Startup funding will be more competitive after Silicon Valley Bank collapse

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By Ashley Portero

March 14, 2023

Raising money for a startup can be challenging in the best environment.

But founders should expect more competition than ever after the failure of Silicon Valley Bank.

The California bank was a major player in the technology and venture capital industry before it was seized by federal regulators last week. The bank’s failure — the second largest in U.S. history — reverberated across South Florida’s startup scene and sent founders scrambling to secure funds for payroll and other expenses.

Silicon Valley Bank, which opened a branch in the Brickell Financial District last year, worked with a number of local ventures, including medical tech firm Neocis and elder tech startup Papa. It also signed on as a partner of the eMerge Americas conference, a global technology conference taking place in Miami Beach next month.

It’s unclear if the bank failure will delay or impact the eMerge conference. A representative did not respond to a request for comment.

Miami-based Papa had minimal exposure to the bank collapse, a spokesperson told Miami Inno. A majority of the startup’s funds are held at another bank.

On Monday U.S. regulators said it would insure all of the deposits at the Silicon Valley Bank in a move to promote confidence in the nation’s banking system. Under the plan all depositors, even those whose holdings exceed the $250,000 insurance limit, can access their funds. The government stressed the deposits will not be covered by taxpayers, but will come from a $100 billion fund set up after the 2008 financial crisis.

Several startups affiliated with accelerator Endeavor Miami were depositors at Silicon Valley Bank, said Managing Director Claudia Duran. The news that deposits would be covered was a relief, but she is still advising founders to monitor their costs and prepare for a challenging funding environment.

“They should reach out to their current investors if they need funding or ensure that their financials are in order before pitching their business to potential investors,” Duran said.

Four of Fuel Venture Capital’s 33 portfolio companies had exposure to Silicon Valley Bank, said Managing Partner Maggie Vo. The Miami-based venture capital firm has been in communication with those businesses to come up with contingency plans, if needed. So far, none of the companies are at financial risk. However, the firm is advising those businesses to forecast their minimum cash requirements as a precaution.

Vo said being headquartered in Miami is a factor that reduced the firm’s exposure to the bank failure.

“Most founders in Miami have a relationship with SVB but it’s not the only bank that companies turn to,” she said. “You’ll find a little bit more diversity by nature because we’re here.”

Entrepreneurs should remember that investors are going to be hyper-focused on minimizing risk. Founders should be in frequent communication with their current investors and focus on highlighting the value proposition of their product to customers.

“This will test the founders and their ability to bounce back and be resilient during tough times,” Vo said. “This is a factor investors will look into before backing a company.”

James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co., said it was too soon to know what the long-term impact could be for the region’s tech economy. As of now, it’s unclear how many local companies had relationships with Silicon Valley Bank.

“A large part of the fallout may be based on the psychological effect of the collapse,” he said. “Keep in mind that before the last few days, tech companies and biotech companies were already in a challenging environment to raise capital.”

At the end of the day, great companies will always stand out, said Florida Funders Partner Saxon Baum.

He expects other debt providers will eventually emerge to replace Silicon Valley Bank and become larger players in the state’s tech ecosystem. Fewer checks may be written, but the capital is still there to back innovative ventures.

“I think that the best founders and their companies will still be effective in raising money,” he said.

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Banks seek to reassure South Florida depositors their accounts are safe

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By David Lyons

March 13, 2023

There’s no need for South Florida consumers to make a run on their local banks, even though the stock prices of financial institutions large and small took a pounding on Wall Street, industry executives and advisers said Monday.

Between federal insurance and the strength of the region’s financial institutions, bank customers can be confident that their money is safe after regulators took over two banks in California and New York during the weekend.

“The depositors have nothing to be concerned about because all of our banks in South Florida are very strong,” said Ken Thomas, a longtime analyst who is president of Community Development Fund Advisors in Miami.

“Any bank with an FDIC label is really safe,” Thomas said, referring to the industry-backed Federal Deposit Insurance Corp. fund that protects accounts up to $250,000.

[ RELATED: President Biden tells US to have confidence in banks after Silicon Valley Bank and Signature Bank collapse ]

That is, unless the person is a stockholder in the “banks that have taken hits.”

Those banks — Silicon Valley Bank of Santa Clara, California, and Silvergate Bank of New York — were designated as risks to the banking system by the federal government over the weekend, a move that empowered regulators to shore up uninsured deposits. Authorities also created a new path to funding for any bank in need of additional cash.

Nonetheless, bank executives were busy speaking to their customers on Monday to calm their nerves and reassure them that the Silicon Valley Bank and Silvergate Bank takeovers did not constitute a repeat of the financial collapse of 2008, when bad housing loans nearly tanked the entire economy.

“My sense is that a lot of bankers and executives are reaching out to their client base,” said attorney Greg Bader, who advises banks for the Gunster law firm in Fort Lauderdale.” The Florida Bankers Association is supporting its members. The association is coordinating efforts to provide outreach to depositors to give them information so they can see the state of the industry and reassure them about the government efforts that took place.”

“I’d have to say hats off to them,” he said of federal regulators. “They did a very good job of backstopping depositors here.”

But Bader cautioned there could be more failures of banks whose investment situations mirror those of Silicon Valley and Silvergate.

“I certainly don’t think the couple of banks that have failed so far are the last ones,” he said. “There will be definitely more, in my opinion.”

That’s due to the “dramatic rise in interest rates over a short period of time,” which forced the value of bonds purchased by the banks as investments to decline.

Letter of reassurance

Keith Costello, CEO and co-founder of Locality Bank in Fort Lauderdale, which became operational just last year, sent a letter to his customers and investors declaring their money is safe while the bank is in “excellent shape.”

“Fortunately, we are a new FDIC-insured bank, which puts us in a very strong position,” he wrote.

The executive explained that Silicon Valley Bank and Silvergate Bank “took significant losses in the securities they held on their balance sheet. When this was disclosed, and they announced that they needed to raise capital to make up for the losses, depositors panicked and withdrew funds rapidly.”

Costello said Locality’s position is on the opposite end of the spectrum.

“We have been operating in the new higher interest rate environment since we opened in January of last year,” he wrote. “We don’t have a portfolio of low-interest securities or loans. And we are extremely liquid, having only just started.”

[ RELATED: A major bank failed. Here’s why it’s not 2008 again ]

In a telephone interview, Costello said he had been up since 4 a.m. Monday speaking to customers.

“Thankfully the FDIC and the Treasury and Federal Reserve all announced a solution which is what we would expect them to do at a time like this, which is to guarantee that depositors are protected,” he said. “I put myself out there with all of our clients. That’s all people want to do is have a conversation with somebody.”

Keep your eggs in many baskets

Still, Costello is recommending that people should look to establish “multiple bank relationships” instead of keeping their money in one place.

“No matter how big a bank is [remember 2009], they are not immune,” he said in his letter. “The best defense is the old expression, ‘Don’t keep all your eggs in one basket’, especially with the price of eggs!”

John Heller, a Fort Lauderdale-based CPA and director at Marcum, the public accounting and business advisory firm, agreed that multiple individuals and business operators should do business with more than one bank, particularly given the $250,000 ceiling for FDIC-insured deposits.

“I don’t know what percentage of individuals have more than $250,000 in any one bank.” Heller said. “It’s really the businesses that need to be more concerned.”

If there is a run on a bank that’s holding an account owner’s last $10,000 or $1,000 and there’s no access, the depositor is stuck.

“If they need it tomorrow, that’s not helpful,” Heller said.

Consumers weren’t the only ones who were worried after the weekend of regulatory maneuvering in Washington.

[ RELATED: Will it take market crash for Congress to raise debt limit? ]

There is an unknown number of South Florida businesses that are customers of Silicon Valley Bank, which caters to technology company startups. The bank opened a branch on Brickell Avenue in Miami two years ago to take advantage of the city’s growing technology sector.

In a buoyant September 2021 news release, the bank announced its arrival with “a team of commercial bankers” to lend money to participants in “Florida’s dynamic innovation sector.”

The company said it was working with “several hundred Florida-based technology and life science companies and investors,” providing commercial banking, private banking and wealth management services “to technology and life sciences companies of all sizes and their investors.”

Regardless of what happens to the bank, Heller pointed out, borrowers will still have to repay what they owe.

“They should expect to keep repaying their loan,” he said. “They certainly owe the money and somebody is going to collect it. ”

Those who had business loan applications in progress will likely have to go somewhere else to borrow money.

“Every business should keep two or three banking relationships going for when they need to shop,” Heller said.

Commercial lending continues

Technology aside, the rest of the commercial lending business is doing well in South Florida, namely on the strength of continuing strong employment and the influx of new residents, said Jim Cassel, co-founder and chairman of Cassel Salpeter & Co. of Miami, an independent investment banking firm that helps middle market and emerging growth companies.

The firm announced Monday it helped Quick Shift Capital of Boca Raton obtain money for a financing business that caters to independent used car dealers and wholesalers. The money came from Synovus Bank of Georgia.

“The economy’s still doing very well, driven by the consumer and employment increases.” Cassel said. “The community banks are lending; they are just being a little more cautious.”

Yet, he said, there is a lot of existing commercial debt that will be coming due over the next couple of years, “that has to be financed at significantly higher [interest] rates.”

“If the cash flows have grown, the borrowers can support that,” he added. But he can’t believe that South Florida will be immune to a recession that many believe will be the result of an economic slowdown.

“Maybe Palm Beach and Fisher Island will be fine, and maybe off Las Olas [Boulevard] will be fine,” he said. ”Other places will have an effect. We’ve seen it before.”

Staff writer David Lyons can be reached at dvlyons@SunSentinel.com

 

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Deal Opportunities Still Exist in the Lower Middle-Market

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By Demitri Diakantonis
March 3,  2023

With daily conversations going on about the lack of deals and a looming recession, how about some positive news? Deals, at least according to one middle-market investment banker, are still happening. But where and how?

“We’re dealing with the lower middle-market, sub-$100M deals,” says James Cassel, co-founder of Miami-based investment bank Cassel Salpeter & Co. “People are being opportunistic. On the buy-side, people are starting to pay lower multiples. We’re starting to see a reset in valuations, but it’s going to take time.”

Cassel Salpeter advises on a number of sectors including aerospace and defense, healthcare and technology.

We knew from the beginning that M&A was going to be a challenge this year. Some dealmakers are hopeful that the second half of the year will be better, but no one has a crystal ball of exactly when conditions will improve. Financing remains a problem with higher interest rates. Fundraising for private equity is sputtering.

On the other hand, environments like this tend to favor strategic buyers who can swoop in at lower prices. And the emergence of family offices – another group with a long-term view – can add to the excitement.

All-in-all though, Cassel sees more of a glass half-full given he works in the lower end of the middle market. “I don’t buy that the world is coming to an end,” he adds. “Deals are getting done, but they’re taking longer to close. People are being cautious. I would say more than half our deals are add-on acquisitions. PE has plenty of plenty of money. Corporates are in good shape from cleaning up their balance sheets.”

