IMF said Tuesday, debt levels are high, while credit growth and corporate issuance have remained strong as companies try to take advantage of still-favorable global liquidity conditions.

The ratio of corporate debt to gross domestic product has risen faster in Asia than anywhere else in the world since 2009, the IMF added, and the measure is particularly elevated in China and South Korea. Household debt is a growing worry in Hong Kong, Malaysia, Singapore and Thailand, the IMF said.

“Although part of the credit growth reflects financial deepening, some growth has been above that implied by fundamentals,” the IMF said. Financial deepening refers to the spreading availability and use of banking.

Reform Refrain

As in previous reports, the IMF called on policy makers to push ahead with structural reforms to raise productivity, including measures to boost consumption in China. The fund also flagged the risk of an over-reliance on monetary or credit policies to hold up demand, particularly if job losses in manufacturing exceed the gains in services.

On Japan, the only developed economy where it anticipates economic contraction next year, the IMF recommended moves to reduce the difference between life-time and non-regular labor contracts to allow for higher wage increases. It also suggested deregulation and a drive to increase female labor market participation.

The IMF said that recent economic policies in Japan — so-called “Abenomics” — have been “supportive,” but added that “durable gains in growth” are yet to be seen.

The fund also warned against an excess reliance on monetary stimulus. The remark comes less than a week after a surprising Bank of Japan decision to hold off on stepping up its monetary expansion jolted markets and led to a surge of the yen against the U.S. dollar.

Source: http://www.bloomberg.com/news/articles/2016-05-03/imf-sees-rising-debt-challenge-as-asia-stays-global-outperformer

Renewable Energy Growth Will Remain Strong Through 2040

by | posted in: Corporate Updates, Economy, Business Updates, Corporate Affairs, India & International - Corporate updates | 0

 

“In its forward-looking report for the year, the U.S. Energy Information Administration forecasts renewable energy will be the fastest-growing power source through 2040,” writes Scientific American .

 

“New investments in renewable energy rose from $9 billion in the first quarter of 2004 to $50 billion for 2015’s first quarter…and the volume of installed photovoltaic systems in the United States has grown every year since 2000.”

 

“The story that renewable energy advocates often share of how their favorite power sources have grown so rapidly over recent years belies the reality that those industries have expanded from small market shares to start. Yet with increasing interest, investors are targeting renewables as strong assets, not dodgy options.”

 

Source: http://www.rollcall.com/news/renewable-energy-growth-will-remain-strong-through-2040#sthash.xUP8XuIh.dpuf

Government looks to resolve 100 transfer pricing issues; seeks to sign more advanced agreements

by | posted in: Corporate Updates, Cross Border Transactions, M&As, Joint Ventures, Income Tax,e-Filing- Individuals, Firms, Companies, India & International - Corporate updates | 0
Due to new regulatory frameworks like Base Erosion and Profit Shifting (BEPS), transfer pricing disputes could go up in all major economies

In a significant move towards a more progressive taxation policy the revenue officials have set an aggressive target of resolving about 100 transfer pricing issues by signing advance pricing agreements (APAs) with multinationals this fiscal, people close to the development said.

The government, through the Central Bureau of Direct Taxes (CBDT), had signed a record 55 APAs with multinationals in 2015-16. In all, the Indian government has signed 64 APAs, including 62 in the last two years. Now the government is getting more ambitious and officials are confident about achieving the target.

“We are already working on about 175 cases (APAs), and the target is achievable,” said a person close to the development. “Also, the officers who are dealing with the issue have now got fair amount of experience and work would be faster going ahead.”

Samir Gandhi, partner at Deloitte Haskins & Sells LLP, said, “In last one year, we have seen that the government has been very active in resolving the transfer pricing cases through the APAs. Going forward it is very likely that we will see more number of cases being resolved.”

An APA is mainly an agreement between a tax payer—mostly multinationals— and tax authority— CBDT in India’s case—where the transfer pricing methodology is determined. The methodology to calculate taxes could then be used for an agreed period of time on the tax payer’s future international transactions.

Transfer pricing disputes are mainly related to the calculation of profit made by multinational companies and how they have been shifted to their parent. Many firms have gone to court, challenging the government’s transfer pricing calculations. In July 2012, the government introduced the APA programme, which allows companies and the revenue authorities to negotiate the rate at which tax is to be paid and avoid disputes. Of the total APAs signed last year, 53 were unilateral agreements while two were bilateral agreements.

A unilateral APA is an agreement between the tax payer and the tax authority of the country (CBDT). A bilateral agreement is signed by these two plus the tax authority of the country where the multinational is headquartered.

Industry trackers expect that some more “complicated” APAs would be signed this year. “Going ahead some of these cases (APAs) will involve relatively complex cases/transactions and also application of TP methodologies of profit split and TNMM (transactional net margin method),” said Gandhi of Deloitte. Industry experts said the shift from a time when India was considered to be one of the most aggressive in the world on transfer pricing to the current situation has happened in last two years.

“There are primarily two developments which have happened in last one year in the context of transfer pricing disputes,” said Rohan K Phatarphekar, partner and national head, global transfer pricing services, at KPMG. “One is the government’s agenda of having a non-adversarial tax regime and improving the ease of doing business, which has resulted in lesser amount of transfer pricing adjustments, and the other is the CBDT circular clearly laying out the guidelines as to when a case needs to be referred for transfer pricing assessment which has reduced the overall number of cases picked up for scrutiny,” he said.

Experts also pointed out that the government’s stance on liberal transfer pricing comes at a time when many multinationals face the prospect of increasing disputes across the world. Due to new regulatory frameworks like Base Erosion and Profit Shifting (BEPS), transfer pricing disputes could go up in all major economies.

Companies and tax consultants said that not only is the Indian government going all guns to resolve old issues in last one year, but also there has been no major transfer pricing demand as officials did not take an aggressive stance. Currently there are about 650 pending cases in APA, according to a report by Deloitte.

Going ahead, a lot of disputes also set to be resolved due to mutual APAs signed between Indian authorities and their US counterpart. This is mainly because the US Internal Revenue Service (IRS) has started accepting bilateral APA applications with India from February 16, 2016, the Deloitte report said.

Source:
http://economictimes.indiatimes.com/articleshow/51886742.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst