TheChek News Flow

While funding to AI-related startups remains strong, with nearly $30 billion raised so far this year alone, there are indicators that some of the earliest-stage investors are getting some AI fatigue.

Deal-making volume seems to be slowing in the second quarter — with just a couple of weeks left — compared to other recent quarters, when investors’ appetite showed little to no limits for the all-encompassing technology.

According to Crunchbase data, the number of funding deals is on pace to reach only about 900 this quarter — a seemingly significant drop from the 1,052 last quarter and a decline of nearly 30% from the same quarter last year.

Not surprisingly, it is the earliest funding rounds — angel, seed and early stage — at the root of the deal-making slowdown.

The good news for AI startups is that the dollar amount is up. The second quarter already is pacing to be one of the highest-dollar quarters since early 2022 with more than $16 billion already raised.

That is due in part to some huge rounds. Five raises hit $1 billion or more this quarter — including those by xAI (the biggest one), CoreWeave, Xaira Therapeutics and Scale AI.

However, deal volume is seemingly dropping — and that starts in the earliest rounds. Although it is difficult for seed rounds to make a dramatic shift in total dollars of any sector, it is the most likely to show changes in deal flow since it is the largest category by volume of deals.

Only 423 seed/angel rounds were announced through the first week of June, putting it on pace for likely just more than 600 funding rounds. That will be a steep decline from the 779 deals announced last quarter and likely a drop of about a third from Q2 last year.

The dollar amount also is on pace to be down, but again — with seed and angel rounds being small by their very nature — it isn’t a pronounced drop to the overall total of funding AI startups receive.

Total dollar amount for the quarter seems likely to hit between $1.3 billion and $1.4 billion, just a tick below the $1.6 billion in Q1 and the $1.5 billion in Q2 2023.

The number of early-stage deals also slowed. While the quarter is on pace for a similar amount of deals compared to Q1, that is still more than a 15% decline from Q2 last year.

The somewhat good news for early-stage funding is that the dollar amount is up. Already $9.8 billion has been raised in early-stage deals, compared to the $6.4 billion last quarter or the $4.7 billion raised in Q2 last year.

However, even that comes with a large caveat; that difference is mainly due to one round. xAI’s $6 billion round — with investment from the likes of Valor Equity Partners, Andreessen Horowitz and Sequoia Capital — greatly skews the early-stage funding numbers, making up nearly 60% of the total.

To be honest, it likely is too early to tell if the deal volume slowdown means anything quite yet.

It could mean some investors are becoming less willing to back the youngest AI startups and instead are willing to invest in bigger rounds for somewhat more proven companies even if the valuations are significantly higher.

In addition, since seed and growth-stage investor mindsets are often different, perhaps AI fatigue is setting in among early investors who are tiring of the story and escalating prices.

One thing to keep in mind is that as early-stage volume ticks down, that could mean fewer companies looking for large growth rounds in the next 18 to 24 months, since some may never have received the early funding when they were young to get to later-stage funding.

Nevertheless, the dollar amount is up and investors still seem eager to pour in billions to nearly anything AI related — just perhaps not in the same number of deals as before.

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of June 6, 2024. Companies included in the data fall within Crunchbase’s artificial intelligence industry group tag. Some of the decline in deal counts may be attributable to the tendency for smaller, seed-stage rounds to be added to the Crunchbase dataset several weeks or months after they close.

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Fashion investors and M&A bankers get ready. A lot of brands are going to be on the market over the course of the next few months.

Fashion is in a perfect storm. Global demand is down. MatchesFashion’s collapse is threatening to put dozens of brands out of business. Saks is still delaying payments to brands. China, once the biggest growth engine, has become a tough place for business. This week, Richemont’s Yoox-Net-A-Porter announced that it was pulling out of China and that its joint venture with Alibaba, Feng Mao, was in liquidation.

China used to be seen as an untapped reservoir of demand. Not anymore. Demand for luxury goods having fallen off a cliff, brands are rethinking their strategy. Stella McCartney recently closed all of its boutiques in China, as Miss Tweed reported earlier this month.

And the United States is not doing well either. Business with major luxury brands such as Burberry or Kering’s Gucci and Balenciaga is down since the beginning of the year at many US department stores, industry sources say. Saks.com is committed to paying brands but the online fashion retailer is still delaying payments by several months after securing $60 million of extra liquidity at the end of April. Saks.com operates independently but works closely with Saks Fifth Avenue stores through a series of agreements. Both businesses are under the umbrella of Hudson’s Bay Co.

Rival online fashion retailer Moda Operandi has also been looking for extra funding since the beginning of the year and is understood to be close to reaching a deal, industry sources say. Based in New York, Moda Operandi sells designer clothes and many small fashion brands. It has burned through hundreds of millions of dollars in the past five years and it’s still searching for a path towards profitability.

YOOX-Net-A-Porter (YNAP) is also looking for buyers. Richemont is hopeful of clinching a deal before the end of the year even though most major private equity firms have walked away after seeing the amount cash YNAP continues to burn, estimated to be more than €300 million a year, as Miss Tweed reported last month.

“This is the longest downturn we’ve seen in years,” one manager of a US-based wholesale business said. “We don’t know how long it’s going to last but we all hope that things should improve towards the back end of the second half.”

