TheChek News Flow

Effective April 1, 2023, a new documentary-transfer tax will be imposed on residential and commercial real-property sales and transfers within the City of Los Angeles where the consideration or value is greater than $5 million. The new tax was approved by a ballot initiative entitled Measure ULA (United to House L.A.) in the November 8, 2022 election and is commonly known as the “mansion tax” but is officially called the “Homelessness and Housing Solutions Tax.”

The current documentary-transfer tax in the City of Los Angeles is a combined city and county tax of 0.56% of consideration or value. The new tax, which is in addition to the current transfer tax, is 4.00% of consideration or value if the consideration or value exceeds $5 million and 5.50% of consideration or value if the consideration or value exceeds $10 million. The tax applies to the total consideration or value and not just to the amount in excess of these thresholds. The tax applies regardless of whether the property is sold at a gain or a loss. For example, if a property is sold for $20 million, the total transfer taxes will be $1.212 million ($112,000 for the current transfer tax plus $1.1 million for the new transfer tax). These thresholds are adjusted annually according to the Consumer Price Index. The new law does not specify whether the tax is to be paid by the seller or the buyer, so allocation of the tax is subject to negotiation.

Exemptions from the tax are granted to nonprofit entities, governmental entities, and certain organizations primarily involved in affordable-housing development and property management.

Revenue generated by the new tax is intended to be used to fund affordable housing and tenant assistance programs, including development, construction, acquisition, rehabilitation, and operation of housing. Proponents of the tax project that the tax will generate up to $1 billion.

The City director of finance is authorized to issue rules and regulations necessary to enforce and administer the tax. It is expected that such rules and regulations will cover the applicability of the tax to equity transfers, affiliate transfers, estate-planning transfers, conversions from one type of entity to another, mortgage foreclosures, and deeds in lieu of foreclosure. Under the current tax, equity transfers of 50% or more are subject to the tax, and certain affiliate transfers, estate-planning transfers, conversions, mortgage foreclosures, and deeds in lieu of foreclosure are exempt.

A lawsuit has been filed against the City by the Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles to invalidate the tax as a violation of the California Constitution, which prohibits taxes on real property where the proceeds would be used for specific purposes.

It’s been almost six months since the Glazers said they would explore a sale of Manchester United, the football club owned by the Floridian family since 2005.

Two suitors have emerged so far: UK chemicals billionaire Jim Ratcliffe and Sheikh Jassim, the son of one of Qatar’s richest men. Ratcliffe submitted his second bid — putting a value on the club above £5bn — on Thursday evening.

But supporters are still worried that the Glazers won’t sell up in full, and are instead planning to extend a stay that has been protested from day one. Many are still angry at the amount of debt put on the club to fund the original takeover, as well as fading fortunes on the pitch.

If the Glazers want to remain in charge, they will have plenty of options. A number of US investment firms, including Elliott Management, are keeping a watchful eye on the process in case an opportunity arises.

The Glazer siblings could opt to sell a slice of the business, leaving some of them in control but bringing in new minority shareholders.

They could also seek some new financing, perhaps with a view to investing in the club’s infrastructure. Old Trafford, once the pinnacle of English football stadiums, and the Carrington training ground both need money spent on them. But that sort of funding won’t come cheap, and the club already has sizeable debts.

Another option could be to copy what Real Madrid and Barcelona have done — take in money tied to a particular revenue stream, such as commercial or media rights. Barcelona sold off a chunk of its future TV revenue, generating more than €500mn in cash. Real Madrid received €360mn in return for rights to stage non-football events at its revamped stadium. In both cases, this came from Sixth Street, another US investor keeping close tabs on the Man Utd process.

People close to one of the bidders warned this week that the Glazers might be stringing everyone along to augment their negotiating power as they explore other options that would leave them at the helm of one of the world’s most famous sports teams.

On the other hand, one private investment firm speculated that they were being used to squeeze every penny from Ratcliffe and Sheikh Jassim. Paranoia is everywhere.

United’s New York-listed shares have roughly doubled since the club was put on the block. But there have been a few bumps along the way, and the current enterprise value of roughly $5bn (£4.1bn) remains some way short of Ratcliffe’s latest offer. The market looks positioned for a deal, but has yet to be convinced.

EU will exempt cars which run on certain types of fuel from new law after lobbying from Berlin

Brussels has agreed to exempt cars which run on certain types of fuel from the EU’s new law which will ban the sale of combustion engines from 2035, after Germany threatened to block it.

Frans Timmermans, the EU’s climate commissioner, tweeted on Saturday that the European Commission had “found an agreement” with Berlin over the “future use of e-fuels in cars” after more than three weeks of negotiations to save the law.

E-fuels such as e-methane or e-kerosene are made with captured CO₂ and hydrogen produced from renewable or low-carbon electricity. They are often considered carbon neutral, but the technology is at its early stages.

German transport minister Volker Wissing said: “This clears the way for vehicles with internal combustion engines that run on CO₂-neutral fuels only to be newly registered after 2035.”

Wissing had announced earlier this month that Berlin would block the phaseout of internal combustion engines in the bloc, just days before it was due to have its final rubber-stamp vote. He wanted exemptions for e-fuels to protect Germany’s car industry, he said. 

According to some research, including by automotive supplier association Clepa, the switch to electric cars could cost hundreds of thousands of jobs over the coming decades as electric engines require fewer parts than combustion engines.

On Saturday, Wissing said a path and timetable had been agreed to implement the exception from the new law. A separate category would be added to the law to cover cars that only use e-fuels, he said. “We would like this to be completed by autumn 2024,” he added.

A commission official said that an official announcement would be made on Tuesday, when the planned phaseout is expected to be approved by EU energy ministers.

Green groups and some EU member states, including France, had heavily criticised the German move to give e-fuels an exemption from the new law. Car manufacturers including Volvo and Ford have also attacked the idea, saying that the industry had invested heavily in electric vehicles.

The law was agreed last year between the EU’s three institutions, including the council of member states; it is extremely rare for such deals to be reopened. 

The deal does not require text changes to the new law but will create a new category of e-fuel cars in the future, a commission official said. It is expected that vehicles’ engines would have to be adapted so they could run on e-fuels only and not on fossil fuels.

Julia Poliscanova, director at green lobby group Transport & Environment, said: “E-fuels are an expensive and massively inefficient diversion from the transformation to electric [which is] facing Europe’s carmakers. Europe needs to move forward and give clarity to its automotive industry which is in a race with the US and China.”

She added: “For the sake of Europe’s climate credibility, the 2035 zero-emissions cars deal needs to enter law without any further delay.”

Why Telfar’s New Pricing Model Matters

For its latest apparel collection, the brand will cap prices on items the faster they sell. The idea is to make fashion more accessible — and future inventory easier to plan.

American independent brand Telfar will release a new apparel collection next week and along with it, a novel way of setting prices.

When the assortment of basketball pants, mesh shirts and hoodies hit the virtual shelves Monday, they will be priced at wholesale, typically about half off retail. Every second, the price will go up, Telfar explains on its website, until the piece sells out. That will then become, more or less, the item’s “forever” price. A crewneck sweatshirt could start out at $65 and rise to $260. The highest potential prices listed on Telfar’s website reflect a standard retail markup of about four times the cost of making the garment.

The idea is that the faster an item sells out, the lower its price is the opposite of conventional retail wisdom, which dictates that the cost of an item should rise if demand exceeds supply. The brand itself describes Telfar Live as “a total reversal of the markdown sale structure of the fashion industry… literally a sale in reversal.”

In theory, Telfar may be leaving money on the table; it’s conventional retail wisdom to raise prices on in-demand products for a reason. But there are plenty of potential benefits to the brand.

