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(Bloomberg) — Valuations for startups are racing ahead of what the companies’ current results appear to justify, but don’t call it a bubble yet, says a seasoned venture capitalist who has backed some of Canada’s most successful new technology companies.

Growth rates for tech startups are running five times faster than normal, making valuations that would have been crazy five or 10 years ago seem reasonable, Chris Arsenault, a founding partner at Montreal-based Inovia Capital, said in an interview.

“Valuations are high, but we wouldn’t be in a bubble like we used to define a bubble, which were basically out-of-whack valuations for companies that could never meet the expectations,” Arsenault said. “I would call it a bubble if it wasn’t for the growth rates that we’re seeing — the growth rates are just amazing.”

Arsenault’s remarks underscore the debate in the venture capital business as competition from hedge funds, private equity firms and special purpose acquisition companies pushes up valuations on some deals.

Quick-Flip SPACs

Some VCs see trouble ahead. “I think a lot of people are doing a lot less diligence and being a lot less price sensitive,” Freestyle Capital Partner Jenny Lefcourt said last week at an event in San Francisco. “We’re going to see a lot of businesses kind of go up in flames.”

That influx of new investors has contributed to a surge in valuations in early-stage companies and changed the process, Arsenault said. Some U.S. hedge funds are offering term sheets within two weeks of meeting startups’ management teams and closing the deals two weeks later, a development that increases the risks in the funding ecosystem, he said.

Inovia has backed companies such as payments firm Lightspeed POS Inc., which listed in New York last year and now has an $11 billion stock market value, and Clear Finance Technology Corp. and Wealthsimple Inc., two still-private companies that have achieved valuations of more than $1 billion. The firm includes former Twitter Inc. Chairman Patrick Pichette and former BlackBerry Ltd. executive Dennis Kavelman among its partners.

SPACs are one part of the startup financing world that Arsenault does consider a bubble. He estimates that 90% of the SPACs that exist aren’t viable vehicles for entrepreneurs to take their companies public. Many of SPAC investors just want to quickly flip their portion of the company or have only bought into the vehicle to make a quick profit on warrants, he said.

“These are not the investors you want in your company when you’re going public,” he said. “You want those who believe in your vision, understand what you are doing, and are investors today that will help build the company going forward.”

Globally, more than 450 SPACs have raised about $123 billion in initial offerings this year, according to data compiled by Bloomberg. That compares with $84.5 billion raised by nearly 300 SPACs in all of last year.

Why the Hot SPAC Market Has Started to Cool Down: QuickTake

Still, some SPACs do provide a legitimate pathway for companies to go public and will remain a part of the financing world for some time to come, Arsenault said.

“Those who have strong management teams behind the SPACs, that have long-term incentives to actually support the company and their entrepreneurs, that have a real board and have smart capital behind them, they will succeed,” he said. “I do not see SPACs going away.”

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(Bloomberg) — PerkinElmer Inc. agreed to buy BioLegend, a privately held maker of biomedical research tools for Covid-19 and other illnesses, for about $5.25 billion in shares and cash.

The acquisition, the largest-ever for Waltham, Massachusetts-based PerkinElmer, is expected to close by the end of this year, subject to regulatory approvals, the companies said in a statement Monday.

Research tools such as antibodies have become key to the study of Covid as the pandemic has spread around the world, driving PerkinElmer’s shares up almost 70% since the beginning of last year. BioLegend provides antibodies and reagents for biomedical research to laboratories at universities and pharma companies studying cells, proteins and genetics.

PerkinElmer shares gained 2.3% at 9:40 a.m. Monday in New York.

The purchase is PerkinElmer’s latest in a string of deals that includes Sirion Biotech GmbH, a provider of viral-vector technologies, last month and Nexcelom Bioscience in May. It’s part of a “continuing journey” of PerkinElmer’s transformation, Evercore ISI analyst Vijay Kumar said in a note.

With more than 700 employees, mostly in the U.S., BioLegend is expected to generate sales of about $380 million in 2022, according to the statement. BioLegend’s campus in San Diego will become PerkinElmer’s center for development of substances used in research analysis, called reagents, and it will expand the company into new segments, the statement said.

Goldman Sachs Bank USA is providing bridge financing to PerkinElmer for the cash portion of the purchase, which is expected to provide an estimated 30 cents of adjusted earnings per share in the first full year after the sale closes and more than 50 cents in the second, according to the statement.

