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Funding for Black entrepreneurs in the U.S. hit nearly $1.8 billion in the first half of 2021 — a fourfold increase from the previous year. But most venture-backed startups are “still overwhelmingly white, male, Ivy-League-educated and based in Silicon Valley,” according to a study conducted by RateMyInvestor and Diversity VC.

With venture investors committing to funding Black and minority founders, alongside the growing availability of government-backed proposals, such as New Jersey allocating $10 million to a seed fund for Black and Latinx startups, can we expect to see fundamental change? Or will we have to repeat the same conversations about representation failings within VC funds?

Crunchbase examined the access to capital in the venture-backed startup ecosystem and proved that many industry leaders still worry that nothing will drastically shift. As a Black fintech founder, I believe that venture investors are making safe bets and investing in late-stage founders instead of early or even pre-seed stages.

But what about those minority founders who don’t have family, friends or connections to lean on for the first $250,000? Venture funding does remain elusive, but here are some tricks for startup founders to hack the system.

Getting your foot in the door with new venture capitalist partners is challenging, and it is often easy for minority founders to be naive at first. I thought that reading TechCrunch and analyzing other VC deals I saw in the news would help me land multiple responses and speak the language of those who managed to score million-dollar deals for their startups. However, I didn’t receive a single response while other founders received VC investment for basic ideas.

This is something I had to learn the hard way: What you hear in the media or read on a company blog post often simplifies the process, and sometimes fails to cover the trajectory that minority founders, in particular, must follow to secure funding.

I experienced hundreds of rejections before raising $2 million to start a mobile payment platform, Bleu, using beacon technology to drive simple and secure payments. It is a huge mountain to climb and a full-time job to continuously pitch your vision and yourself to reach the first meeting with a VC fund — and that’s still miles away from a funding discussion.

These discussions then bring further biases to the surface. If you sat in the conference rooms or on those Zoom calls and heard the types of deals proposed to minority founders, you’d see how offensive they can be. Often, these founders are offered all the money they have requested — but don’t be fooled. It is usually not given all at once due to what I consider to be a lack of trust. Essentially, interval funding equates to being babysat.

Therefore, as a minority founder, you have to realize that it will be a long ride, and you will face rejections because you are at a disadvantage before even opening your mouth to pitch your idea. It is all possible, but patience is key.

Once I figured out how complicated the funding process was, my coping mechanism was to figure out how to capitalize on the business ideas I already had in place in case I never received any VC funding.

Think: How could you make money without an institutional investor, friends, family or internal networks? You’ll be surprised by your entrepreneurial thirst for success when you’ve experienced 100 rejections. This is why minority businesses caught in these testing situations can quickly gain the upper hand, whether through ancillary and side businesses or crowdfunding over GoFundMe and Kickstarter.

Although generally considered non-essential, ancillary companies do provide a regular flow of income and services to assist your core business idea. Most importantly, a recurring revenue stream outside your core business demonstrates to investors that you can create valuable products and acquire loyal customers.

Make sure to find a niche market and carry out surveys with potential clients to find out what specific needs they have. Then, build a product with their feedback in mind and launch it to beta clients. When you publicly release the product, find resellers to keep internal headcount low and generate recurring revenue.

Don’t take ancillaries lightly, though; they are not just a side business. There can be payment issues if you get hooked on them for revenue, distractions from clients or partners wanting custom requests, and supply chain problems.

In my case, I built a point-of-sale (POS) software platform to sell to merchants, which gave me a different revenue stream that could integrate with Bleu’s payment technology. These ancillary businesses can help fund your core business until you manage to plan how to launch fully or source further funding.

In 2019, The New York Times published an article headlined “More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost.” It highlights how more and more entrepreneurs shunned by the VC funding route are turning to alternatives and forming counter-movements. There are always alternatives to look at if the fundraising process is proving to be too arduous.

Accelerators allow ventures to define their products or services, quickly build networks and, most importantly, sit at tables they wouldn’t be able to on their own. Applying to accelerators as a minority founder was the real turning point for me because I met a crucial investor who allowed us to build credibility and open up to new networks, investors and clients.

I would suggest looking out for accelerators explicitly searching for minority founders by using platforms such as F6S. They match you with accelerators and early growth programs committed to innovation in various global industries, like financial technology. That’s how I found the VC FinTech Accelerator in 2016, where one-third of founders were from minority backgrounds.

