Startups Struggle to Adjust as Investment Frenzy Ends

Eliot Brown reported on the front page of today’s Wall Street Journal that, “Eighteen months ago, Beepi Inc. was rapidly expanding its online used-car business to 16 U.S. cities where people could buy cut-rate vehicles adorned with giant shiny bows.

Beepi doesn’t exist anymore. After burning through more than $120 million in capital, the startup failed to raise more cash and shut down in February. Its roughly 270 employees cleared out of the cavernous Mountain View, Calif., headquarters, leaving behind the ping-pong table and putting green.

Beepi’s rapid demise offers a glimpse into the changing fortunes of Silicon Valley startups, many of which have struggled to adjust since a two-year investment frenzy came to an end.”

Graph from today’s Wall Street Journal.

 

Today’s article noted that, “In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier.”

The Journal article explained that, “Venture-capital firms remain flush with cash: They raised $44 billion last year, the most since the dot-com boom.

“But investors are staying away from scores of initially well-funded startups that once looked like relatively safe bets, forcing these companies to fight for survival as they burn through their stockpiles of cash and scramble for new money or buyers.”

Mr. Brown added that, “Seemingly every week lately, a well-funded startup is slashing jobs or pulling the plug.

“In recent months, mobile-search startup Quixey Inc. shut down after raising over $100 million, health-benefits broker Zenefits—which has raised more than $500 million—laid off nearly half of its staff, and blogging platform Medium cut one-third of its employees after raising $132 million.

Such closures and cutbacks were rare two years ago when venture capitalists encouraged startups to expand rapidly to edge out competitors. Then when capital became scarcer, investors urged companies to turn profitable, which isn’t an easy pivot.”

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Some Local Food Growers Have to Get Creative to Find Land in Urban Areas

Hannah Covington reported on the front page of yesterday’s Minneapolis Star Tribune that, “With planting season looming and no place to sow her seeds, organic farmer Jessica Mutunga posted an earnest plea on a neighborhood social network: Can I use your yard?

“After her recent move from Oregon, Mutunga looked forward to tapping into the Twin Cities’ robust appetite for locally grown food. She soon discovered the farm-to-table movement has created intense demand for affordable urban farmland across the metro area.

“‘It was much more challenging than I anticipated,’ said 33-year-old Mutunga, who plans to raise and sell vegetables on an acre of yard space she cobbled together from several homeowners.”

Front page of Sunday’s Minneapolis Star Tribune.

Yesterday’s article noted that, “‘There is a real desire for local food,’ said Jesse Davis, of the Minnesota Farmers’ Market Association. And the Twin Cities, he said, is known nationally as a local food hub.

That has set off a scramble for the land to grow those vegetables and fruits, especially 1- to 10-acre parcels close to metro area markets. Only about 30 percent of the seven-county metro was still being farmed in 2010 — the most recent data available — according to the Metropolitan Council. That number was much smaller in a place like Hennepin County, with a total closer to 12 percent, and projected to shrink.”

Ms. Covington added that, “Newly sprouted farmers are looking for acreage anywhere they can. Some have hunted for the right acreage for years. Others have snatched up community garden plots for their commercial enterprises. More than 20 new community gardens were planted in the metro area in 2016, according to the Minneapolis-based nonprofit Gardening Matters. Last year, it counted 608 community gardens in the Twin Cities, up from 166 in 2009.”

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Startups Making Products From Food Waste

Washington Post writer Caitlin Dewey reported this week that, “Flour milled from discarded coffee fruit. Chips made from juice pulp. Vodka distilled from strawberries that nobody seems to want.

“At one point not so long ago, such waste-based products were novelties for the Whole Foods set. But in the past three years, there’s been an explosion in the number of start-ups making products from food waste, according to a new industry census by the nonprofit coalition ReFED.

“The report, which was released Tuesday and tracks a number of trends across the food-waste diversion industry, found that only 11 such companies existed in 2011. By 2013, that number had doubled, and ReFED now logs 64 established companies selling ugly-fruit jam, stale-bread beer, and other ‘upcycled’ food products.”

The Post article noted that, “The companies have diverted thousands of pounds of food waste from landfills, a major source of greenhouse gas emissions. They’ve also become a model for larger, multinational food companies, which are starting to realize that upcycling peels and piths can be good business.”