What’s your view on the road ahead in the lower middle-market? Will deals pick up or stay flat? Let me know your thoughts at ddiakantonis@themiddlemarket.com. – Demitri Diakantonis

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Whether Fired or Tired, Young Guns Are Leaving Silicon Valley

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With the fear of recession in sight, investors are becoming more cautious and sharpening their demands on start-ups.

In her November 10, 2022 article for Le Monde Caroline Talbot writes a subscriber only article about the recent trend of company founders exiting their companies as they grow and go public.

Talbot interviews Cassel Salpeter Chairman and Cofounder James Cassel among other sources to examine why these unicorn company founders are leaving even as their companies take off.

Citing increasing economic pressures for Silicon Valley, Talbot notes that shareholders and company maturity can take their toll on company founders known for their outside-the-box thinking.

Talbot notes the changes at Twitter culminating in Elon Musk seizing the helm as well as the departures of Ben Silbermann at Pinterest, Emily Weiss at Glossier and Joe Gebbia at Airbnb.

While highlighting how recession worries have investors demanding more control while cutting into founder freedoms, she underscores how some founders are able to find that Goldilocks fit and remain with their companies.

Among other examples when founders remained with their company after being acquired, she cites the $90 million sale of EveryMundo, which helps airlines sell tickets in real time, to Pros.

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Joseph “Joey” Smith Of Cassel Salpeter & Co On The Future Of Aviation and Aviation Tech

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An Interview with David Leichner
June 26, 2022

“Flying a plane yourself is not a must but would certainly be helpful. Go to airports, large and small and observe all the people/infrastructure that it takes to make this wonderful and so useful industry click and run and thrive.”

As part of our series about “The Future Of Aviation”, I had the pleasure of interviewing Joseph “Joey” Smith.

Joseph “Joey” Smith, director of aviation services at investment banking firm Cassel Salpeter & Co., has more than 25 years of experience in the capital markets and securities industry. At Cassel Salpeter, Smith leads the aviation team, providing the firm’s clients with his expertise in mergers and acquisitions, capital raising, and advisory services to middle market private and public companies. He has structured, negotiated, and executed on numerous aviation industry transactions with institutional private equity and strategic investors, and has worked extensively with business owners, management teams, and boards of directors and their professional advisors, locally and nationwide. Since 2018, Mr. Smith has led the publication of the firm’s quarterly Aviation Industry Deal Report offering insights on industry trends while charting deal flow.

Thank you so much for joining us in this interview series! Before we dive in, our readers would love to get to know you a bit better. Can you tell us a story about what brought you to this specific career path?

My investment banking path was unexpected as I was a history major from a small liberal arts college and never aspired for a career in finance or Wall Street, but I loved the stock market, and the historical aspect of corporations. Their operations, growth, and finance were fascinating to me. When Merrill Lynch surprisingly hired me, I became very adept at bringing in clients and assets, achieved success, and became enamored with the industry and was all in thereafter.

Can you share the most interesting story that happened to you since you started your career?

I do not have a specific story that stands out as particularly interesting during my career, but rather have a period of time. That was when I was a broker/banker during the internet/technology dot-com boom, bubble, and ultimate bust times of the late 1990s and early 2000s. That was the most interesting chapter in my career. It was the Wild West of investing, with valuations being at astronomical levels for private placements, IPOs, buyouts, leading to huge failures and losses. That, combined with the excitement of technology truly advancing with the internet and new business models, while we were all trying to understand this new landscape and ecosystem and trying to pick the winners from the losers, made for fascinating times to be in the business.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

Early in my career, I was tasked to make sure a prospectus was printed for an IPO (before EDGAR online, etc.) so I was camped out late night/early morning in the office of the printing company (standard operating practice). Unfortunately, I fell asleep, and my printing cohorts decided to prank me, by locking me in the small conference room I was working from. When I awoke, I could not get out of the office, so I freaked out thinking the prospectus would be late to the SEC and my boss and client would fire me (no cell phones back then). I almost broke down the door before they let me out, and they took pictures of me, a disheveled mess running out with the huge prospectus box in tow. Very embarrassing, too, when they sent the blown-up picture to my boss to memorialize the prank, and thereafter hung it in the trading room for many years.

The lesson learned was that in business, do not ever let your guard down, and “coffee-up” for all-nighters. And, to always have a plan B for all unforeseen events, and backup, just in case “what if” happens. Be proactive and find a colleague to buddy up with to have your back and vice-versa!

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story?

My father, who taught me many lessons, always stressed that there is no substitute for hard work, to be a great listener, to always seek to do good (charity), and as for your adversaries, “to kill them with kindness.” He taught me that success is not defined by money, but by doing the right thing and being a well-respected and solid person to all who cross your path! His wisdom certainly defined my ultimate views on happiness, health and success. I am trying to always pass it forward to my three adult children.

You are a successful business leader. Which three character traits do you think were most instrumental to your success? Can you please share a story or example for each?

Being: Creative & Humble Warrior

  • Being Creative — Finding interesting and creative “outside-of-the-box” ways to find and interact with prospects and clients. One example would be regarding prospecting. Referrals are always great and appreciated but going after the companies and businesses that I want to do business with has always been a top goal and priority of mine. As in farming, plant seeds for the long term.
  • Being Humble — remember where you came from in the early days and always treat people with respect at every level of an organization and transaction. Try to make a positive impact on people’s lives, wherever you may interact with them in business and outside of the office.
  • Being a Warrior — not by taking no prisoners and being ruthless, but by acting with an understanding of what you are fighting for, the value creation we can deliver, with an untiring warrior mentality and spirit to fight for your client, your firm/employer and certainly not last, for yourself.