Online fashion retailers have been hit by the double whammy of low consumer demand and brands becoming direct competitors, focusing on growing their own e-commerce businesses. Fashion and luxury brands have been squeezing the margins they give third-party retailers, keeping their best-sellers for their own websites and boutiques. A significant number of mega brands have been ending ties with online and bricks-and-mortar wholesalers altogether to better control image and price.

Second-hand retailer Vestiaire Collective is also not doing great, market sources say. The company is finding it tough to convince enough people to sell their clothes, handbags and shoes to cover its high operating costs. Most affluent shoppers are not that keen on selling their belongings over the Internet, it turns out. The second-hand market is here to stay but it’s not an easy business to be in.

YNAP and Farfetch, which was bought in a distressed sale by South Korea’s Coupang in December, officially say that they are doing their best to pay for stock within the agreed timeframe, around 45 days. However, some brands have complained about delays.

“Farfetch is fully committed to brands and boutiques and understands the importance of cash flow for their business,” a spokesman for Farfetch told Miss Tweed. “Through our longstanding Farfetch Capital program, they even have the option to access their monthly net proceeds early should they wish to do so.” YNAP and Richemont never reply to Miss Tweed’s emails.

Brands should be happy to get any money at all. At MatchesFashion, they get zero. More than 500 fashion and luxury brands have been told that they were unlikely to get any money for the products they shipped to Matches before the online distributor went into administration in early March. The amounts represent paltry sums for big labels such as Burberry, Gucci and Prada, but for hundreds of much smaller brands it’s a huge hit. Many are getting ready to find new investors and take out loans to survive, industry sources say. They are preparing their data sheets and prospectuses for potential investors and will be marketing themselves starting this summer, industry sources predict.

Some brands have already gone under. Last month, The Vampire’s Wife, known for its Gothic romantic dresses, ceased trading. The brand said the “upheaval in the wholesale market” was to blame, but Matches’ administration must have contributed to the brand’s financial problems.

Designer Roksanda Ilincic found a white knight in retail entrepreneur Damian Hopkins, who purchased the fashion label she founded in 2005. Roksanda’s financial woes stemmed not only from Matches’ non-payment but also from having to pay rent arrears that it had accumulated since the pandemic. Just before the deal was signed with Hopkins, Ilincic had filed a notice of intent to appoint an administrator.

A few weeks ago, designer Roksanda Ilincic found a white knight in retail entrepreneur Damian Hopkins, who purchased the fashion label she founded in 2005. Roksanda’s financial woes stemmed not only from Matches’ non-payment but also from having to pay rent arrears that it had accumulated since the pandemic. Just before the deal was signed with Hopkins, Ilincic had filed a notice of intent to appoint an administrator.

Matches owes brands a total of £36 million, according to documents provided by Teneo, the administrators appointed to manage the business and recover the funds it is planning to receive from selling the stock online and property. Well-known independent labels such as Anya Hindmarch, Self-Portrait, Frame Denim and Joseph have unpaid bills totaling several hundreds of thousands of pounds. Totem, for example, is owed nearly £1 million, Teneo’s documents dated mid-April show.

Miss Tweed wrote to all these brands and others high on the list of Matches creditors. None of them replied. They may be concerned that if they admit they are in trouble, retailers might demand harsher payment terms. “I have tried to talk to other brands like mine that tried to get their stock and their money back from Matches, but they are closing up because they are afraid of the consequences I think,” the CEO of one medium-size brand told Miss Tweed on condition of anonymity. Brands have been told that they are likely to get less than a penny back for every pound owed and that the outcome depends more on the sale of Matches’ property assets than on the sell-through of their stock.

The British Fashion Council (BFC) is trying to come up with solutions to help British brands affected by Matches’ collapse. For some labels, 20-30 percent of their revenue came from doing business with Matches, according to industry sources working with the online fashion retailer. The BFC is talking to several financial institutions and is proposing to raise money from philanthropists and foundations to help them support smaller brands with either low-cost loans or, if brands prefer, equity investment. But the process is taking a lot of time – which brands don’t have.

“We are concerned that many brands are going to face serious financial difficulties,” a spokesperson on behalf of the BFC told Miss Tweed. “At a time of numerous challenges within the UK fashion and retail market, particularly in light of recent high-profile failures within the luxury e-commerce markets, the British Fashion Council is working hard to ensure that UK designers are provided with best-in-class business guidance and support, both directly from the BFC and also from our partner professional advisors, whilst continuing to seek innovative financial solutions.”

The BFC has also been working on trying to find outlets and locations to help brands sell their stock if they are able to reclaim it from Matches at the end of the administration period. They now have a clearer understanding of which brands are likely to see stock returned from Matches and are in talks with several organizations to help brands find routes to monetize the reclaimed stock. Value Retail, the company that runs outlets such as Bicester Village outside London and La Vallée Village near Paris, has been approached to help brands sell their stock. For the moment, nothing has been decided, sources close to the matter say.

According to Teneo, some 190 brands have made retention-of-title claims on stock worth £22.8 million, but as of mid-April it had accepted those titles for only around 15 percent of that amount, or £3.4 million. It’s not clear whether more brands have obtained the right to get their stock back in recent weeks.

What is clear is that, since Matches continues to trade and sell stock, money is being raised, but it will go first into the pockets of Frasers Group. The group is a secured creditor since it owns the company’s debt, and as such it comes before the brands in terms of access to cash.

Frasers Group, which bought Matches in December, last month acquired the intellectual property assets of Matches, including its company name, trademark and database. The move would allow it to relaunch the business on a new platform at a later stage. Financial details of the transaction were not disclosed, and Frasers did not wish to reply to any of Miss Tweed’s questions.