Ms. Dewey added that, “Dan Kurzrock, the 27-year-old co-founder of San Francisco start-up ReGrained, suspected that from the beginning. As a college home-brewer, making beer in his garage, Kurzrock noticed that a whole lot of nutritionally valuable ‘spent grain,’ mostly barley, gets thrown out.

“Kurzrock and his business partner, Jordan Schwartz, spent the next five years testing possible uses for it. In 2016, they formally launched a line of snack bars made from almonds, oats, quinoa and grains sourced from urban brewers.

“‘We’re a food business with an environmental and social mission,’ Kurzrock said.”

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Housing Starts in U.S. Fall in March

Laura Kusisto and Ben Leubsdorf reported this week at The Wall Street Journal Online that, “U.S. housing starts declined in March, but not enough to signal a reversal from the long-term trend of improvement in new home construction.

Starts decreased 6.8% to a seasonally adjusted annual rate of 1.215 million from a month earlier, the Commerce Department said Tuesday.

“The decline comes after an unusually strong winter, buoyed by temperate weather in most parts of the country. Single-family housing starts in February hit their highest level since October 2007.”

However, the Journal article indicated that, “Residential building permits, which can signal future home construction and tend to be a less volatile measure, rose 3.6% to an annual pace of 1.260 million last month and were up 17% compared with the same month last year.

“The permit numbers ‘should quash any concerns that home builders might be pulling back,’ said Ralph McLaughlin, chief economist at home-tracker Trulia.”

This week’s article added that, “[T]he trend for the year so far is one of steady improvement. New home construction was up 8.1% in the first quarter from the same period in 2016. Permits in the first three months of 2017 jumped 10.4% from a year earlier.”

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Steve Case: Cities Who Don’t Mentor and Invest in Startups Do So at Their Own Peril

Des Moines Register writer Kevin Hardy reported this week that, “Last year, more than half of all the nation’s venture capital funneled to entrepreneurs in California, leaving startups in the other 49 states to fight over the remaining pot of cash.

Steve Case, who co-founded AOL in 1985, says that must change so cities in middle America like Des Moines can share in the technological revolution.

“‘Some call it the flyover country,’ Case told the Des Moines Register on Wednesday. ‘It’s not really taken as seriously as I think it should be as a center of innovation.'”

Mr. Hardy noted that, “To bolster the heartland, Case says cities and entrepreneurs need to do a better job of telling their startup success stories. But fundraising remains a major hurdle for emerging businesses outside of major tech hubs. Cities who don’t mentor and invest in startups do so at their own peril, he said. He cited research from the Kauffman Foundation that shows startups lead the way in creating jobs, not small businesses or large corporations.

“‘Fortune 500 companies started startups,’ Case said. ‘If you’re using the farm analogy, they’re the seed corn. If you’re not planting that seed corn — some of which will end up dying off, but some of which will grow — you’re not going to have a strong, vibrant community 25 years from now. You just aren’t.'”

The Register article added that, “Case argues that state incentives meant to boost jobs should flow to startups, not necessarily large corporations and small businesses. In Iowa, more than $110 million is spent annually on tax credits and cash payments to existing companies looking to expand here. Less than $3 million is set aside to invest in startups and emerging companies, according to records from the Iowa Economic Development Authority

Regional tech booms are already reversing so-called ‘brain drain,’ encouraging natives to ‘boomerang’ back home after fleeing their home cities for career opportunities elsewhere, Case said.

To encourage local tech growth, he said cities must play to their regional expertise. In the case of Des Moines, that means doubling down on ag tech or financial services startups. As technology becomes more pervasive in every part of life, successful tech ventures will need more expertise on specific subjects — not just knowledge of how to code.”

The Register article also pointed out that, “Central Iowa is already playing to its regional strengths, housing both the newly formed Ag Tech Accelerator and the established Global Insurance Accelerator, each funded by businesses in their respective industries.”

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Community Bee Keeping- Modeled After Community Gardens, Gaining in Popularity

The Associated Press reported today that, “Finding places for beekeeping can be a challenge for city dwellers. But apiaries modeled after community gardens have become a popular option.