Thank you for that. Let’s jump to the core of our discussion. Can you share with our readers about the innovations that you are bringing to the Aviation and Air Travel industries?

To me, the greatest innovation in our generation is the coming of age of the eVTOLs (electric vertical takeoff and landing aircraft) market and ecosystem. With billions of dollars and euros of venture capital invested and many highly visible names de-SPACing for additional capital and the prestige of being publicly traded, many companies are now publicizing their newest developments and technological achievements, as they test the sky and these are not merely ideas from the “Jetsons.” As we get closer to the commercialization of theses air taxis, we can now see the fruition of a new and exciting aviation subsector for short hauls and the last mile.

Which “pain point” are industry leaders trying to address by introducing these innovations?

There are numerous pain points, including: air worthiness, battery charge, FAA designation, flight paths, maintenance, pilot training, hubs to depart from and terminate to, affordable price points for the average commuter/traveler, etc.

How do you envision that this might disrupt the status quo?

Just like Uber, and Airbnb, the key players who have the size and scale to gain market share quickly will revolutionize how we travel. Disruptions may be felt all over the ancillary transportation industry such as buses, trains, cars, and even some of the short haul commercial carrier’s routes. Only time will tell how fast adoption and affordable pricing becomes mainstream.

My expertise is in product security, so I’m particularly interested in this question. Recently there were famous cases of hackers breaking into the software running automobiles, for ransomware or for other malicious purposes. Based on your experience, what should aviation companies do to uncover vulnerabilities in the development process to safeguard their vehicles and aircraft?

Security at all levels is paramount within the aviation industry, and software hackers will be one of the major concerns in the products and services that are so reliant on technology within the operating aviation footprint and related supply chain. These players must commit to an extraordinary spend to protect their planes and platforms, but the overall infrastructure of the hundreds of active FBOs must work with the FAA and Department of Homeland Security and other government entities to be able to thwart any malicious attacks and have Plan B and C contingency plans.

Fantastic. Here is the main question of our interview. What are your “5 Things You Need To Create A Highly Successful Career In The Aviation Industry?

My career is as an investment banker who has a specialty in aviation transactions. I believe you should always seek to educate, whether it be through advanced schooling or by finding CEOs/CFOs who will spend some time with you. Flying a plane yourself is not a must but would certainly be helpful. Go to airports, large and small and observe all the people/infrastructure that it takes to make this wonderful and so useful industry click and run and thrive. Find retired pilots to tell you their stories, whether they stem from times of war or peacetime. And finally, always be curious, as there are so many avenues from which to approach the industry: flying, repair, trading, operating various businesses, or being part of the millions who are employed by the major carriers and OEM manufacturers and their suppliers.

You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

I have always believed in giving back, paying it forward (preferably anonymously) because it truly makes me feel good to give. Whatever success I have is because of so many others (known and unknown), and I am thankful for whatever I have, and feel obligated to do my best to give back.

I would love to find a way for the for-profit and nonprofit world to engage in a global transportation, humanitarian project to promote food and health care equity to the over a billion people globally living below the poverty line. If I am dreaming big without budgets or borders, this initiative would utilize all transportation modes: air, land, and sea with the best-in-class technology to promote the mandate. It would be a supply chain project to include the last mile of goods (to reduce corruption) for food and medical supplies, while also transporting those in need to the hospitals, schools, and training facilities in the developed world. The human interaction and cultural exchange component would lift us all, with ongoing engagement programs to keep the connectivity through many educational/outreach venues. The current system of providing the needy with food and health care services is not enough, it must be more thoughtful, organized, bilateral, and sustainable in order to train the next generation of providers from within these communities of need. Hey, I am thinking big and outside the proverbial box!

How can our readers further follow your work online?

See or subscribe (free) to our Quarterly Aviation Reports at our website: www.casselsalpeter.com

This was very inspiring. Thank you so much for joining us!

About The Interviewer: David Leichner is a veteran of the Israeli high-tech industry with significant experience in the areas of cyber and security, enterprise software and communications. At Cybellum, a leading provider of Product Security Lifecycle Management, David is responsible for creating and executing the marketing strategy and managing the global marketing team that forms the foundation for Cybellum’s product and market penetration. Prior to Cybellum, David was CMO at SQream and VP Sales and Marketing at endpoint protection vendor, Cynet. David is a member of the Board of Trustees of the Jerusalem Technology College. He holds a BA in Information Systems Management and an MBA in International Business from the City University of New York.

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Parking Authority Appoints to Board

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James S. Cassel

Week of Thursday, February 24

The Miami Parking Authority has appointed James S. Cassel to its board of directors.

 

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U.S. National Debt Surpasses $30 Trillion: What This Means For You

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By E. Napoletano, Contributor
February 16, 2022

On Feb. 1, the U.S. Treasury Department reported that the U.S. gross national debt surpassed $30 trillion for the first time, a figure that’s incomprehensible at the best of times, let alone when many Americans are still dealing with the economic impact of the coronavirus pandemic.

But as unfathomable as this number is, the national debt can impact ordinary
Americans’ lives.

Daniel Rodriguez, COO at Hill Wealth Strategies, says that if the government wants to maintain the same level of benefits and services to Americans and its international allies without running up both the deficit and the national debt, more revenue will be required.

“The only way to get more revenue is to increase taxes on the American people or reduce spending,” he says. “The government may choose to reduce spending on things like infrastructure, social safety nets, first responders, and education. Those programs have direct impacts on Americans’ day-to-day lives.”