Frasers Group is controlled by founder Mike Ashley, one of Britain’s most colorful and controversial businessmen. Ashley has been on a buying spree in recent years, cornering the sports goods retail market under his Sports Direct retail chain and buying stakes in many different retailers. Frasers Group also owns the fashion luxury multi-brand Flannels and, since 2022, the prestigious Savile Row tailor Gieves & Hawkes. Ashley also has a 36 percent stake in British leather goods brand Mulberry.

Some industry sources think that Frasers may have struck some deals with big brands since it continues to sell their stock via the group’s Flannels retail chain and online platform. It may be able to convince them to work with the new MatchesFashion when it relaunches the retailer – if it does at some point, as industry insiders expect. “Some brands will refuse to talk to Matches after what happened, but others will have no choice but to agree to work with them because they need to sell their stock,” a source close to Matches said.

Golden Goose Tests Investors’ Trend Forecasting Chops

The footwear brand is hoping for a $2 billion market capitalisation with its initial public offering, which means selling the market on distressed sneakers being more than a fad.

Golden Goose, which is expected to start trading on the Milan bourse on Friday, has the benefit of learning from its predecessors’ mistakes. Demand was strong for the company’s shares last week, but only after it priced them at €9.50 to €10.50 apiece, implying a roughly $2 billion valuation. Earlier this year, top shareholder Permira had reportedly been angling for north of $3 billion.

More importantly, the brand is setting itself up to be more than a one-hit wonder – or, as brands from Levi’s to Moncler have done, keep customers hooked by endlessly iterating on the hero product. Luxury sneakers are a crowded category, and demand is uncertain amid a broader downturn in high-end fashion. But expensive sneakers mostly exist as extensions of luxury brands; they might occupy a few tables in a Gucci store, or share a wall with the rest of the footwear range at Louis Vuitton. At Golden Goose’s 200 locations, they’re the main attraction. Golden Goose is leveraging this advantage with in-store customisations such as graffiti or hand distressing, the sort of flourishes that encourage repeat visits and can’t easily be duped.

Golden Goose is also ramping up its marketing efforts – pitching itself as a “cultural brand” like Louis Vuitton or Moncler. Collaborations and performances with Native American activist Quannah Chasinghorse, architect Fabio Novembre and K-pop musician Sunmi could help forge connections with niche communities and tell stories about something other than shoes. That will also reduce the brand’s reliance on mainstream stars like Taylor Swift choosing to lace up a pair of distressed sneakers to drive hype.

So far Golden Goose’s strategy has propelled a brand many dismissed as a flash in the pan to a €500 million a year business. The question now is whether customers will come back for a second pair. The brand says it has a healthy number of repeat purchases, but the key to long-term success is whether this formula will work in new markets, and new products, such as handbags.

This week was an exciting one for the AI community, as Apple joined Google, OpenAI, Anthropic, Meta and others in the long-running competition to find an icon that even remotely suggests AI to users. And like everyone else, Apple has punted.

Apple Intelligence is represented by a circular shape made up of seven loops. Or is it a circle with a lopsided infinity symbol inside? No, that’s New Siri, powered by Apple Intelligence. Or is New Siri when your phone glows around the edges? Yes.

The thing is, no one knows what AI looks like, or even what it is supposed to look like. It does everything but looks like nothing. Yet it needs to be represented in user interfaces so people know they’re interacting with a machine learning model and not just plain old searching, submitting, or whatever else.

Although approaches differ to branding this purportedly all-seeing, all-knowing, all-doing intelligence, they have coalesced around the idea that the avatar of AI should be non-threatening, abstract, but relatively simple and non-anthropomorphic. (They seem to have rejected my suggestion that these models always speak in rhyme.)

Early AI icons were sometimes little robots, wizard hats or magic wands: novelties. But the implication of the first is one of inhumanity, rigidity and limitation — robots don’t know things, they aren’t personal to you, they perform predefined, automated tasks. And magic wands and the like suggest irrational invention, the inexplicable, the mysterious — perhaps fine for an image generator or creative sounding board, but not for the kind of factual, reliable answers these companies want you to believe AI provides.

Corporate logo design is generally a strange concoction of strong vision, commercial necessity and compromise-by-committee. And you can see these influences at work in the logos pictured here.

The strongest vision goes, for better or worse, to OpenAI’s black dot. A cold, featureless hole that you throw your query into, it’s a bit like a wishing well or Echo’s cave.

Biggest committee energy goes, unsurprisingly, to Microsoft, whose Copilot logo is effectively indescribable.

But notice how four of the six (five of seven if you count Apple twice, and why shouldn’t we) use pleasant candy colors: colors that mean nothing but are cheery and approachable, leaning toward the feminine (as such things are considered in design language) or even the childlike. Soft gradients into pink, purple and turquoise; pastels, not hard colors; four are soft, never-ending shapes; Perplexity and Google have sharp edges, but the former suggests an endless book while the latter is a happy, symmetrical star with welcoming concavities. Some also animate in use, creating the impression of life and responsivity (and draw the eye, so you can’t ignore it — looking at you, Meta).

Overall, the impression intended is one of friendliness, openness and undefined potential — as opposed to aspects like, for example, expertise, efficiency, decisiveness or creativity.