Then, Bleu earned a spot in the 2020 class of the IBM Hyper Protect Accelerator dedicated to supporting innovative startups in fintech and health tech industries. These types of accelerators offer startups workshops, technical and business mentorship, and access to a network of partners, customers and stakeholders.

You can impress accelerators by creating a pitch deck and a company video less than two minutes long that shows your founder and the product, and engaging with the fintech community to spread the news.

The other alternative to accelerators is government funds, but they have had little success investing in startups for myriad reasons. It tends to be a more hands-off approach as government funds are not under significant pressure from limited partners (LPs, either institutional or individual investors) to perform.

What you need as a minority founder is an investor who is an active partner but, with government-backed funds, there is less demand to return the capital. We have to ask ourselves whether governments are really searching for the best minority-owned startups to help them get sufficient returns.

There are many unconscious social stigmas, stereotypes and unseen biases that exist in the U.S. And you’ll find those cultural dynamics are radically different in other countries that don’t have the same history of discrimination, especially when looking at a team or assessing founders.

I also noticed that, as well as reduced bias, investors out of Southeast Asia, Nordic countries and Australia seemed far more likely to take risks on new contactless payment technology as cash use decreased across their regions. Take Klarna and Afterpay as examples of fintech success stories.

First, I engaged in market research and pored over annual reports to decide whether I should look abroad for funding, instead of applying to funds closer to home. I looked at Nielsen reports, payment publications, PaymentSource and numerous government documents or white papers to figure out the cash usage globally.

My investigations revealed that fintech in Australia was far ahead of the curve, with four-fifths of the population using contactless payments. The financial services sector is also the largest contributor to the national economy, contributing around $140 billion to GDP a year. Therefore, I spoke to the Australian Department of Foreign Affairs and Trade in the U.S., and they recommended some regulatory payment groups.

I immediately flew to Australia to meet with the banking community, and I was able to find an Australian investor by word of mouth who was surrounded by the demand for mobile payment solutions.

In contrast, an investor in the U.S. still using cash and card had no interest in what I had to say. This highlights the importance of market research and seeking out investors rather than waiting for them to come to you. There is no science to it; leverage your network and reach out to people over LinkedIn, too.

VC funding needs to become more inclusive for women and minority groups by tackling the pipeline problem and addressing the level of diversity within VC funds. All of the networks that VCs reach out to first tend to come from university programs at Stanford, MIT and Harvard. These more privileged and wealthy students are able to easily leverage the traditional and outdated networks built to benefit them.

The number of venture dollars flowing to Black and Latinx founders is dismally low partly due to this knowledge gap; many female and minority founders don’t even know that VC funding is an option for them. Therefore, if you do receive seed funding, spread the news about it within your networks to help others.

Inclusion starts at the educational level but, when the percentage of Black and minority students at these elite colleges are still low, you can see why minority representation is needed in the VC ranks. Even if representation rises by a percent, that would be a significant change.

There are increasing numbers of VC funds announcing initiatives and interest in investing in minority businesses, and I would recommend looking at these in-depth. But what about the demographics of the VC firms? How many ethnicities are present in the executive ranks?

To change the venture-backed startup ecosystem, we need to start at the top and diversify those signing the checks. Looking toward the future, it is Black-led funds, like Sequoia, or others that focus on diversity, like Women’s Venture Fund, BackStage Capital and Elevate Capital Inclusive Fund, that are lighting the way to solutions that will reflect the diversity of the U.S.

It’s up to the investor community at large to be intentional about building relationships with, and ultimately providing funding to, more women and minority-led startups.

Despite the barriers and hurdles minority founders face when searching for VC funding, more and more avenues for acquiring funding are appearing as the disparities are brought to the media’s attention.

As the outdated system adjusts, the key is to continue preparing yourself for rejections and searching for appropriate accelerators to build vital networks. Then, if you aren’t having any luck, consider what you could do with your business idea without the VC funding or turn to foreign markets, which may have a different setup and varied opportunities.

Arizona has sold off $93 million in Unilever bonds and plans to sell the remaining $50 million it has invested in the global consumer products company over subsidiary Ben & Jerry’s decision to stop selling its ice cream in Israeli-occupied territories, the latest in a series of actions by states with anti-Israel boycott laws.

The investment moves state Treasurer Kimberly Yee announced this week were mandated by a 2019 state law that bars Arizona government agencies from holding investments or doing more than $100,000 in business with any firm that boycotts Israel or its territories.

Arizona appears to be the first of 35 states with anti-boycott laws or regulation to have fully divested itself from Unilever following Ben & Jerry’s actions. Illinois warned the company in July that it had 90 days after its investment board met to change course or it too would sell. Florida and other states have taken similar action, according to IAC For Action, the policy and legislative arm for the Israeli-American Council.

While Ben & Jerry’s, which is based in Vermont, is owned by London-based Unilever, it maintains its own independent board, which Unilever said makes its own decision on its social mission. Ben & Jerry’s announced on July 19 that maintaining its presence in the occupied territories was “inconsistent with our values.”

Ben & Jerry’s decision brought a strong reaction from Israel, which vowed to “act aggressively” in response to the move, including by urging U.S. governors to punish the company under anti-boycott laws. Arizona and 34 other states have laws against boycotts of Israel.

U.S. groups that support Israel are split on whether pushing back on Unilever for Ben & Jerry’s decision is appropriate. The Israeli-American Council urged governors to act through IAC For Action.

IAC for Action Director Joseph Sabag called boycotts of Israel antisemitic and said it is important to fight them at the state level.

“The Israeli American community is sensitive to it, because I would say more than other parts of the Jewish American community, we experienced the national origin aspect of antisemitism in a more pronounced way,” Sabag said Friday. “That’s really why we’re very proactive. It’s our children who are being affected by this in the classrooms and are being made fearful and intimidated and to feel harassed. … That’s definitely what our community’s interest is in the matter.′

But the head of J Street, a Washington, D.C.-based pro-Israel organization that backs a two-state solution, supported Ben & Jerry’s decision and said punishing the company is “gravely dangerous.”

“It’s not anti-semitic to criticize Israeli policy or to not sell ice cream in illegal settlements,” President Jeremy Ben-Ami tweeted in July. “It’s actually a truly pro-Israel decision.”

The anti-boycott laws face court challenges, as Arizona’s did after it was first enacted in 2016. A Flagstaff lawyer who contracted to help defend jailed people sued on First Amendment grounds, arguing that the law violated his free speech rights.

A U.S. District judge in Arizona blocked enforcement while the case proceeded, but the Legislature changed the law so it only applied to contracts worth more than $100,000, effectively ending the case because it no longer applied to the Flagstaff man. The state was ordered to pay $115,000 for his attorney fees.

In Arkansas, the publisher of a weekly newspaper sued to block that state’s law on similar grounds. A trial judge dismissed the case, ruling that “a boycott of Israel is neither speech nor inherently expressive conduct” protected by the First Amendment. But a split three-judge panel of the 8th U.S. Circuit Court of Appeals revived the Arkansas Times’ lawsuit in February, finding that “supporting or promoting boycotts of Israel is constitutionally protected … yet the Act requires government contractors to abstain from such constitutionally protected activity.”

The ruling is not the last word: In June, 8th Circuit judges agreed to hear the case and vacated the three-judge panel’s decision. They are set to hear arguments in the case later this month.

Both cases were brought by the American Civil Liberties Union.

Meanwhile in Arizona, Yee wrote to Unilever’s investor relations department on Sept. 2 to tell the company that although Ben & Jerry’s is run independently, Arizona law would require her to sell Unilever assets if the decision was not rescinded.

“I gave Unilever PLC, the parent company of Ben & Jerry’s, an ultimatum: reverse the action of Ben & Jerry’s or divest itself of Ben & Jerry’s to come into compliance with Arizona law or face the consequences,” Yee, a Republican who is running for governor, said in a statement. “They chose the latter.”

Unilever said in an Aug. 2 letter to Deputy Treasurer Mark Swenson that it has never supported boycotts of Israel, commonly called Boycott Divestment Sanctions, or BDS, but that Ben & Jerry’s operates independently. The company had no additional comment.

The Arizona investments were in bonds and commercial paper held in the state’s short-term fixed-income investment fund.

The Arizona law enacted in 201 6 and revised in 2019 had broad, bipartisan support and was signed by Republican Gov. Doug Ducey. He tweeted that the Ben & Jerry’s decision “is discrimination.”

“Arizona will not do business with a company that boycotts Israel — in 2016 and 2019, I signed bills to make sure of it,” the tweet said. “Arizona stands with Israel.”

Upstart lenders make it easy to take out loans backed by cryptocurrency holdings. Regulators are watching.

Michael Anderson mined bitcoin in his dorm room and left a corporate job to invest in cryptocurrency projects. When he bought his first home in San Francisco this year, he didn’t turn to a bank. Instead, he borrowed against his cryptocurrency.

Crypto enthusiasts such as Mr. Anderson are tapping their holdings to buy homes, cars and, often, more crypto. They are getting these loans from upstart nonbank lenders and automated, blockchain-based platforms.

Like banks, these lenders typically take deposits. Unlike banks, their deposits take the form of crypto. The crypto deposits—which earn higher-than-average interest rates—are used to fund loans to borrowers who pledge crypto as collateral. These loans take many forms. Borrowers can get dollars or other traditional currencies, or stablecoins pegged to them, depending on the lender they are working with.

The business is growing rapidly. One group of crypto lenders has $25 billion in loans outstanding to individual and institutional clients, up from $1.4 billion a year ago, according to the crypto research firm Messari.

People use crypto-backed loans for the same reason they borrow against their stock portfolios: to reap the benefits of rising prices without diminishing the size of their bets. Ether, for example, has risen nearly 10-fold in the past year, eclipsing the interest on the average ether-backed loan. Borrowers can also use this strategy to avoid capital-gains taxes.

Celsius Network depositors earn a 6.2% interest rate on up to one bitcoin, worth over $46,000. Borrowers pay between 0% and 8.95% on bitcoin-backed loans, depending on the loan-to-value ratio. Some of the money the company uses to fund the loans comes from hedge funds hungry for yield in a low-rate world, said Celsius Chief Executive Alex Mashinsky. He recommends that customers borrow to pay off their student loans and credit cards and to fund their weddings.

Antoni Trenchev, co-founder and managing partner at the crypto lender Nexo Capital Inc., said, “The idea is to shift some of your digital assets into real-world profits so you can’t lose them.”

The strategy, in turn, comes with real-world risks. Like traditional securities-based borrowing, crypto loans are typically for a percentage of pledged holdings. If the value of the collateral falls—as it often does in the volatile crypto market—the lender can issue a margin call and seize it all. Should a lender collapse or fall victim to a digital heist, there is no federal insurance to compensate depositors.

Crypto lending has drawn regulators’ attention. The Securities and Exchange Commission is investigating Coinbase Global Inc.’s COIN -3.16% proposed crypto-lending plan and has indicated that it would sue the company if it moves forward with the program. New Jersey’s securities regulator in July accused the crypto lender BlockFi of selling an unregistered security, a dispute that could prevent the company from opening new “interest accounts.” BlockFi said it is in discussions with regulators and believes the accounts are legal.

Henderson Le turned to BlockFi when he wanted to borrow 50% of the value of his crypto portfolio.

The loan’s rate stands around 10%. Mr. Le keeps much of his loan proceeds in a BlockFi interest account that pays up to 8% on deposits, effectively lowering the interest rate he pays.

He dipped into the fund to buy a new car. “It wasn’t a Lamborghini, just a normal Tesla,” he said. Mr. Le, a Vietnam native who now lives in the Los Angeles area, also used the fund to purchase a Montblanc pen—and more bitcoin.

Many borrowers use the loans to amplify their bets on crypto. Kris Kostadinov, who goes by Kris Kay, took out a loan worth $14,000 in the tether stablecoin from the decentralized-finance platform Aave earlier this year and used the proceeds to buy ether. He used the ether to trade in and out of nonfungible tokens, or NFTs, which are blockchain-based authenticity certificates attached to digital assets such as artwork and sports highlights.

Though Mr. Kay, 27 years old, almost faced a margin call when the price of ether fell earlier this year, he estimates that he used the loan to fund investments now worth over $60,000.

“If it was in a bank account, my money would just be going down, with inflation eating away at it,” Mr. Kay said.

Mr. Anderson, 30 years old, began investing in crypto in its early years. “I’m a crypto Boomer,” he said. In the decade since crypto’s start, the market has come to resemble the traditional financial system, with its own infrastructure of exchanges, market makers and lenders that help investors convert their digital currencies into dollars.

Mr. Anderson was browsing real-estate listings when he spotted a great deal in his San Francisco neighborhood. After his offer was accepted, he logged onto an app linked to the Maker Protocol. He pledged a chunk of his ether holdings in exchange for a loan at a 0.5% rate.