Here’s what the national debt is, the factors responsible for making it rise and fall and how it can impact your life.

What Is the National Debt?

Just like the debt you have is a figure that represents how much you owe your creditors, the national debt represents how much the United States government owes its creditors.

When the U.S. government spends more money than the revenues it brings in each year, it creates an imbalance called a budget deficit. The government must then borrow money to cover its expenses.

It’s more common than not for the government to run a deficit, regardless of which party is in charge. In fact, the government has run a deficit for 77 of the past 90 years and first carried debt after the Revolutionary War in 1790.

How Could the National Debt Impact Consumers?

Congress is responsible for ensuring the government stays funded, but you might still be curious about the national debt and how it relates to the federal deficit.

Here are six ways the rising national debt could potentially impact Americans.

  1. Higher Interest Rates
    When the government needs to borrow more, they’ll need to increase yields on Treasury bills, I Bonds and other fixed-income instruments to make those investments attractive to investors. And while this can translate into higher yields on savings accounts, it also means higher mortgage rates, making the housing market unaffordable to some Americans. Consumers will likely pay more in interest on their credit cards and other loans as well, since those interest rates rise when the Fed raises interest rates, too.
  2. Higher Product Prices
    While America’s grappling with paying more at the grocery store, the national debt at current levels could cause inflationary trends to continue. Increased Treasury yields could make American businesses appear to be riskier investments abroad, which could force companies to raise yields on new bonds to make them attractive investments. The more companies have to pay to keep their debts in good standing, the more pressure to increase product prices. Higher product prices mean higher revenues, which is how companies can pay their debt obligations.
  3. Lower Home Prices
    As interest rates go up, Americans will likely qualify to borrow less since more of their payment each month goes to interest and less toward principal. Thus, buyers won’t be able to afford as many homes as they would when interest rates are lower. This will place downward pressure on home prices, which can impact the equity of all homeowners.
  4. Less to Spend on Other Government Initiatives
    The more money the U.S. has to spend on meeting its debt obligations as interest rates increase, the less financial capacity it could have to fund programs focused on education, veterans benefits and transportation.
    This breakdown of the 2019 Federal Budget from the Council on Foreign Relations shows how the budget pie is only so big, so when one area increases (like interest payments), another must decrease.

    Source: Congressional Budget Office

  5.  National Security Issues
    The higher the national debt becomes, the more the U.S. is seen as a global credit risk. This could impact the U.S.’s ability to borrow money in times of increased global pressure and put us at risk for not being able to meet our obligations to our allies—especially in wartime. This could negatively impact the U.S.’s position as a global political, economic and social power.
  6. Lower Returns on your Investments
    Bonds issued by the Treasury are typically seen as low-risk investments. When interest rates rise, the yield on these low-risk investments also rises, making them more attractive investments for income-minded investors over other riskier income-generating investments like corporate bonds.
    This could leave companies that typically rely on bonds short on the loans they need to finance expansions and operations and translate into lower returns for equity investors when companies fail to meet revenue targets.

What Causes the National Debt to Increase?

Sometimes the government needs to increase spending to stabilize the economy, and protect Americans and businesses from unexpected economic conditions.

During The Great Recession (Dec. 2007 to Jun. 2009), for example, Congress passed legislation injecting $1.8 trillion into the economy. But that pales in comparison to the $4.5 trillion the Trump and Biden administrations have pumped into the economy since the Covid pandemic began in March 2020. However, there are other reasons the national debt increases, even during years where spending is moderate and the economy is in good shape

Tax Cuts

On one hand, tax cuts can stimulate the economy and put more money in Americans’ bank accounts every payday. But those same tax cuts mean the federal government brings in less revenue across the board.

For example, the Tax Cuts and Jobs Act of 2017 slashed taxes for individual and corporate payers, but created a $275 billion shortfall in revenue even though the economy grew. The Act caused revenue from corporate taxes to decrease by $135 billion, a 40% reduction from projected revenue.

Rising Healthcare Costs

According to data from the nonpartisan Peter G. Peterson Foundation, per capita healthcare spending in the U.S. is three times higher than in comparable developed nations like the United Kingdom and France. As America’s population ages, more people enroll in Medicare—and older Americans typically require more care. This translates to the federal budget bearing the burden for rising healthcare costs.

Interest Costs

If you’ve ever had a car loan or mortgage, you’re familiar with how much of your payment each month goes toward interest. The same is true of the federal government’s debts. As the national debt rises, the government will pay more interest to keep those debts in good standing.

Using data from the Congressional Budget Office and the Office of Management and Budget, the Peter G. Peterson Foundation estimates that the government will pay a staggering $5.4 trillion in interest over the next 10 years.

Who’s Responsible for the Current National Debt?

In short? Pretty much every administration.

“Regardless of political affiliation, parties in power have run up the deficit through higher spending and lower revenue collection,” says Brian Rehling, head of Global Fixed Income Strategy at Wells Fargo Investment Institute.

While it’s easy to say a particular president or president’s administration caused the federal deficit and national debt to move a certain direction, it’s important to note that only Congress can authorize the type of legislation with the most impact on both figures.

Here’s a look at how Congress acted during four notable presidential administrations and how their actions impacted both the deficit and national debt.

Franklin D. Roosevelt

As the nation’s last four-term president, FDR helped Americans weather an abundance of economic crises. His presidency spanned The Great Depression and his signature New Deal economic recovery package helped lift America out of financial rock bottom. But the most significant increase to the national debt was the cost of World War II, which added roughly $186 billion to the national debt between 1942 and 1945. Congress added $236 billion to the national debt during FDR’s terms, representing an increase of 1,048%.