Think I’m overanalyzing? How many pages do you think the design treatment documents ran for each of these logos — over or under 20 pages? My money would be on the former. Companies obsess over these things. (Yet somehow miss a hate symbol dead center, or create an inexplicably sexual vibe.)

The point, however, is not that corporate design teams do what they do, but that no one has managed to hit on a visual concept that unambiguously says “AI” to the user. At best these colorful shapes communicate a negative concept: that this interface is not email, not a search engine, not a note app.

Email logos often figure as an envelope because they are (obviously) electronic mail, both conceptually and practically. A more general “send” icon for messages is pointed, sometimes divided, like a paper plane, indicating a document in motion. Settings use a gear or wrench, suggesting tinkering with an engine or machine. These concepts apply across languages and (to some extent) generations.

Not every icon can allude so clearly to its corresponding function. How does one indicate “download,” for instance, when the word differs between cultures? In France, one telécharges, which makes sense but isn’t really “download.” Yet we have arrived at a downward-pointing arrow, sometimes touching down on a surface. Load down. Same with cloud computing — we adopted the cloud despite it being, essentially, a marketing term for “a big datacenter somewhere.” But what was the alternative, a tiny datacenter button?

AI is still new to consumers who are being asked to use it in place of “other things,” a highly general category that purveyors of AI products are loath to define, since to do so would imply that there are some things AI can do and some it can’t. They are not ready to admit this: The whole fiction depends on AI being able to do anything in theory, it being but a matter of engineering and compute to achieve it.

In other words, to paraphrase Steinbeck: Every AI considers itself as a temporarily embarrassed AGI. (Or I should say, is considered by its marketing department, since AI itself, as pattern generator, considers nothing.)

This week was an exciting one for the AI community, as Apple joined Google, OpenAI, Anthropic, Meta and others in the long-running competition to find an icon that even remotely suggests AI to users. And like everyone else, Apple has punted.

Apple Intelligence is represented by a circular shape made up of seven loops. Or is it a circle with a lopsided infinity symbol inside? No, that’s New Siri, powered by Apple Intelligence. Or is New Siri when your phone glows around the edges? Yes.

The thing is, no one knows what AI looks like, or even what it is supposed to look like. It does everything but looks like nothing. Yet it needs to be represented in user interfaces so people know they’re interacting with a machine learning model and not just plain old searching, submitting, or whatever else.

Although approaches differ to branding this purportedly all-seeing, all-knowing, all-doing intelligence, they have coalesced around the idea that the avatar of AI should be non-threatening, abstract, but relatively simple and non-anthropomorphic. (They seem to have rejected my suggestion that these models always speak in rhyme.)

Early AI icons were sometimes little robots, wizard hats or magic wands: novelties. But the implication of the first is one of inhumanity, rigidity and limitation — robots don’t know things, they aren’t personal to you, they perform predefined, automated tasks. And magic wands and the like suggest irrational invention, the inexplicable, the mysterious — perhaps fine for an image generator or creative sounding board, but not for the kind of factual, reliable answers these companies want you to believe AI provides.

Corporate logo design is generally a strange concoction of strong vision, commercial necessity and compromise-by-committee. And you can see these influences at work in the logos pictured here.

The strongest vision goes, for better or worse, to OpenAI’s black dot. A cold, featureless hole that you throw your query into, it’s a bit like a wishing well or Echo’s cave.

Image Credits: OpenAI/Microsoft

Biggest committee energy goes, unsurprisingly, to Microsoft, whose Copilot logo is effectively indescribable.

But notice how four of the six (five of seven if you count Apple twice, and why shouldn’t we) use pleasant candy colors: colors that mean nothing but are cheery and approachable, leaning toward the feminine (as such things are considered in design language) or even the childlike. Soft gradients into pink, purple and turquoise; pastels, not hard colors; four are soft, never-ending shapes; Perplexity and Google have sharp edges, but the former suggests an endless book while the latter is a happy, symmetrical star with welcoming concavities. Some also animate in use, creating the impression of life and responsivity (and draw the eye, so you can’t ignore it — looking at you, Meta).

Overall, the impression intended is one of friendliness, openness and undefined potential — as opposed to aspects like, for example, expertise, efficiency, decisiveness or creativity.

Think I’m overanalyzing? How many pages do you think the design treatment documents ran for each of these logos — over or under 20 pages? My money would be on the former. Companies obsess over these things. (Yet somehow miss a hate symbol dead center, or create an inexplicably sexual vibe.)

The point, however, is not that corporate design teams do what they do, but that no one has managed to hit on a visual concept that unambiguously says “AI” to the user. At best these colorful shapes communicate a negative concept: that this interface is not email, not a search engine, not a note app.

Email logos often figure as an envelope because they are (obviously) electronic mail, both conceptually and practically. A more general “send” icon for messages is pointed, sometimes divided, like a paper plane, indicating a document in motion. Settings use a gear or wrench, suggesting tinkering with an engine or machine. These concepts apply across languages and (to some extent) generations.

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Not every icon can allude so clearly to its corresponding function. How does one indicate “download,” for instance, when the word differs between cultures? In France, one telécharges, which makes sense but isn’t really “download.” Yet we have arrived at a downward-pointing arrow, sometimes touching down on a surface. Load down. Same with cloud computing — we adopted the cloud despite it being, essentially, a marketing term for “a big datacenter somewhere.” But what was the alternative, a tiny datacenter button?