Goldman Sachs & Co. is exclusive financial adviser to PerkinElmer for the deal. WilmerHale is serving as legal counsel, and McDermott Will & Emery as antitrust counsel. J.P. Morgan Securities LLC is BioLegend’s financial advisor, and Pillsbury Winthrop Shaw Pittman LLP is its legal counsel.

(Updates with shares, analyst’s comment in fourth and fifth paragraphs)

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(Bloomberg) — Credit Suisse Group AG is pushing deeper into China with plans to extend underwriting of initial public offerings even as markets are roiled by Beijing’s crackdown on the booming financial technology and private education industries.

The Swiss lender plans to sponsor initial public offerings on the Nasdaq-like Star Market Board in Shanghai, Tim Tu, head of the bank’s China securities joint-venture said at a briefing in Beijing on Monday. The unit is also seeking securities investment advisory and proprietary trading licenses, he said.

The plan comes at a time when China’s technology industry has been thrown into turmoil by a broad campaign that began late 2020 against the growing heft of Chinese internet companies from Didi Global Inc. to Alibaba Group Holding Ltd. Investors have been rattled by a series of regulatory crackdowns that expanded from fintech to encompass everything from ride-hailing to grocery buying, food delivery and online education.

Also under the scanner are offshore listings as China moves to secure the treasure trove of data Internet platforms control. The increased reviews will likely drive more Chinese firms to seek listings closer to home, in Hong Kong as well as on the mainland.

With Shanghai’s Star board, Credit Suisse is betting on the growing importance of a market which many global banks have yet to fully embrace. Under a quirky rule for IPOs on China’s technology exchange, lead banks must buy at least 2% of the shares issued, something most foreign players have shied away from given the need for additional capital. So far only UBS Group AG has led deals on the venue.

“We understand and support the regulatory requirements” on co-investing at Star and the company has been preparing “prudently,” said Tu, adding that Credit Suisse has potential deals in the pipeline and aims to secure them as soon as possible.

In a move that may boost future revenues, the Swiss bank’s venture also plans to apply for a nationwide license for its securities brokerage, Janice Hu, the lender’s newly-appointed chief executive officer of China, said at the event.

Business Expansion

The company aims to “gradually expand our business scope into wealth management, widen business channels and create more business opportunities” in China, Hu said.

Credit Suisse renamed its China securities joint venture with Founder Securities Co Ltd. as Credit Suisse Securities (China) Ltd last month, after obtaining 51% ownership.

Along with other major banks Credit Suisse is pushing into China as it opens its capital markets. More than 60 professionals have been recruited to join the joint-venture across all businesses since it became the majority shareholder and Credit Suisse plans to double headcount in the next 18-24 months, Hu said.

The China expansion comes as Credit Suisse is seeking to stem defections elsewhere as it deals with the fallout of the collapses of Greensill Capital and family office Archegos Capital Management. Many of the departures so far have affected the investment bank, where the firm has offered retention bonuses to help offset the hit to stock-based awards.

(Adds context on China’s regulatory crackdowns from third paragraph)

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(Bloomberg) —

A U.S. probe into Tether is homing in on whether executives behind the digital token committed bank fraud, a potential criminal case that would have broad implications for the cryptocurrency market.

Tether’s pivotal role in the crypto ecosystem is now well known because the token is widely used to trade Bitcoin. But the Justice Department investigation is focused on conduct that occurred years ago, when Tether was in its more nascent stages. Specifically, federal prosecutors are scrutinizing whether Tether concealed from banks that transactions were linked to crypto, said three people with direct knowledge of the matter who asked not to be named because the probe is confidential.

Criminal charges would mark one of the most significant developments in the U.S. government’s crackdown on virtual currencies. That’s because Tether is by far the most popular stablecoin — tokens designed to be immune to wild price swings, making them ideal for buying and selling more volatile coins. The token’s importance to the market is clear: Tethers in circulation are worth about $62 billion and they underpin more than half of all Bitcoin trades.

“Tether routinely has open dialogue with law enforcement agencies, including the DOJ, as part of our commitment to cooperation and transparency,” the company said in a statement. Its corporate structure consists of a tangled web of entities based in the British Virgin Islands and Hong Kong.

The Justice Department declined to comment.

Read More: Why Yellen and Powell Cast a Wary Eye on Stablecoins

Federal prosecutors have been circling Tether since at least 2018. In recent months, they sent letters to individuals alerting them that they’re targets of the investigation, one of the people said. The notices signal that a decision on whether to bring a case could be made soon, with senior Justice Department officials ultimately determining whether charges are warranted.