The loan hit his wallet almost immediately. It was denominated in Dai, a stablecoin whose value is pegged to the U.S. dollar. He used an exchange to swap the Dai into a stablecoin called USD Coin. He then used Coinbase to change the USD Coin into dollars. From Coinbase, he sent the money to his bank account. It took several days for the funds to clear. It was the slowest part of the transaction, Mr. Anderson said.

Mr. Anderson declined to give the size of his loan. The median home price in the San Francisco area is just over $1.5 million, according to Redfin Corp. He said he pledged ether worth 2½ times the amount of the loan to lower the odds of a margin call.

The Maker Protocol is a “decentralized-finance,” or DeFi, platform, meaning the process behind the loan is automated and participants generally don’t have to identify themselves. Other lenders such as Nexo, BlockFi and Celsius operate with more human intervention and obtain information on a customer’s identity.

Craig Bickley recently borrowed through another DeFi platform, Anchor Protocol, to help finance a landscaping project at his home in Fort Worth, Texas.

The 45-year-old electrical engineer and father of three, who first invested in crypto earlier this year, used Anchor to set up an elaborate series of deposits, loans and related investments designed to maximize yield. So far, he has earned $1,500 toward the cost of the $10,000 project.

If Mr. Bickley wakes up in the middle of the night, he checks prices on his phone to make sure he isn’t facing a margin call. When crypto prices fell Tuesday, he spent part of the day tweaking positions to ward off liquidation.

“What if I was on vacation and had no idea?” he said. “It’s not for the faint of heart.”

Selloff has sharpened the distinction between companies perceived as financially stronger and those where investors have concerns

Bonds from lower-rated Chinese property developers have fallen steeply in price after warnings of a potential default at industry giant China Evergrande Group EGRNF -1.53% sent investors scrambling to protect themselves against trouble elsewhere in their portfolios.

Various dollar bonds due in 2023 and 2024 from Fantasia Holdings Group Co. 1777 1.59% and Guangzhou R&F Properties Co. 2777 3.49% have fallen to less than 60 cents on the dollar, pushing yields on most of these debts above 40%.

Fantasia, Guangzhou R&F and others, like Evergrande, are trying to adapt to a tougher new regime under which Chinese authorities are pushing developers to cut debt, partly by forcing them to fall into line with a series of leverage limits known as the “three red lines.”

The recent selloff has sharpened the distinction between companies perceived as financially stronger and those where investors have concerns about borrowers’ ability to repay or refinance dollar bonds that are coming due in the next year or so. The market moves themselves add to the challenges, because they could make it much harder, or impossible, for borrowers to issue new debt at reasonable interest rates.

“Investors saw one of the largest property developers go through a vicious cycle that resulted in difficulties in debt refinancing and are now worried that other weak developers may struggle to survive,” said Iris Chen, a credit analyst at Nomura.

Ms. Chen said risk appetite remains fragile, putting pressure on the weaker developers. “This may result in more distress cases,” she said.

Chinese property debt makes up a large chunk of Asia’s high-yield bond market and until recently was popular with international investors. These buyers were attracted by the combination of high returns—yields often topped 10%—and the sector’s economic importance to China, which many believed meant lower investment risk.

However, this year has challenged that assumption. As a result, the extra returns investors demand to hold Chinese high-yield dollar bonds instead of U.S. equivalents, have soared, with that spread widening to about 9.4 percentage points as of Thursday, up from about 4.8 percentage points three months earlier, according to ICE BofA indexes.

Evergrande said on Aug. 31 that work has been suspended on some real-estate projects after it delayed payments to its suppliers and contractors, and warned for the first time that it may default on its borrowings if it can’t resolve its liquidity problems. Earlier this month, both Moody’s Investors Service and Fitch Ratings cut their credit ratings on the company deeper into sub-investment grade.

The company has dollar bonds due each year from 2022 to 2025. As of Friday afternoon in Hong Kong, the longest-dated of those bonds was quoted at 28.9 cents on the dollar, according to Tradeweb, down from nearly 80 cents at the end of May. The bond has a yield of about 55%.

Bonds from Fantasia due in March 2024 have dropped and were bid at 48.7 cents on the dollar on Friday, according to Tradeweb. Dollar bonds from China South City Holdings Ltd. 1668 1.32% , Guangzhou R&F and Xinyuan Real Estate Co. are also trading at levels indicating a high probability of default, Tradeweb data show, with yields in some cases above 50%.