AI is still new to consumers who are being asked to use it in place of “other things,” a highly general category that purveyors of AI products are loath to define, since to do so would imply that there are some things AI can do and some it can’t. They are not ready to admit this: The whole fiction depends on AI being able to do anything in theory, it being but a matter of engineering and compute to achieve it.

In other words, to paraphrase Steinbeck: Every AI considers itself as a temporarily embarrassed AGI. (Or I should say, is considered by its marketing department, since AI itself, as pattern generator, considers nothing.)

In the meantime, these companies must still call it by a name and give it a “face” — though it is telling, and refreshing, that no one actually chose a face. But even here they are at the whim of consumers, who ignore GPT version numbers as an oddity, preferring to say ChatGPT; who can’t make the connection with “Bard” but acquiesce to the focus-tested “Gemini”; who never wanted to Bing things (and certainly not talk to the thing) but don’t mind having a Copilot.

Apple, for its part, has taken the shotgun approach: You ask Siri to query Apple Intelligence (two different logos), which occurs within your Private Cloud Compute (unrelated to iCloud), or perhaps even forward your request to ChatGPT (no logo permitted), and your best clue that an AI is listening to what you’re saying is … swirling colors, somewhere or everywhere on the screen.

Until AI is itself a bit better defined, we can expect icons and logos representing it to continue to be vague, unthreatening, abstract shapes. A colorful, ever-shifting blob wouldn’t take your job, would it?

Decision by judicial authorities is latest setback for investigation into claims of corruption in European parliament

Belgium will not charge the Moroccan suspects linked to the European parliament’s Qatargate corruption scandal, marking the latest setback for the drawn-out investigation.

Belgian authorities earlier this year informed Morocco that two of the north African country’s citizens were suspected of bribing EU lawmakers, but the federal prosecutor’s office in Brussels said on Sunday it would not pursue them, leaving any further action against the Moroccans in the hands of authorities in their home country.

Belgium’s probe into EU lawmakers suspected of receiving bribes from Qatar and Morocco, which began in 2022, was seen as one of the biggest to hit the European parliament but has faced difficulties after investigators faced accusations of conflicts of interest and a judicial review.

Belgium, in April, issued an order informing Moroccan authorities that they suspected the individuals of corruption, money laundering and participating in a criminal organisation.

One of the suspects is Abderrahim Atmoun, a Moroccan diplomat who allegedly bribed former MEP Pier Antonio Panzeri, according to leaked security service reports that triggered the investigation. According to Belgian media reports, Atmoun was questioned in Morocco in December last year.

The Moroccan embassy in Brussels did not immediately reply to a request for comment. Morocco’s government has previously denied any wrongdoing in the case.

However Panzeri, the key suspect in the case, has admitted taking at least €2mn in bribes from Qatar and Morocco in exchange for political favours and friendly EU resolutions towards both countries.

The prosecutor’s office said a decision had not yet been made on whether to charge Qatari suspects in the case. It is unclear how many people this would concern. The Qatari government has denied bribing European lawmakers and their associates.

Brussels police raided a series of offices in the European parliament in December 2022, seizing €1.5mn in cash and arresting Panzeri and several sitting MEPs. Those held included Eva Kaili, a Greek MEP who had previously served as vice-president of the parliament, and Francesco Giorgi, her partner, who was not an MEP but had formerly been Panzeri’s assistant.

Kaili denies any wrongdoing, while Giorgi has admitted involvement in the case, reportedly confessing that he was part of an organisation used by Qatar and Morocco to influence EU policy.

The suspects were accused of corruption, money laundering and participation in an organised criminal group, but no one has so far been formally charged, while a judicial review is delaying a potential trial.

Kaili and several other suspects triggered the judicial review over concerns of the legality of using some of the evidence. Its outcome is still pending.

The investigating judge in charge of the case, Aurélie Dejaiffe, was suspended in March after one of the suspects asked for her to be removed. Another judge has taken over temporarily until a decision is made on her status.

That was not the first time the lead investigator in the case, who is in charge of ordering wiretaps and arrests, was replaced: Dejaiffe took over the case from Michel Claise, who stepped down last year over claims of a conflict of interest after it became public that his son was in business with the son of a close associate of one of the suspects.

The prosecutor at the time said that Claise stepped down “as a matter of caution”, but said there was a lack of “effective elements” that would call into question the investigation.

The federal prosecutor in charge of the case, Raphaël Malagnini, also resigned in October last year to take up another job.

Police investigating the case also faced questions after Giorgi published a secret recording of a conversation with a senior police officer involved in the case, who visited him at home last year and complained that prosecutors and judges in Belgium served a political agenda. 

Critics say the U.K.’s largest water utility, Thames Water, loaded up on debt to pay investors dividends while failing to upgrade London’s Victorian-era sewers

LONDON—On a spring day this year, spectators gathered on the banks of the River Thames to watch Oxford and Cambridge universities compete in the annual Boat Race.

Rowers were urged to avoid coming into contact with the water, which had earlier tested with high levels of E. coli. The Cambridge men shunned the traditional victory celebration of throwing their coxswain into the water, with their coach instead promising to find a bucket of clean, sanitized water to douse him.

“It would have been ideal not to have so much poo in the water,” one rower told the BBC after the race.

The cause of the River Thames’ foul water is rooted in London’s Victorian-era sewers and the failure of one of the world’s largest experiments in private-sector water investment.