By assessing the popularity of each style in real time, Telfar will get a clear sense of what its customers want, which will inform future buying decisions. If that crewneck sweatshirt sells out in seconds, Telfar can place a big order with its factory to replenish its stock, likely at a lower manufacturing price. This system also makes it far less likely Telfar will have extra inventory, eliminating waste in the supply chain.

Dynamic pricing could even ultimately boost Telfar’s margins, according to Yasen Dimitrov, co-founder of retail insights service Intelligence Node.

“This is the whole idea of the loss leader [approach] — sacrifice margin on low-cost popular items and make it up with lower velocity, high-margin items,” Dimitrov told BoF in an email. “It is the oldest trick in the marketeer’s pocket.”

Of course, retailers have another way to gauge potential demand and avoid overstock that doesn’t require reinventing the pricing playbook: preorders. Setting aside the economics of Telfar Live, it’s also a clever marketing moment. Most retailers use dynamic pricing to strategically raise prices, ensuring they can extract as much money as possible from their customers.

That’s in keeping with Telfar Clemens’ approach to his brand, which he founded in 2005: that high-quality fashion should be accessible to anyone who wants it.

Telfar’s wildly popular “Bushwick Birkin” retails for the same price today as it did in 2014: $150 for the mini, $257 for the large. In the resale market, the bags frequently command twice that, indicating Telfar could raise prices significantly if it wanted to. Plenty of its competitors have: luxury labels increased their prices 25 percent between 2019 and 2022, according to retail intelligence firm Edited.

Telfar has bucked retail convention in other ways, including eschewing a traditional New York Fashion Week show and launching a streaming app called Telfar TV to keep customers engaged.

These unconventional business decisions also tie into Telfar’s social justice mission; keeping prices low is cast as a statement of political solidarity with the brand’s core consumer.

“[Telfar Live] provides an economic model that corresponds to the nature of black cultural invention — in a market where Black culture moves all culture — but Black people don’t own their shit,” the company said in an online statement about its dynamic pricing model.

Telfar isn’t the first fashion company to use pricing to send a message. Everlane, for one, built its business around the notion of “radical transparency,” with the “true cost” of each item shown on product listings, next to the retail price. The strategy comes with risks: In 2020, current and former employees alleged Everlane fostered a toxic workplace culture at odds with its ethical tagline. Radical transparency also wasn’t enough to keep customers hooked on Everlane’s basics. The brand is now focusing on a much more traditional mission to boost sales: creating differentiated products.

The trajectory of “radical transparency” should serve as a warning to brands that think they can copy and paste Telfar’s dynamic pricing strategy into their own business models. Telfar’s pricing will likely succeed in selling clothes, and at the margins Clemens and Radboy need to grow their business, because the brand is trusted by its large and growing customer base.

The same strategy would come off as gimmicky at a label with less cultural cachet; a fading brand doesn’t need dynamic pricing to know that nobody wants its clothes. And the concept would strike many shoppers as hollow coming from a big chain; Old Navy Live or Macy’s Live doesn’t have the same ring to it. These retailers will need to come up with their own, brand-specific ways to keep their customers engaged.

The Telfar Live experiment runs through April 24. It’s unlikely to change the industry’s dominant thinking when it comes to the right price being as much as consumers will pay. But it may convince more companies to innovate. And it’s a fitting move for Telfar in its mission to democratise fashion.

Rocket Lab has proven that it’s much more than a launch company. One glance at the company’s most recent earnings presentation shows as much: its space systems business, which designs, manufactures and sells satellite components and spacecraft, brought in over 70% of company revenue compared to launch in 2022, at $150.3 million versus $60.7 million, respectively.

The space systems business — whose products include star trackers, reaction wheels, solar power systems, separation systems and more — also saw a massive growth in revenue, increasing by 239% year-over-year. To meet this growing demand, the company further announced last year that it was building out new manufacturing capabilities for reaction wheels, in particular.

