🎙️ VC's Cultural Moment

Consumer prices rose 3.5% year-over-year (more than expected) — a hot inflation report derailing the Fed’s case for a June interest rate cut. And surveys continue to suggest that Americans remain frustrated by the cost of living.

A “soft landing” remains elusive!

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Venture capital’s cultural moment

• Why St. Louis is a cautionary real estate tale

This, and more, in just 5 minutes to read.

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In The News

🚀 Venture Capital Has A “Cultural Moment”

If you’re an individual investor, you probably don’t have access to investing in hot startups. In recent years, a trendy business model in finance has been trying to change that, “democratizing” access to more types of companies, not just those trading on stock exchanges.

• The “SPAC” boom was a symptom of this, where shell companies went public, raised funds, and acquired private companies that might otherwise have difficulty listing on major stock exchanges.

Enter, DXYZ: A new fund, the Destiny 100 Tech Fund (ticker: DXYZ), is taking things one step further, “providing everyday investors access to these private market leaders for the first time,” according to its website.

• Historically, only high-net-worth accredited investors and professionals could tap into the early growth of “unicorns” like Stripe, SpaceX, and OpenAI. By the time private tech giants go public, much of their growth is already over, leaving little meat on the bone for the masses.

Meme fund: DXYZ began trading recently, reversing that precedent with a $52 million portfolio of 23 promising private companies. Sounds great, doesn’t it?

• There’s a catch. On its first day, the fund began trading at a 1,900% premium to the estimated value of its portfolio. 1,900% — That’s breathtaking. We’ve seen meme stocks, now we have meme funds?
  

• While true that the fund offers mom-and-pop investors access to startups, it offered that access at 20x their current valuation. If its investments delivered a “ten-bagger”(10x return), its shares would be worth roughly half the price they traded at on Wednesday.

Why it matters:

The investor who launched the fund, Sohail Prasad, called its debut “a cultural moment that’s taken on a life of its own.”

If you’re familiar with the mechanics of ETFs, you might wonder how a fund could garner such a premium without being arbitraged away. Well, the distinction here is that DXYZ isn’t an ETF; it’s a “closed-end fund.”

Closed-end, not ETF: Without going too far down the rabbit hole, DXYZ couldn’t exist in ETF form since it invests in private assets, but it can as a closed-end fund, which raises money to invest in startups without the burden of investor redemptions.

• As Bloomberg’s Matt Levine puts it, arbitrage “doesn’t work here, because DXYZ is a closed-end fund, not an ETF. Investors cannot create or redeem shares; they can’t put money in or take money out.”

What happens now? DXYZ is already returning to earth, down some 50% from Monday’s high. Still, its market capitalization is over an order of magnitude greater than its portfolio value (aka net asset value.)

• This means it has a great opportunity to sell more shares, raise capital at a massive premium, and invest more in startups.
  

• As Levine says, if done at scale, that would actually “collapse the premium” for its shares. While other venture capital funds have struggled to raise money, DXYZ almost has more demand for its shares than it knows what to do with.

Read more

More Headlines

🛜 FCC rolls out mandatory “nutrition labels” for internet providers’ plans

🏀 The NCAA women’s basketball final outrated the men’s for the first time ever

🌎 Rich Americans are getting second passports, citing risk of instability

📉 Nvidia’s stock enters correction territory, down 10%

✈️ FAA investigating Boeing over another whistleblower claim

🇮🇳 How India’s market cap could ‘easily’ jump ten-fold in two decades

😱 The Real Estate Nightmare in St. Louis: ‘Doom Loop’

Chalk up St. Louis as the latest cautionary real estate tale, symbolic of another great American city now a shadow of its former self. 

The Railway Exchange Building, once the heart of downtown St. Louis, is abandoned and deteriorating. Many of its windows are boarded up due to a fire suspected to be caused by copper thieves.

 The building's decline reflects a broader trend affecting American downtowns, exacerbated by the pandemic's impact on office attendance.

• St. Louis has experienced a sharp decline in its central business district, with the steepest drop in foot traffic among 66 major North American cities. This decline has led to closed shops, restaurants, and empty office buildings, creating a desolate atmosphere.

Chicken and egg: The situation results from decades of decay, including population loss, competition from suburban offices, and failed urban planning. The closure of Macy's department store in the Railway Exchange Building in 2013 triggered a cascade of vacancies and closures in surrounding businesses.

• The AT&T Tower downtown sold for $205 million in 2006. In 2022, it went for just $4 million.
  

• “It’s a classic chicken and egg kind of deal,” said a professor of economics at Washington University. “People don’t go there because there’s nothing to do. There’s nothing to do because people don’t go there.”

Revival efforts: Efforts to revive the area include adding landscaping, bike lanes, and traffic barriers and offering subsidies to retailers and developers. However, revitalization remains challenging due to low rents, high construction costs, and the reluctance of private developers to invest in the struggling district.

Silver linings: There are signs of hope. Downtown West, a neighboring area, has seen revitalization through investments in loft apartments, a new soccer stadium, and other attractions, though there’s plenty of work to be done. 

Why it matters:

St. Louis's downtown district is a cautionary tale for other American cities facing similar challenges. 

Heartland struggles: American downtowns haven’t all had it easy, especially cities away from the coasts. While cities in Florida and Texas are thriving, those in the heartland haven’t had it too good. Consider: Six of the 10 U.S. office districts with the steepest drop in foot traffic between 2019 and mid-2023 are in the Midwest.

• As The Wall Street Journal reports: “Now, St. Louis stands as a warning to others: This is the future for America’s downtowns if they can’t reinvent themselves and halt the downward spiral.”

Read more

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See you next time!

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