Thames Water, England’s biggest water company and the steward of its most famous river, is on the verge of financial disaster. The utility’s parent company, controlled by an array of sovereign wealth and pension funds, defaulted on its debt in April. Investors worry more of its roughly £18 billion in overall debt, equivalent to around $23 billion, could be at risk of losses even though much is meant to be secured against the water company’s assets.

What was meant to be a supersafe investment in a business that has a natural monopoly, has turned into a financial debacle, pushed further into crisis by the increase in interest rates. Thames Water’s troubles have cast a shadow over infrastructure investment, an area fashionable among risk-averse, long-term investors.

Environmental critics say Thames Water loaded up on debt to pay investors dividends while failing to upgrade London’s sewer system, which has spilled the equivalent of at least 34,000 Olympic swimming pools of raw sewage into the river since 2020.

Near central London, a matted mountain of wet wipes and sanitary products that washed into the river along with sewage has been dubbed “Wet Wipe Island.” On a recent day, a dog gleefully rolled around in the detritus.

Thames Water has become a political lightning rod in the U.K.’s July 4 election, where polling suggests the Labour Party will push Prime Minister Rishi Sunak’s Conservatives from power. In its election manifesto, Labour said it would give regulators power to block water executive bonuses, impose severe fines and bring criminal charges against serial polluters.

How a new government deals with Thames Water’s debt will be watched around the world as countries wrestle with the rising role of private finance in the business of purveying water.

Most water-and-sewerage systems in the U.S. are still publicly owned, though cash-strapped local governments have in recent years turned to players such as French utility Veolia Environnement and publicly traded American Water to operate their networks.

Dieter Helm, a University of Oxford professor who studies privatization, says part of the blame for the U.K.’s water problems rests with the government regulator, Ofwat, which failed to balance the competing interests of investors, who sought profits, and consumers, who wanted low bills and good service.

“People think this is a problem of privatization, that capitalism has failed,” said Helm. “The right lesson is not that we need to nationalize stuff. It’s that we need to regulate it properly.”

Ofwat said it closely monitors companies’ financial health and has new powers to intervene if dividends don’t match environmental performance or service to customers.

A spokesperson for Thames Water said the company is committed to stopping sewage spills and noted the opening of a long-awaited sewage tunnel next year that is expected to drastically reduce spills in the river.

Private water

Prime Minister Margaret Thatcher privatized Thames Water and nine other regional water-and-sewer authorities in 1989. They were listed on the London Stock Exchange with £1.5 billion in cash shared among them and all debts erased.

The companies needed money to upgrade long-neglected infrastructure and meet new European water-quality rules.

There were initially big improvements, said Roger Wood, who worked as an infrastructure and utilities banker in the U.K. at the time. Investment in the industry nearly doubled to £6.3 billion a year in the decade following privatization, according to government data adjusted for inflation.

But in the 2000s, Wood said private owners shifted focus to boosting shareholder returns.

Australian infrastructure giant Macquarie Group’s asset-management arm pulled together a consortium to take over Thames Water in a leveraged buyout in 2006. Under Macquarie’s ownership, the company’s corporate structure grew more opaque and more indebted, with eight entities under a parent company named Kemble Water.

Much of the debt was issued by the operating company, which is required to hold an investment-grade credit rating, and is secured against its assets. But the subsidiaries were used to issue lower-graded debt. Kemble then used the proceeds to invest in the water business and pay down money it borrowed for the acquisition. Using subsidiaries got around government rules that limit debt at the operating company.

Debt for dividends

Debt was an attractive source of funding in the era of low interest rates, and juiced dividends to shareholders, according to University of Greenwich visiting professor David Hall.

U.K. water-and-sewerage companies have paid an inflation-adjusted £73 billion in dividends since 1990, according to his research. At the same time, the industry’s net debt reached £61 billion last year.

Macquarie said last summer in a report in response to criticism of its ownership that it earned an average annual return of between 12% and 13% in the period it owned Thames Water. Those returns are standard for the industry, said Macquarie. It pointed to improvements under its ownership, such as a 22% decline in leaks.

Industry groups and investors place the blame for Thames Water’s decline on the regulator for emphasizing low customer bills. Water bills have fallen 13% over the past decade when adjusted for inflation, according to industry group Water UK, though they are up nearly 50% since privatization.

By the time Macquarie sold its stake in 2017 to a consortium led by the Canadian pension fund Omers, Thames Water’s debt had swelled to £11 billion from £3.2 billion. Other shareholders include the sovereign-wealth funds of the United Arab Emirates and China, along with the Universities Superannuation Scheme, the U.K.’s largest private pension fund.

Shareholders haven’t taken money out of the business since 2017, though Thames Water continued to send money to its parent entity to pay debt. Over the past five years, the company’s capital spending totaled £5.8 billion, according to Moody’s Investors’ Services. Its interest costs, meanwhile, swelled to £3.8 billion, though some of that isn’t owed to investors until the debt matures.

Sprung a leak

The postpandemic surge in inflation and interest rates rocked Thames Water. The company hadn’t locked in its borrowing costs when rates were low and more than half of its debt was linked to an index of inflation.

At the same time, the lack of investment in the face of strong population growth began to show up in the U.K.’s water quality. Victorian-era sewers handle both sewage and rainfall. Heavy rains, made more common by climate change, cause frequent overflows, spilling sewage into rivers and beaches.