The investment is paying off: It appears that Rocket Lab has landed a contract to provide reaction wheels to an unnamed mega constellation customer. The company said as much in a February press release announcing a new 12Nms reaction wheel product, saying that the wheel is “currently planned for flight with an undisclosed large mega constellation customer.”

More recently, Rocket Lab CFO Adam Spice added more color to this statement, revealing that the deal is worth “thousands” of reaction wheels per year.

“We entered into an agreement with a mega constellation where it’s thousands of reaction wheels per year and much bigger reaction wheels,” Spice said at Cowen’s 44th Annual Aerospace/Defense and Industrials Conference in February. “What that allowed us to do is build a dedicated high-volume production facility in New Zealand and we brought the cost down by almost an order of magnitude on those wheels.”

At a Bank of America event this Tuesday, Spice reiterated the enormity of the deal: “We secured a contract with a mega constellation customer where we’ll ship two or three thousand reaction wheels per year to one customer.”

While the company has not publicly disclosed the name of this customer — and declined to comment on the matter to TechCrunch, citing commercial sensitivity — there’s only a handful of known possibilities. Amazon’s Project Kuiper is one likely candidate, and OneWeb’s growing network could plausibly be another. SpaceX has demonstrated that it wants to stay in-house as much as possible for its production stack, however, so Starlink isn’t likely.

In its data sheet on the 12Nms reaction wheel, Rocket Lab lists the base price at $100,000. Of course, on contracts of this size, the price per unit is often discounted (which Spice acknowledged, saying at the Cowen conference that the ASP for the mega constellation reaction wheels “came down quite a bit”), but it suggests a big win for Rocket Lab’s revenues and a possible source for the doubling of the company’s backlog last year: from $241 million at the end of 2021 to $503 million.

Rounds were small this week, with no round crossing the $200 million barrier. One has to wonder if we may be seeing some Silicon Valley Bank fallout, as the bank would help facilitate closing deals by providing a credit facility before VCs would actually collect money from LPs. It is important to remember that a lot of banks will provide that bridge — it’s very low risk for them — but in the immediate aftermath of SVB’s collapse, there could be some deals held up.

1. Gravie, $179M, insurance: Offering good health care benefits can be tough, even for large companies, as medical and health costs continue to spiral out of control. For small and medium-sized businesses, it can be even harder since they have more limited buying power. Employer health benefits startup Gravie is looking to help that market and raised a $179 million equity investment led by General Atlantic to do just that. The Minneapolis-based company plans to use the cash infusion to grow its flagship health plan for SMBs — called Comfort — among other expansion plans. Gravie currently works with more than 1,200 companies nationwide. Founded in 2013, Gravie has raised more than $340 million, according to Crunchbase data.

2. Character.ai, $150M, artificial intelligence: It isn’t a surprise another AI-startup raised a huge sum of cash — it is a surprise an AI startup didn’t lead this week’s list. Nevertheless, Palo Alto, California-based Character.ai is the newest unicorn in the space after closing a $150 million Series A at a $1 billion valuation led by Andreessen Horowitz. The round had been reported earlier this month. The startup allows people to create their own personalized AI chatbot using language models and deep-learning algorithms. The AI-created companions can help users draft emails, serve as a study buddy, brainstorm ideas or a variety of other activities. Character.ai joins the likes of OpenAI, Anthropic and Adept AI as startups in the AI space that have raised large rounds this year.

3. Amogy, $139M, cleantech: Cleantech and climate tech remain big among investors, who this week turned their attention to emission-free ammonia power. Amogy, which is developing just that, closed a $139 million Series B-1 fundraising led by SK Innovation. The new money will allow the Brooklyn-based startup to begin manufacturing its ammonia-to-power tech and bring its first product to market. In January, the company presented an ammonia-powered semitruck and later this year plans to show off a new ammonia-powered, zero-emission tugboat. If all goes right with that sail, the company expects its first commercial offering next year. Founded in 2020, the company has raised more than $200 million, per Crunchbase.