Ronald Reagan

During Reagan’s two terms, Congress enacted two historic tax cuts that decreased government revenue: the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. These Acts passed by Congress decreased revenue as a percent of the GDP by 1.7% between 1982 and 1990, creating a revenue shortfall that contributed to the national debt increasing 261% ($1.26 trillion) during his administration, from $924.6 billion to $2.19 trillion.

Barack Obama

Over two terms, the Obama administration oversaw both The Great Recession due to the collapse of the mortgage market and the ensuing recovery. In 2009, Congress passed the Economic Stimulus Act, which helped countless Americans save their homes from foreclosure, pumping $831 billion into the economy. Congressional tax cuts accounted for another $858 billion added to the national debt when passed by a strong bipartisan showing. All in all, Congressional action increased the national deficit by 74 percent and added $8.6 trillion to the national debt during Obama’s two terms.

Donald Trump

During his single term, Congress passed the Tax Cuts and Jobs Act in 2017, which slashed corporate and personal income tax rates. Considered by many a boon for the wealthiest Americans and corporations, at the time of its passage, the Congressional Budget Office estimated the cuts would increase the federal deficit by $1.9 trillion.

While the Treasury Secretary estimated that the tax cuts would decrease the federal deficit, the deficit increased from $665 billion in 2017 to $3.13 trillion in 2020. The tax cuts drove some of this increase but multiple Covid relief packages were responsible for the majority of the increase.

The federal debt held by the public increased from $14.6 trillion in 2017 to over $21 trillion in 2020. Public debt and intragovernmental debt (the amount owed to federal retirement trust funds like the Social Security Trust Fund) make up the national debt. It’s the amount of money the U.S. owes to outside debtors such as U.S. banks and investors, businesses, individuals, state and local governments, Federal Reserve and foreign governments and international investors like Japan and China. The money is borrowed to raise the cash needed to keep the U.S. operating. It includes Treasury bills, notes, and bonds. Other holders of public debt include Treasury Inflation-Protected Securities (TIPS), U.S. savings bonds and state and local government series securities.

“The national debt continues to grow as it has not for decades,” says James Cassel, chairman and co-founder of investment bank Cassel Salpeter. “This is the result of this simple concept of spending more money than you have in revenue.” Cassel also mentions that both major political parties have, at times, spoken seriously about a commitment to reduce the national debt yet conversations and strategy remain stalled.

However, the national debt is more commonly used as a bargaining chip when both parties posture about raising the debt ceiling each year. Without raising the debt ceiling, the U.S. would default on its debt obligations. Thus, Congress always votes to raise the debt ceiling (how much money the U.S. government can borrow), but not before parties negotiate on other legislation.

Are We Helpless When It Comes to the National Debt?

In some ways, yes. But there are actions you can take to mitigate the effect of the national debt on your life.

  • Pay your taxes: According to the IRS, the federal government loses $1 trillion each year due to unpaid taxes.
  • Put pressure on your Congressional reps: Call or write to your Representatives and Senators in support of tax code reform, increased funding for the IRS to track down tax cheats and closing loopholes that give the country’s most profitable companies tax bills that are lower than most Americans.
  • Follow your reps’ voting history: If you’re curious how your Representatives and Senators have voted on fiscal policy issues, that’s easy to check. You can use voting history to back up your concerns when writing or calling your reps.
  • Learn about healthcare reform: While national healthcare remains a contentious topic, it could pay to learn how other countries control healthcare costs and how those policies could benefit you, your neighbors and the impact rising healthcare costs has on the national debt.

Rehling from Wells Fargo Investment Institute says that while the national debt has increased substantially over the past decade, the U.S. isn’t unique in this regard. The rest of the developed world has seen similar trends. “While these budget trends are unsustainable over the long run, there is no indication that current debt levels are overly worrisome,” he says.

Ed. note: This article has been corrected to more accurately reflect the U.S. national debt increased numbers.

 

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What can SoFla’s startup culture learn from the Theranos verdict? Experts weigh in

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By David Lyons

January 8, 2021

As the fallen startup wunderkind Elizabeth Holmes awaits her sentencing for defrauding investors in her failed blood testing company, Theranos, what does the verdict the mean for venture capital investors in South Florida and elsewhere around the nation?

Holmes’s story is startling. She quit Stanford at 19, became a Silicon Valley executive and founded a blood-testing company that made unfulfilled promises of a technology that could revolutionize the industry. The firm was buttressed by the support of private and public sector titans including computer mogul Larry Ellison, former President Bill Clinton and media baron Rupert Murdoch. Former U.S. Secretaries of State George Shultz and Henry Kissinger sat on the Theranos board.

But in 2015, Shultz’s grandson, Tyler, a company employee, turned whistleblower and raised questions about the truth of Theranos’ claims and the Wall Street Journal launched an investigation.

Holmes last week was convicted in a California federal court of defrauding investors who sank millions into her company. She faces a maximum sentence of 20 years in prison, a fine of $250,000, plus restitution, for the conspiracy count and each of three counts of wire fraud.

The fallout, and South Florida

Post-verdict, commentators are divided on what the trial outcome means for the venture capital industry: Some insist the case was an exception rather than a sign of a flawed system that funnels billions into startups that seek to deliver new innovations to industries ranging from health care to transportation.

RELATED: Former Theranos CEO Elizabeth Holmes guilty of fraud and conspiracy »

Others believe it is symptomatic of a financial space where investors easily can be taken by “fake it until they make it” operators who offer more hype than results.