The probe is reaching a tipping point as stablecoins attract intense scrutiny from regulators. The U.S. Treasury Department and Federal Reserve are among agencies concerned that the tokens could threaten financial stability, and are obscuring transactions tied to money laundering and other misconduct because they allow criminals to make payments without going through the regulated banking system. Treasury Secretary Janet Yellen said last week that watchdogs must “act quickly” in considering new rules for stablecoins.

A hallmark of Tether is that its creators have said each token is backed by one U.S. dollar, either through actual money or holdings that include commercial paper, corporate bonds and precious metals. That has triggered concerns that if lots of traders sold stable coins all at once, there could be a run on assets backstopping the tokens. Fitch Ratings has warned that such a scenario could destabilize short-term credit markets.

Read More: Crypto Lode of $100 Billion Stirs U.S. Worry Over Hidden Danger

Tether was first issued in 2014 as a solution to a problem plaguing the crypto market: banks didn’t want to open accounts for virtual-currency exchanges because they feared touching funds tied to drug trafficking, cyberattacks and terrorism. By accepting Tether, exchanges could give traders a way to park their balances without being exposed to Bitcoin’s price gyrations. And funds could be transferred instantaneously from exchange to exchange.

But Tether’s corporate side still needed banks to hold its money and process customer transactions. One early relationship that soured was with Wells Fargo & Co. In 2017, the Tether Ltd. affiliate and Bitfinex — a crypto exchange with common owners and executives — sued Wells Fargo for blocking wire transfers that had been sought through Taiwanese banks.

In the lawsuit, Tether Ltd. and Bitfinex said Wells Fargo knew, or should have known, that the transactions were being used to obtain U.S. dollars so clients could purchase digital tokens. The companies dropped the case shortly after filing it.

Wells Fargo declined to comment.

In the course of its years-long investigation, the Justice Department has examined whether traders used Tether tokens to illegally drive up Bitcoin during an epic rally for cryptocurrencies in 2017. While it’s unclear whether Tether the company was a target of that earlier review, the current focus on bank fraud suggests prosecutors may have moved on from pursuing a case tied to market manipulation.

Tether has already drawn the ire of regulators. In February, Bitfinex and several Tether affiliates agreed to pay $18.5 million to settle claims from New York Attorney General Letitia James that the firms hid losses and lied that each token was supported by one U.S. dollar. The companies had no access to banking in 2017, making it impossible that they had reserves backing the tokens, James said. The firms settled without admitting or denying the allegations.

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(Bloomberg) — Zimbabwe plans to prevent the frequency of doctors and nurses going on strike over pay that often cripples the country’s fragile health sector.

Under the proposed Health Service Amendment Bill published July 23, members of the health industry will be barred from participating in strikes that last longer than three days, or more than 72 hours in a two-week period. Health-care workers will also be obligated during any collective job action, “to provide the skill, expertise, care and service to patients in a medical emergency or needing critical or intensive care,” according to the bill.

A notice of strike must be given in writing 48 hours prior to the start of the industrial action, according to the proposal, which also states that labor-union leaders that incite protests are liable to fines and jail sentences of three years.

The southern African nation has seen recurrent industrial action by nurses and doctors over pay and working conditions. Last year, a four-month strike came to an end after telecommunications billionaire Strive Masiyiwa offered to pay them a subsidy for the next six months.

Shingai Nyaguse-Chiurunge, president of the Senior Hospital Doctors Association, didn’t immediately respond to a text message seeking comment.

Enock Dongo, president of the Zimbabwe Nurses Association, which has 12,000 members, said there was no consultation by government on the proposed law. “The authorities can’t force health workers to give services when they are disgruntled,” he said by phone Monday. “The laws are demoralizing and most workers are contemplating going outside the country.”

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(Bloomberg) — Super Bowl champion quarterback Russell Wilson signed a multiyear partnership with e-commerce giant Fanatics Inc., teaming up for an expected boom in the sports memorabilia market.

Fanatics, founded by billionaire Michael Rubin, will create new Wilson memorabilia and collectibles ahead of Wilson’s 10th season with the NFL’s Seattle Seahawks. The quarterback already had a connection to Rubin, including a partnership that raised $60 million to combat food insecurity during the coronavirus pandemic.