All four companies are graded single-B by S&P Global Ratings and have similar assessments from other credit-rating companies. The ratings firms have either cut their ratings, or lowered their outlook on the debt indicating a future downgrade is possible, citing potential difficulties repaying debt due this year and next amid volatile market conditions.

Fantasia created extra uncertainty for bondholders in late August, when it told investors it would refinance a $250 million bond due in December with a mixture of its own funds and asset sales, said Chuanyi Zhou, a credit analyst at Lucror Analytics.

At the same time, developers with slightly stronger ratings have fared better, even if they are still deemed to be sub-investment-grade. Investors say they prefer companies that have shown they can cut leverage and can still issue international bonds to refinance debt coming due soon.

“There has been significant divergence of Chinese high-yield property bonds’ performance year to date,” said Jenny Zeng, co-head of Asia Pacific fixed income at AllianceBernstein.

For example, bond prices have remained relatively stable for companies such as Country Garden Holdings Co. 2007 2.29% , Logan Group Co. 3380 3.28% , Cifi Holdings Group Co. 884 5.47% and Yanlord Land Group Ltd. All four have double-B credit ratings from S&P, placing them not far below investment-grade. Country Garden’s $350 million 5.625% bond due in 2026 was bid at 109 cents on the dollar on Friday, according to Tradeweb, giving it a yield of about 3.66%.

Despite recent volatility, picking bonds from good developers could still yield decent returns, said Alan Siow, a fixed-income portfolio manager at Ninety One who invests in global emerging-market corporate bonds.

Mr. Siow said he is focusing on company fundamentals and paying attention to financial results, as well as whether a developer is able to address market concerns. “We may see some volatility, but companies do not go bust for no reason, especially good ones,” he said.

Managers of collateralized loan obligations are rushing to close deals ahead of the transition away from the London interbank offering rate

Wall Street’s shift away from Libor is fueling sales in the red-hot market for bundles of risky corporate loans.

Managers of collateralized loan obligations—securities made up of bundled loans with junk credit ratings—are rushing to close deals ahead of the year-end move away from the London interbank offered rate. The interest-rate benchmark underpins trillions of dollars of financial contracts but was scheduled for phaseout after a manipulation scandal.

That is helping push CLO sales to records. U.S. issuance topped $19.2 billion in August, a monthly record in data going back a decade, according to S&P Global Market Intelligence’s LCD.

That record came during what is typically a slow month for the market, a sign managers are pushing to finish deals ahead of Libor’s expiration, analysts said. Some CLO documents lack language covering the changeover to a new interest-rate benchmark, which could spark disruptions as the new year approaches.

Rather than wait to see how the transition shakes out, CLO managers are taking advantage of recent investor demand and closing deals if possible, said Joe Lynch, global head of noninvestment grade credit at Neuberger Berman, which manages and invests in CLOs.

“Most managers plan to issue one more CLO before year-end and will likely pursue a deal in the near-term to avoid any potential disruptions that might come from the Libor transition,” he said.

A strong U.S. economic recovery and support from the Federal Reserve has improved the prospects for many low-rated companies borrowing through the leveraged loan market, which is often used by private-equity firms to finance acquisitions. That marks a reversal after the pandemic’s outbreak fueled worries about mass defaults and sent prices for riskier debt plummeting in 2020.

The trailing 12-month default rate for the S&P/LTSA leveraged loan index fell to 0.47% in August—the lowest level since March 2012.

That recovery has helped spur investors’ demand for CLOs, which are the largest buyer of leveraged loans. As of August, sales of new CLOs in the U.S. in 2021 have surpassed $111 billion, according to LCD—on pace to pass 2018’s record of around $129 billion.

Many expect new CLO sales to remain elevated in September as issuers try to finish deals ahead of the transition, said Bank of America analysts in an August note. They expect new CLO sales tied to Wall Street’s preferred replacement, the Secured Overnight Financing Rate, or SOFR, to begin in the fourth quarter.

A wave of CLO refinancings this year allowed some managers to include fallback language shifting to SOFR in their documents, analysts said. But for other deals, CLO managers and investors must negotiate that changeover, which could create conflicts if they have different rate preferences.