Meanwhile, South Florida has become a hotbed for startup culture, as more entrepreneurs relocate to the region from the Northeast, California and elsewhere, fueling a growing movement for entrepreneurs who need financing, mentoring and other support that will increase their odds of success.

The South Florida Sun Sentinel asked five experts familiar with the startup industry about the verdicts’ implications and how investors should proceed if they seek to join a burgeoning startup culture filled with both opportunities and risks.

They include:

  • James Cassel: investment banker, chairman and co-founder, Cassel Salpeter & Co., Miami.
  • Scott Jablonski: partner, business, finance and tax team, Berger Singerman, Fort Lauderdale.
  • Jeffrey Sonn: securities litigator, managing partner, Sonn Law Group PA, Aventura.
  • Siri Terjesen: associate dean and professor of entrepreneurship, Florida Atlantic University College of Business, Boca Raton.
  • Mark Volchek: founding partner, entrepreneur turned venture capitalist, Las Olas Venture Capital, Fort Lauderdale.

Impact on venture capital scene

Cassel: I don’t think this is a great “oh my gosh” moment that has come out that should shock people or change things drastically. There has been a very frothy situation with investors very quickly making decisions without maybe spending the time to do appropriate due diligence. And I think to a certain extent that’s what’s happened more in California than other places

Sonn: I think it’s a tip of the iceberg. I’m seeing in the last 10 years, and more so in the last five, the emergence of what we call fintech. Companies are raising small amounts from thousands and thousands of people. In the old days you would go out and raise money in large chunks. Now it’s more decentralized. We’re seeing more and more fraud out there in this type of platform.

RELATED: The SEC lowers the boom on Theranos — but there are more companies like Theranos out there »

Terjesen: I’m very glad this case is so public because people need to know, not only because there are liars and charlatans out there, but also because medical and biotechnology is an extremely risky business and not everyone does well.

Volchek: I’ve heard lots of people talk about focusing more on governance. There is no expectation that every company will be successful. I think they [investors] chalk it up to a loss and move on. I think they will say they will do more diligence. In this case there was so little oversight and so little governance. I was shocked when I saw the company was founded literally more than 15 years ago. This was a long drawn-out process of something that never worked.

How can investors avoid disaster?

Sonn: Obviously when it comes to a private deal, I think audited financial statements are key. People should not be afraid to ask. Number two, check the backgrounds of the principals. Find out if they have past bankruptcies, past tax liens, or past business failures.

You go to wherever the principals are and search the local courthouse websites to see what kind of litigation they’ve been involved in. When people invested with Elizabeth Holmes, how many of them paid attention to the fact she dropped out as a freshman from Stanford? How many paid attention to the fact she had no medical background?

Terjesen: When I look at this case, I feel like there is a halo effect happening such that once that [Holmes] got legitimacy from certain individuals and organizations, everyone else took her at her word.

RELATED: The Elizabeth Holmes story is not about the black and the blinks »

Naturally many people wanted to see a success story of a young smart woman in the medical space. Certainly, multiple people should have dug deeper and there wasn’t very effective governance. I hope it makes people more willing to do deeper due diligence in the future. I personally find it hard to attribute the lack of oversight to one particular individual, whether it was the chairman of the advisory board or the chief scientist.

Joblonski: Most venture capitalists I’ve worked with — if you think about the nature of what it is — it’s a higher risk investment that they expect to be illiquid for a while.

Professional investors in the venture space all do a basic level of due diligence because it’s high risk, because it’s illiquid, because it’s long-term and there is a great opportunity for an exit. The experienced venture investors … they have methods and they sort of get to know these founders and startups and emerging companies.

Volchek: We’re active. We get to know the management teams. We also do a lot of diligence up front. I think our diligence focuses on the founders. We certainly do background checks.

We spend a lot of time with individuals before making investments. We try to get to know folks. What I recommend to individuals is to invest in a fund, which is somewhat self-serving. People invest as a group rather than as individuals. It might be easy to fool one person, but it’s hard to fool 50 people in a room. I think it’s important to have lots of folks looking at something.

What startups should be doing

Joblonski: You don’t want to mislead investors, no matter at what stage of investment you are. That’s just the bottom line. The devil is in the details. It centers around the anti-fraud provisions of state and federal securities laws. The general advice is you don’t mislead. You should be as transparent as you can be. Investors want transparency, even if something isn’t rosy.

RELATED: Were you victimized by South Florida’s most depraved scams? »

Terjesen: At FAU in our classes we are absolutely teaching students how to speak transparently to investors and also how to consistently do due diligence in all parts of the business. We do that through classes and also having guest speakers who are successful entrepreneurs who have been there. And we can also use cases like this to show what happens when they don’t get this right.

What of South Florida’s future?

Joblonski: It’s exciting that our area geographically is seeing the volume of entrepreneurial activity in a variety of sectors that just don’t involve real estate funds. It is something that has been slow to move but has been taking off.

You’ve got a lot of people moving here. You’ve got sophisticated financial services people coming down in droves. You’ve always had the influx of diversified capital. Are we going to be Silicon Valley? No. Are we going to be Boston? No. Maybe we’re going to be our own brand of innovation locale. There is so much opportunity.

 

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Is the FDA’s Accelerated Approval of Molnupiravir Setting a Pharmaceutical Standard?