4. Flare Therapeutics, $123M, biotech: If you read Crunchbase News (and why wouldn’t you?), you know about how the “omics,” — genomics, metabolomics, proteomics and transcriptomics — are big right now in drug discovery. In 2021, funding in the area hit $2.5 billion. Last year, even in a downturn, omics startups still raised nearly $2.4 billion, per Crunchbase data. Flare Therapeutics will help push those numbers up this year, as the Cambridge, Massachusetts-based startup raised a $123 million Series B co-led by GordonMD Global Investments and Pfizer Venture Investments. The funding will go to push its clinical trial expected to take place later this year.

5. Artera, $90M, health care: Prostate cancer is a common cancer, especially for men as they get older. The Centers for Disease Control and Prevention estimates about 13 American men out of 100 will get prostate cancer during their lifetime, and about two to three of them will die. San Francisco-based Artera is looking to fight that. The startup uses artificial intelligence for cancer testing and personalized care. It raised a $90 million round to support the distribution of its flagship test for prostate cancer from investors that included Coatue, Johnson & Johnson Innovation, Koch Disruptive Technologies, Walden Catalyst Ventures, Time Ventures, Breyer Capital and The Factory, as well as several angel investors, including Marc Benioff. Founded in 2021, this is Artera’s first outside funding round, per Crunchbase data.

6. Cognito Therapeutics, $73M, biotech: Cambridge, Massachusetts-based Cognito Therapeutics, which is developing therapies to treat central nervous system diseases, closed a $73 million Series B led by FoundersX Ventures. Founded in 2016, Cognito has now raised $93 million, per the company.

7. Rain, $66M, fintech: Los Angeles-based financial wellness tools developer Rain locked up $116 million in funding this week — $66 million in equity and $50 million in debt — led by QED Investors and Invus Opportunities. Founded in 2019, the company has raised nearly $130 million, per Crunchbase.

8. (tied) Adeptia, $65M, data: Chicago-based data integration platform Adeptia raised a $65 million strategic growth investment round led by PSG. Founded in 2000, the company has raised just more than $70 million, per Crunchbase.

8. (tied) Apprentice.io, $65M, biotech: Jersey City, New Jersey-based Apprentice.io, creator of a drug development platform, closed a $65 million investment led by new investor Iconiq Growth. Founded in 2014, Apprentice.io has now raised $207 million, according to the company.

8. (tied) Placemakr, $65M, hospitality: Washington, D.C.-based hospitality startup Placemakr raised a $65 million round of funding from a number of VC investors including Highland Capital Partners. Founded in 2017, Placemakr says it has raised more than $350 million.

• China-based JD MRO, an industrial maintenance, repair and operations firm, raised a $300 million Series B.
• Singapore-based fintech startup Kredivo Holdings closed a $270 million Series D.
• Israel-based social trading and investment network eToro closed a $250 million venture round.

Softbank Again Saves WeWork With Another Recapitalization

With help from SoftBank, WeWork has dodged a financial crisis. WeWork is cutting debt below $2.4 billion, from $3.6 billion, and pushing the bulk of its maturities to 2027, from 2025. WeWork gets more than $1 billion of new funding and capital commitments and “cancels or equitizes” $1.5 billion of debt, including $1 billion held by SoftBank, which will be converted into equity, and $690.5 million in unsecured notes converted into debt and equity.

Piper Sandler analyst Alexander Goldfarb, who has a $5.50 target price on WeWork shares, says 42% of the debt will be converted to stock, 10% gets a haircut, and 48% gets new terms. SoftBank’s stake, he says, will rise to 72% from 57%, though the exact figure depends on the mix of debt and equity non-Softbank debtholders receive.

A person close to SoftBank says the firm isn’t committing new capital to WeWork and won’t consolidate it in its financial reporting by keeping its voting control below 50%. As Goldfarb notes, the deal avoids bankruptcy. But stockholders will be diluted; he estimates that WeWork’s share count will more than double. The shares, down 44% in 2023, fell 18.2% on the week.