Disruptions to the transition could increase the extra yield, or spread, that investors’ demand to hold triple-A rated CLO debt during the fourth quarter of this year, depending on how quickly the loan market transitions and how new CLO deals and investors position themselves, said Citi analysts in a June note.

SOFR is based on the cost of transactions in the market for overnight repurchase agreements, where large banks and hedge funds borrow or lend to one another using U.S. Treasurys as collateral. Unlike Libor, which tends to rise during periods of market stress, it doesn’t adjust for shifts in credit.

During last year’s spring selloff, the difference between three-month Libor and SOFR rose to 1.4 percentage points at its peak, according to BofA. That means CLO debtholders received a higher rate than what they would have if their bonds were linked to SOFR.

“This is particularly important for [triple-A CLO bondholders] where the reference rate [makes] up a significant portion of the interest rate,” said the bank’s analysts in a note.

The move away from Libor also means that some CLO securities may have a different benchmark rate from the loans in their collateral pool. That makes it more difficult for investors to protect their holdings against fluctuations in interest rates and underlying loan prices.

“We anticipate that it will take the market a little time to digest [new] issuance when the shift to SOFR occurs in the new year,” said Serhan Secmen, head of CLO investments at Napier Park Global Capital.

With its upcoming IPO, the Roger Federer-backed Swiss sneaker upstart expects to raise as much as $622 million at a valuation above $6 billion on the back of its rapid growth and plans to push further into the lucrative lifestyle market.

To become the global sneaker brand it is today, On Running had to overcome some challenges after launching in 2010. For one, it needed to attract shoppers well beyond its home base of Zurich, a small city not exactly known as a sneaker hotbed. It also needed to convince customers to choose its somewhat odd-looking footwear, with its midsole of segmented tubes, over products from established running brands like Brooks and Asics, not to mention giants such as Nike and Adidas.

It’s done both. Today, On boasts fans in more than 60 countries and sells in more than 8,100 stores worldwide. The next step in its expansion is an impending IPO on the New York Stock Exchange, which it expects will raise as much as $622 million and value it at more than $6 billion, the company revealed in a regulatory filing this week. To put that figure in perspective, Adidas just sold Reebok — a faded but still widely recognised and valuable name — for $2.5 billion.

On is a fast-growing upstart in the sneaker business and among those supercharged by a pandemic boom in running. In 2020, its global sales were 425.3 million Swiss Francs (about $464 million), rising 59 percent from the previous year. In the first six months of 2021, sales already reached 315.5 million Swiss Francs. It also brought in a net income of 3.8 million Swiss Francs during the period, after a loss of 27.5 million Swiss Francs for the full year in 2020. By comparison, Allbirds, the other big sneaker company gearing up for an IPO soon, reported a loss of $21.1 million in the first half of this year.

The key to On’s success, it says, is the unique feel of its sole. “It’s all based on one radical idea,” the company notes on its website and stated in its filing. “Soft landings followed by explosive take-offs. Or, as we call it, running on clouds.”

It started out trying to build a better shoe for runners, but its trajectory shows it growing beyond that market into a bigger lifestyle brand. It’s a lucrative path, if On can get it right. Nike and Adidas, for example, got their starts focusing on athletes. On now advertises shoes for all-day wear and has a line of tennis shoes with Swiss star Roger Federer, who invested in the company in 2019 and serves as a prominent face for the brand. If On successfully makes the transition, it could eventually surpass its competitors in the running market.

“On makes a great product that runners really like,” says Matt Powell, the sports industry analyst at research firm NPD Group. But they aren’t the only ones buying its shoes these days, he notes. The distinctive design is helping them catch on as casual footwear, a market that’s much larger than performance sneakers, Powell says.

These shoppers are key to On’s growth plans. “We started with the run specialty channel and then selectively expanded to additional premium retail partners to reach a broader audience,” On said in its filing. The company already sells at a number of upscale retailers, including Ssense, Dover Street Market, and MatchesFashion, and means to keep adding more partners on the premium end as well as branching out to new customers.

It’s also growing in other ways, beefing up its direct-to-consumer channels, for instance, which currently make up about 37 percent of On’s sales. It’s further developing its e-commerce operations, as well as opening physical stores. At the end of last year, it opened its first brick-and-mortar location in New York.

North America, in fact, has become On’s largest market since it entered the US in 2013. It’s another strength for the company. The US is the world’s largest market for sports footwear, including performance, outdoor, and “sports-inspired” shoes, projected to reach $36 billion according to Euromonitor. Just over half On’s global sales came from North America in the six months through June 30.