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By Justin Honore

January 7, 2021

Ira Leiderman, Cassel Salpeter

In late December, the U.S. Food and Drug Administration approved Emergency Use Authorization of Pfizer’s Paxlovid, a pill to help treat COVID-19. The next day another pill, Merck’s Molnupiravir, was approved. This marked a big step in the fight against COVID-19, especially with these pills now available in several states. The pace at which these drugs were given the green light, though, is giving medical professionals questions and concerns. Will Molnupiravir’s and Paxlovid’s accelerated production set a new standard for pharmaceutical pill production, for better or for worse?

Dr. Kishor Wasan, Chief Medical & Scientific Officer at Skymount Medical U.S., has vast experience with drug development. He is an award-winning pharmaceutical scientist and he has published over 240 peer reviewed articles on lipid-based drug delivery and lipoprotein-drug interactions. Dr. Wasan says this accelerated approval and production isn’t a new process for the FDA or pharmaceutical researchers. So why is it drawing so much attention?

“It’s been around. The FDA is not actually skirting their processes: They’re just saying, ‘Hey, use this process.’ What is happening is this authorization is now being used a lot,” said Dr. Wasan. “The general public probably didn’t even know about it because it was probably only used in varying situations people probably didn’t know about.”

Since the initial vaccine was first made readily accessible to Americans, two variants have spread relentlessly, with the current dominant variant, Omicron, overwhelming hospitals. With these compounding factors at play, has there been a forced standard change for drug approval, one that will guide future authorization? Dr. J. Wes Ulm, a physician, medical researcher, and clinical genetics resident at the University of Pittsburgh Medical Center, who has a focus in translational medicine and has applied data-mining tools toward drug discovery and repositioning said, simply, “no.” However, according to Dr. Ulm, the FDA has been willing to shift aspects of its approval approach because of COVID’s public health urgency.

“It’s not only mortality from COVID 19 that’s been so high, but mortality from heart attacks, mortality and morbidity from strokes, from gallstones, from car accidents, from sports injuries, that’s gone up significantly because we just don’t have the staff to care for people,” said Dr. Ulm. “That’s the sort of public health emergency overwhelming hospitals that has led to a genuine rethink at the very least in the EUA process and even potentially for full approval or in the steps leading up to it.”

The key to enabling a fast-tracked approval process lies in Emergency Use Authorization that the FDA has at its disposal. Ira Leiderman, Managing Director at Cassel Salpeter and Company, said this emergency use authorization is one of many tools in the FDA’s tool belt. We asked him why, then, the FDA has been using this approach, and why it could be effective for these different forms of COVID-19 treatments.

“The FDA uses the data collected by the developers of the products looking at safety and efficacy from Phase 1 studies and ultimate efficacy from large Phase 3 studies to grant this emergency use authorization which will allow these companies to sell the products and at the same time allow them to continue collecting data and continue their filing process to get full product licensure,” said Leiderman. “This is not a cutback in quality, it is just the stop gap measure that is one of the tools the FDA has to expedite approval of products that are important and in need for public health purposes.”

At first glance it sounds like steps are being skipped when authorizing “emergency use,” but Dr. Wasan said the benefit risk analysis is heavily weighed. According to Dr. Wasan, all COVID treatments have had a limited number of patients because of the urgency of the decision, but as more data comes in, how the pill is prescribed could change. This limited data was one of the concerns in the Molnupiravir approval process which saw the FDA vote 13-10 in it’s initial recommendation.

“The initial data looked really great, it looked like it was really safe and that it seemed to have significant efficacy, but as they started to get more and more patients, they found that the efficacy actually started to go down and there were safety concerns,” said Dr. Wasan.

Moving forward Dr. Wasan can envision other cases where developers utilize already developed drugs and then modify them like they did for the COVID-19 pill as well as start the conversation with the FDA about the drug approval process before they present it to them.

 

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Miami software firm EveryMundo sold to a Houston services provider

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By Lauren Lamb

Week of Thursday December 21, 2021

Miami-based software company EveryMundo has been bought for $80 million in cash and $10 million based on future stock by PROS Holdings, a software service provider.

“There is a strong cultural fit between EveryMundo and PROS,” said the deal’s broker, Chairman and co-founder of Cassel Salpeter & Co. James Cassel. EveryMundo focuses on landing pages for airlines so they are not outdone by commercial vendors like PriceLine or Travelocity.

“With some businesses, you watch deals fall apart,” Mr. Cassel said. “Not because they’re right or wrong, but just because they have different cultures.”

Mr. Cassel’s son, Seth Cassel, is co-founder and president of EveryMundo. “Today is a monumental day for our team and a next step in our quest to disrupt industry paradigms hindering market growth and opportunity for airlines and B2B organizations,” Seth Cassel said in a press release.

“Airlines want people to engage through their websites instead of using online travel agencies (OTA). The airline gives information about what they are selling directly, for example a deal on a flight to Denver, that the consumer will miss using an OTA,” said James Cassel. The PROS platform includes assets like airline revenue management software, airline digital retail and group sales optimization.

EveryMundo and PROS are a good cultural fit because they spent the time to get to know one another according to James Cassel. “What was important to PROS and EveryMundo was getting to understand how they view technology business but also how they interact with their colleagues and how their business is managed.”

Seth Cassel visited PROS’ headquarters in Houston and members from PROS visited Miami before a deal was made. “The businesses spent time up front to discuss their common vision and common approach. The first goal is to go deeper within one another’s products and see what’s available,” said James Cassel. “The first thing to do in any business situation is look for the low-hanging fruit and be collaborative. They can introduce one another to people who aren’t overlapping and combine them.”

Over the past year, EveryMundo has almost doubled in size. Said James Cassel, “Airlines need more marketing and technology that PROS will help provide.”

 

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