In March, the sovereign wealth and pension funds that control Thames Water reneged on an earlier plan to give the company £750 million after learning regulators weren’t likely to approve their proposal to increase customer bills by 40%. Ofwat is expected to deliver its formal assessment of the company’s plan after the election.

Thames Water said it had £2.4 billion in cash at the end of February, enough to keep the business going through next May. Without new equity, however, the government could begin insolvency proceedings. It would be restructured and sold on to new owners, though some question who would be interested.

“Water is the most natural of monopolies, and should be at the lowest end of the risk spectrum,” said Wood, the infrastructure banker. “You have to screw up quite badly to put a regulated water company on the brink of special administration.”

Omers in May wrote the value of its 31.8% stake down to zero. Its chief executive, Blake Hutcheson, has played down the impact it will have on its 600,000-plus members.

“It is a fraction of 1% of your portfolio,” Hutcheson said at the fund’s annual meeting. “It’ll affect the returns in a very, very insubstantial way, like a few dips maybe.”

Meanwhile, polluted water has become a fact of life across the U.K. Marlene Lawrence runs a London swim group and has noticed the water getting worse. She doesn’t put her head below the surface. Once, she found a piece of building insulation in her bathing suit. But she remains undeterred.

“Until we see dead fish, I will keep swimming in the Thames,” she said.

Rise in market share highlights difficulty of weaning the region off Russian energy

Europe’s gas imports from Russia overtook supplies from the US for the first time in almost two years in May, despite the region’s efforts to wean itself off Russian fossil fuels since the full scale invasion of Ukraine.

While one-off factors drove the reversal, it highlights the difficulty of further reducing Europe’s dependence on gas from Russia, with several eastern European countries still relying on imports from their neighbour.

“It’s striking to see the market share of Russian gas and [liquefied natural gas] inch higher in Europe after all we have been through, and all the efforts made to decouple and de-risk energy supply,” said Tom Marzec-Manser, head of gas analytics at consultancy ICIS.

Following Russia’s full-scale invasion of Ukraine in February 2022, Moscow slashed its pipeline gas supplies to Europe and the region stepped up imports of LNG, which is shipped on specialised vessels with the US as a major provider.

The US overtook Russia as a supplier of gas to Europe in September 2022, and has since 2023 accounted for about a fifth of the region’s supply.

But last month, Russian-piped gas and LNG shipments accounted for 15 per cent of total supply to the EU, UK, Switzerland, Serbia, Bosnia and Herzegovina and North Macedonia, according to data from ICIS.

LNG from the US made up 14 per cent of supply to the region, its lowest level since August 2022, the ICIS data showed.

The reversal comes amid a general uptick in European imports of Russian LNG despite several EU countries pushing to impose sanctions on them.

Russia in mid-2022 stopped sending gas through pipelines connecting it to north-west Europe, but continues to provide supplies via pipelines through Ukraine and Turkey.

Flows in May were affected by one-time factors, including an outage at a major US LNG export facility, while Russia sent more gas through Turkey ahead of planned maintenance in June. Demand for gas in Europe also remains relatively weak, with storage levels near record highs for this time of year.

The reversal was “not likely to last”, said Marzec-Manser of ICIS, as Russia would in the summer be able to ship LNG to Asia via its Northern Sea Route. That was likely to reduce the amount sent to Europe, while US LNG production had picked up again, he said.

“Russia has limited flexibility to hold on to this share [in Europe] as demand [for gas] rises into next winter, whereas overall US LNG production is only growing with yet more new capacity coming to the global market by the end of the year,” he added.

The transit agreement between Ukraine and Russia also comes to an end this year, putting at risk flows through the route.

The European Commission is supporting efforts to establish an investment plan to expand the capacity of pipelines in the Southern Gas Corridor between the EU and Azerbaijan.

A senior EU official said supplies through the route were not currently sufficient to replace the 14bn cubic metres of Russian gas that currently flowed through Ukraine to the EU each year.

The EU’s energy commissioner Kadri Simson said she had raised concerns about LNG being diverted from Europe to meet demand in Asia on a trip to Japan this month.

She said Tokyo and Brussels had established an “early warning system” to monitor LNG shortages and had agreed both should pursue energy saving measures.

“The EU is prepared to buffer any negative supply or demand events in global gas markets,” she added. “Our gas storage remains at record high levels [and] our gas demand stabilised at record low levels, down 20 per cent compared with 2021.”

Senior managers accused of receiving millions of euros in kickbacks

Adidas has launched an investigation into allegations of large-scale bribery in China after the world’s second-largest sportswear maker received a whistleblower complaint that accused senior staff of embezzling “millions of euros”, people briefed on the matter told the Financial Times.

The anonymous letter, which claims to have been written by “employees of Adidas China” and was also briefly shared this month on Chinese social media platform Xiaohongshu, names several Chinese Adidas employees including a senior manager involved with Adidas’s marketing budget in the country, which the document said stood at €250mn a year.

The letter alleged that Adidas staff received kickbacks from external service providers who were commissioned by the German group. A second senior Adidas manager, who works in a different division in China, is accused of having received “millions in cash from suppliers, and physical items such as real estate”.

Adidas confirmed that it had received a letter on June 7 alerting it to “potential compliance violations in China”. It said it was “committed to complying with legal and internal regulations and ethical standards in all markets where we operate” and that it was “intensively investigating this matter together with external legal counsel”.

No accused individuals have been placed on leave, according to people familiar with the matter.