“To be able to give my fans direct access to what they want is great,” Wilson, 32, said in a phone interview. “I’ve played nine years in the NFL and I have another 13 to go at least, in my head, so for me when I think about that, I feel like I’m just getting started.”

Wilson, an eight-time Pro Bowler, joins a Fanatics roster that includes Tom Brady, Zion Williamson and Los Angeles Angels pitcher-slugger Shohei Ohtani as of last week. The company will sell signed footballs, helmets, jerseys and other products like authentic game-used equipment from the quarterback.

Sales for Fanatics Authentic, the memorabilia and collectibles division, are expected to top $200 million this year, according to the closely held company, which forecasts more than $3 billion in total revenue in 2021.

Demand for sports memorabilia is letting athletes leverage their success on the field in new ways. For Wilson, who’s married to the Grammy-winning singer Ciara, the Fanatics partnership is part of a growing business.

He recently launched a children’s clothing line, 3Brand, based on his uniform number 3. A portion of the revenue — 3% — will go to the Wilsons’ Why Not You Foundation.

“Football and business are two things I love, and two things I really understand,” Wilson said. “It’s all about impact and making a difference.”

Wilson also addressed the recent decision by the National Collegiate Athletic Association to let student-athletes exploit their names, images and likenesses.

The early returns have been eye-popping for teenagers across the country. Hercy Miller, a rising Tennessee State point guard and son of rapper and former NBA player Master P, signed a $2 million deal with technology company Web Apps America. University of Alabama quarterback Bryce Young has made almost $1 million, according to head coach Nick Saban, despite not yet officially being named starting QB for the Crimson Tide.

Wilson called the move a “great decision” that lets athletes help their families. His sister, Anna Wilson, was part of Stanford University’s championship-winning women’s basketball team in 2021 and was voted Pac-12 Co-Defensive Player of the Year.

“The reality is that for someone like her, who’s brilliant and really talented, to have the opportunity like this is great, too,” he said. “Women who are doing everything they can to be at the highest level of what they do and should have the ability to have sponsorships and make money off the court as well.”

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(Bloomberg) — The U.K. has drawn up rules to prevent chaotic signal interference as entrepreneurs race to launch thousands of broadband-emitting spacecraft into orbit.

Elon Musk’s Space Exploration Technologies Corp. and OneWeb Ltd. are rapidly launching satellites in an attempt to blanket Earth with high-speed internet, with others like Amazon.com Inc. close behind.

But British watchdog Ofcom warned Monday that it’s concerned these so-called satellite constellations will block each other’s signals.

Under new rules, satellite systems would be checked for whether they risk degrading other services, and if they could harm competition. Ofcom would publish details of licenses it expects to grant, which would require technical co-operation between companies, and give Ofcom the power to manage cases of interference in the U.K. Changes would be applied to its small number of existing licenses.

Ofcom’s consultation is due to conclude Sep. 20.

The new wave of low-orbit satellites are far closer to earth than those used today for remote internet and television, meaning light signals can travel much faster.

Musk’s SpaceX has already launched more than 1,500 Starlink satellites and the billionaire entrepreneur has said it’s on track for global coverage apart from polar regions by next month. It faces competition from OneWeb, owned by Bharti Global, the U.K. government, Eutelsat SA and SoftBank Group Corp., which has launched more than 250 satellites and plans to sell broadband to governments and businesses.

“We do not think we can solely rely on the International Telecommunication Union framework to effectively deal with all concerns impacting non-geostationary satellite orbit services provided in the U.K.,” Ofcom said, referring to a United Nations agency made up of the world’s telecommunications regulators.

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(Bloomberg) —

Two of the biggest crypto exchanges are reducing maximum leverage on offer to traders.

The cap on both Binance and FTX Trading Ltd. will now be at 20 times, instead of 125 and 101, respectively, according to company statements.

In Twitter posts, executives cited consumer protection, with FTX’s Sam Bankman-Fried aiming to “encourage responsible trading.” Bankman-Fried said the average employed by traders is about two times their positions.

“This will hit a tiny fraction of activity on the platform,” wrote Bankman-Fried in a post. “While many users have expressed that they like having the option, very few use it.”

The use of borrowed money to ramp up exposures to the underlying assets has been blamed for extreme price moves such as a May selloff, which cut Bitcoin’s price by more than a third. While crypto exchanges moved to rein in the most extreme use of the strategy, they are far from turning it off — with 20-times leverage still higher than what’s offered in standard U.S. stock-market accounts.