On’s signature cushioning was the work of co-founder Olivier Bernhard, a former duathlon and Ironman champion. He wanted padding in the centre of the foot for landings but a firm feel at the front of the shoe for pushing off into the next stride. He experimented by cutting a garden hose into pieces and securing them to the bottom of an existing shoe. Bernhard and two friends — David Allemann and Caspar Coppetti, On’s other co-founders — took the idea to an engineer and refined it into what On calls CloudTec. It’s the basis for On’s Cloud sneaker, a popular model that runs about $130.

Innovation has remained central to On’s brand since, helping it gain trust among its core audience of runners and athletes. To develop new products, it has sought partners such as the Swiss Federal Institute of Technology. It has introduced items designed for speed, trail running, and added cushioning. It also makes clothing, though it’s the original running platform that remains the core of the company.

There are challenges ahead. All the footwear On produced so far this year came from 13 sites run by 10 suppliers in Vietnam, a country whose factories are currently being hobbled by Covid outbreaks and where local freight operations have ground to a halt. It’s unclear when these disruptions will ease. On expects them to affect its operations for the rest of 2021 and into 2022, though to date it has only experienced temporary disruptions due to Covid.

Still, to mitigate future risks, the company will start producing shoes, clothes, and accessories at eight new suppliers in Vietnam, Lithuania, and Turkey. It needs that capacity for another reason too: to supply enough sneakers to the rising number of shoppers who want to get their hands on a pair.

The French luxury goods firm is struggling to keep pace with soaring demand for its handbags.

Beijing’s restrictions hand rivals in the US and South Korea a big advantage, say experts

China’s clampdown on gaming will blunt the nation’s competitive edge just as its professional esports teams gear up for international tournaments, including next year’s Asian Games, players and experts have warned.

Beijing introduced sweeping gaming regulations last week that stipulated that players under 18 could only play online for three hours a week. Professional esports players said the restrictions handed rivals in the US, South Korea and Europe a big advantage.

“China has the most top teams in the world,” Maurice “Amazing” Stückenschneider, a German professional League of Legends player and coach, told the Financial Times. “[Now] it’s impossible [for China] to continue any esports development.”

Esports is big business in China and wildly popular. The world’s biggest video gaming market has an estimated 720m gamers generating revenues of $44bn in 2020, according to Newzoo, a market research group.

The country is set to host the sport’s first appearance as a medal event at the 2022 Asian Games in Hangzhou and set up a stadium dedicated entirely to competitive video gaming in Chongqing with more than 7,000 seats.

Universities are even offering esports subjects as niche as in-game set design, while Chinese teams have won multiple international competitions.

But Stückenschneider warned that the latest restrictions risked undermining China’s standing.

“You have to see it [esports] as similar to another sport,” he said. “Players can train 70 hours a week or potentially more, so that could mean a discrepancy of 67 hours. It’s just going to be impossible [for Chinese youth players] to maintain a high level.”

He added that players in South Korea and China often trained six days a week with two three-hour blocks and a third two-hour block later at night.

Ding, a 24-year-old professional gamer in Shanghai, started playing when he was 15. “I’d play three to four hours every day after school, and all day during weekends. It’s a matter of practice makes perfect,” he told the FT.

“The restrictions will have a big impact on China’s esport performance. Because other countries don’t have [the restrictions] their players ultimately have more time to practice.”

Game developers, such as China’s most valuable company Tencent, dominate the industry by running tournaments and teams. Revenues are boosted by live events, streaming, apps, advertising, merchandise sales and media rights.

In Shenzhen, the buzzy southern centre of China’s technology boom, Sarah, the owner of a top esports club, said the new rules came “out of the blue”.

“The best age for professional players is from 16 to 21. But you have to start training from [at least] 16,” said Sarah, who declined to provide her real name.

“If you play professionally, all the opponents you face will be extremely good, you have to be familiar with all the heroes, all the different versions, different teams. All this depends on endless training and you can’t do it at home by yourself.”

While she admitted that there were workarounds, such as finding adult accounts for the under-18 players to practise on, the local industry was worried about attracting investors in the wake of the restrictions.

Charlie Moseley, founder of the Chengdu Gaming Federation, said the esports industry would take a “catastrophic hit” from the new regulations on young players. “China has prioritised cultural control over competitiveness in esports.”