Adidas revamped its leadership in China last year after suffering an unprecedented crisis in what until the Covid-19 pandemic was its fastest-growing and highly profitable market.

Sales fell off a cliff between 2019 and 2022 as the brand was hit by drawn-out lockdowns as well as a consumer backlash against western brands over their refusal to buy cotton from the Xinjiang region, where human rights activists say the industry involves forced labour.

The headwinds in China were a core reason for the ousting of Adidas chief executive Kasper Rørsted, who was replaced last year by former Puma boss Bjørn Gulden.

New China CEO Adrian Siu, hired from Chinese lingerie maker Cosmo Lady in 2022, promised to win back “the hearts and minds” of Chinese consumers with patriotic clothing lines, telling the FT last year that the company was “are marrying traditional Chinese elements with international product design”.

Adidas said in March it expected a rebound in China this year, predicting a double-digit sales growth rate after a 37 per cent surge in the fourth quarter of 2023.

One of the senior managers targeted in the whistleblower report was hired by Siu, according to people familiar with the matter.

While the anonymous authors of the letter did not provide hard evidence for their corruption allegations, they appear to be well-informed about highly sensitive and confidential internal issues, according to Adidas insiders.

OpenAI CEO Sam Altman recently told some shareholders that the artificial intelligence developer is considering changing its governance structure to a for-profit business that OpenAI’s nonprofit board doesn’t control, according to a person who heard the comments. One scenario Altman said the board is considering is a for-profit benefit corporation, which rivals such as Anthropic and xAI are using, this person said.

Such a change could open the door to an eventual initial public offering of OpenAI, which currently sports a private valuation of $86 billion, and may give Altman an opportunity to take a stake in the fast-growing company, a move some investors have been pushing.

The restructuring discussions are fluid, and Altman and his fellow directors could ultimately decide to take a different approach.

Altman’s comments were part of longer discussions about overhauling OpenAI’s structure while still maintaining a connection to the original nonprofit he cofounded. For shareholders including Microsoft, which has invested $13 billion in the unit, drama involving the nonprofit board and Altman last fall exposed the current structure’s fragility. The board fired Altman, sparking an employee revolt inside the for-profit unit that ended when Altman was rehired.

Benefit corporations are legally protected from minority shareholders who might otherwise sue the company for making decisions that don’t prioritize shareholder returns. The new entity could also maintain a mission similar to that of the current OpenAI nonprofit—AI for the benefit of humanity—while giving investors a chance to more quickly realize a return on the $14 billion or so in capital they’ve put in.

Even so, some current investors say there is little pressure on the company to go public since it can continue to allow existing employees and others to sell their shares through regular secondary-share offerings, such as those done by SpaceX and Stripe. OpenAI conducted two such offerings for employees over the last year in which they collectively cashed out more than $800 million, said a person with knowledge of the deals.

In a statement, a spokesperson for OpenAI said, “We remain focused on building AI that benefits everyone and as we’ve previously shared we’re working with our board to ensure that we’re best positioned to succeed in our mission.” They added: “The nonprofit is core to our mission and will continue to exist.”

Microsoft Execs Push For-Profit Option

Some senior Microsoft executives involved in the company’s relationship with OpenAI have for years favored converting OpenAI into a full-fledged for-profit. Such a structure could give the software giant more influence over OpenAI in the form of a seat on its board as well as shareholder voting rights, according to one of those executives. A Microsoft spokesperson declined to comment.

In an unusual arrangement, the nonprofit, established in 2015 as a research lab, oversees the for-profit, set up in 2019. The for-profit has promised to pay Microsoft and other investors a share of any profits it generates up to a certain cap that will increase year after year. (Microsoft gets 75% of OpenAI’s profits until the capital investment is paid back, and 49% of subsequent profits up to a certain cap.) No outside investors hold a seat on the nonprofit’s eight-person board, although Microsoft has a nonvoting observer position.

A new structure theoretically could remove profit caps for shareholders. Altman didn’t take equity in OpenAI’s for-profit arm when he started it, as he wished to limit the number of board directors with shares. Now he could end up with a significant equity package. Investors have privately said they prefer that he have such a package so he isn’t as incentivized to focus on other projects and investments in other AI companies.

Such a change in structure could also make it easier for Altman to attract the amount of capital he has said the company might need—up to $100 billion.

The discussions come as the company accelerates its revenue growth. The ChatGPT maker has surpassed $3.4 billion in annualized revenue, a measure of the past month’s revenue multiplied by 12, more than doubling the number from about six months ago.

Aside from Microsoft, the investors who have put money directly into OpenAI include Reid Hoffman's foundation, Khosla Ventures, Y Combinator (which Altman previously ran), Y Combinator partner Paul Buchheit and the University of Michigan. Firms such as Thrive Capital, Sequoia Capital and Founders Fund have purchased shares from earlier investors or employees over the years.

The nonprofit has a stake in the for-profit unit as well. Before Microsoft became an investor, the nonprofit contributed more capital than each of the other shareholders, according to a person with knowledge of the deal.

To end the nonprofit’s control over the new benefit corporation, the nonprofit would likely need to sell at least part of its ownership interest, according to Jonathan Storper, a partner at San Francisco–based law firm Hanson Bridgett who helped draft the California benefit corporation law in 2012.

Finding buyers for the shares isn’t likely to be difficult. Smaller investors have clamored to buy shares in OpenAI and its rivals, often through special purpose vehicles set up to acquire them from existing investors.