High levels of leverage have long been a feature of freewheeling crypto exchanges, which have thrived on volatile moves to entice new traders. In 2019, Arthur Hayes, then the chief executive officer of BitMEX, said at a conference that “Bitcoin is fun, but it’s a hell of a lot more fun at 100 times leverage.”

In Monday trading, Bitcoin surged more than 10% near $40,000 as a crypto-related job ad from Amazon.com Inc. stoked speculation about the company’s involvement in the industry.

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(Bloomberg) — Glass House Brands Inc., one of California’s largest marijuana growers, is planning for a U.S. market with no interstate boundaries in which any state’s cannabis can be sold legally across the country.

The Santa Barbara-based company recently completed a transaction with a special purpose acquisition company. But instead of building out production elsewhere to gain access to new markets, Glass House doesn’t plan to use any new capital to expand beyond California, Chief Executive Kyle Kazan told me in a recent interview.

“I like that we’re in California,” he said, predicting that when cannabis becomes federally legal in the U.S., marijuana grown in the state, which is already the world’s largest legal recreational market, will become the most sought after in the country. He said California produces some of the world’s best marijuana because of its long history of cultivation and a favorable climate.

“Cannabis will trade outside its state of origin; Californian product will be like Napa wines,” he said.

Kazan noted that in New York’s illicit market, products are circulating that are labeled with California brands — and these command the highest prices. He said cannabis with Glass House’s name on it has cropped up among these. While he’s “not thrilled” by the prospect of consumers buying a counterfeit product, “we saw it as validation that we’ve arrived,” Kazan said.

For now, as interstate transport is still prohibited, Glass House’s strategy is to grow inside California. The company said in April it would buy a 5.5 million-square-foot space that will make it one of the largest California greenhouse operators in the industry.

The fortunes of California’s cannabis companies stand to rise — or fall — depending on what route the U.S. takes in federal regulation. The latest proposal to legalize marijuana left the industry with questions about the prospects for interstate trade: It called for states to allow cannabis to pass through for delivery to other states, while also saying that “shipment of cannabis into a state in violation of state law is prohibited.”

The fall of interstate barriers wouldn’t be a good thing for multistate operators that have built parallel growing, cultivation and processing facilities in each state they sell in. These companies are expected to wield lobbying clout to try to insulate themselves from competition.

But Kazan’s anecdote about the black market shows that consumers also have influence. If Californian products are better and cheaper, cannabis shoppers are likely to keep choosing them on the black market over legal products made by the multistate operators.

Glass House isn’t the only company seeking to topple interstate walls — or build its brand around California’s reputation for quality marijuana.

Santa Barbara-based Lowell Farms Inc. recently announced an “Origin Collection” that spotlights the so-called Emerald Triangle formed by Humboldt, Trinity and Mendocino counties. The products draw on viticulture’s concept of terroir, which “recognizes the craft farmer and highlights how elements like soil, climate, sunlight and moisture influence the taste, structure and overall effect of a specific strain.”

NUMBER OF THE WEEK

• 9%: The amount lost by a U.S. exchange-traded fund made up of multistate cannabis operators since the latest proposal to legalize marijuana was announced.

QUOTE OF THE WEEK

“After further review, we believe the Cannabis Administration and Opportunity Act (CAOA) may actually garner the 60 Senate votes needed — really,” said Pablo Zuanic, Cantor Fitzgerald & Co. analyst, in a July 21 research note.

WHAT YOU NEED TO KNOW

• A cannabis businessman must pay $3 million to resolve allegations he used investor funds for a Colorado marijuana business to buy classic cars and cryptocurrency instead.
• A Colorado dispensary has renewed a request for the Supreme Court to review a tax dispute, citing comments from Justice Clarence Thomas about mixed signals on the issues.
• President Joe Biden’s drug-czar pick, Rahul Gupta, spent nine months last year working as an adviser to a Maryland-based cannabis company, recently released government ethics documents show.
• Mississippi lawmakers say they’re continuing to work on proposals for a medical marijuana program after the state Supreme Court invalidated one that voters had approved.

EVENTS

Monday 7/26

• Red White & Bloom Brands Inc. reports first-quarter earnings after the market closes.
• The Valuation Advisor’s Foundation for Valuing Cannabis Enterprises, a virtual conference through July 30.

Wednesday 7/28

• Tilray Inc. reports second-quarter earnings before the market opens.

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