“Community beekeeping operations usually consist of shared sites on public or private properties, organized by or for people trying to turn out fresh plants or products.

“Some, like the community apiary inside The Hudson Gardens & Event Center in Littleton, Colorado, also educate. Its objectives are to train, mentor and provide fellowship for hobbyist beekeepers, promote interest in beekeeping, and boost plant pollination in Hudson Gardens and around the neighborhood, said Amanda Accamando, the center’s education and volunteer manager.”

The AP article noted that, “Bee stings and liability are obvious concerns, and the public garden’s hobbyist beekeepers are required to follow city codes. Hives must be placed at least 25 feet from property lines, and bee flyways are directed away from private dwellings. No visitors are allowed to approach the hives without a beekeeper escort, and each guest must sign a waiver before entering the apiary.

Burgh Bees in Pittsburgh established the first urban community apiary in the United States.

“‘We realized more and more people in the city were interested in beekeeping,’ said Stephen Repasky, a master beekeeper and Burgh Bee president. ‘We wanted to help find places for them to do that so we adopted the community garden example.'”

Today’s article added that, “The beekeepers eventually found a vacant piece of land and signed a lease with the city for $1 a year to landscape and manage it.

“‘We went from having a gravel lot full of used needles and garbage to a fenced property with perennials and pollinators,’ Repasky said. ‘It’s going so well that we hope to open a second apiary sometime this summer.'”

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Hog Feedlots- Quality of Rural Living

Josephine Marcotty reported on the front page of the Minneapolis Star Tribune this week that, “A bitter three-year legal battle between a Todd County hog farm and neighbors forced out of their homes by foul smells has become a flash point in the larger fight over Minnesota’s expanding pork business and the power of rural residents to protect their tranquil way of life.

The struggle has spilled over into the Legislature, where pork producers are trying to limit so-called nuisance suits brought by feedlot neighbors.

“Together they illustrate how dramatically rural life in Minnesota has changed as farms grow bigger and more mechanized.”

Graph from, “As hog feedlots grow, neighbors ask: What about our rights?” by Josephine Marcotty, The Minneapolis Star-Tribune, April 17, 2017.

The article noted that, “Opponents to the proposed law point out that such lawsuits are exceedingly rare in Minnesota — there have been only a handful in the past 15 years — and say banning them would deprive rural residents of one of their last remaining protections against large livestock operations. Moreover, they say, it’s an attack on a centuries-old property right that protects citizens’ ability to use and enjoy their homes, one that could quickly extend to conflicts beyond feedlots.

Leaders in the hog industry, however, say such cases are on the rise elsewhere, and, like the one in Todd County, are supported by national advocacy groups fundamentally opposed to practices essential to the modern livestock industry. No one, they say, should have the right to sue them for being a nuisance if they comply with the law.”

Graph from, “As hog feedlots grow, neighbors ask: What about our rights?” by Josephine Marcotty, The Minneapolis Star-Tribune, April 17, 2017.

The Star-Tribune article added that, “Leaders in the Minnesota pork industry say it’s not the neighbors they fear as much as the attorney who represents them: Charlie Speer, a Missouri-based lawyer, who has built a career on winning tens of millions of dollars for clients in similar lawsuits across the country. And by his side is an attorney for the Humane Society of the United States, which has been involved in similar lawsuits across the country.”

For more on state activity relating to large animal production operations, see these BartellPowell updates: Iowa, Illinois, and North Carolina.

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Farm-to-Table Presence of Minnesota Grapes Continues to Grow

A news release yesterday from the University of Minnesota Extension Service indicated that, “The farm-to-table presence of Minnesota grapes-turned-into-wine continues its growth as the latest University of Minnesota cultivar, the Itasca, is planted for the first year.

An analysis by the University of Minnesota Extension found the economic impact of the state’s vineyards and wineries grew to $80.6 million in economic activity, up from $53.6 million four years earlier. On average, each winery reported average sales of $580,000 in 2015, from $311,000 in 2011.

“Other indicators of growth include:

  • Visits to tasting rooms doubled, from 6,800 to 13,600
  • Percent of hours provided by paid labor went from 22 to 30 percent
  • Average cost charged per bottle went from $13 to $15″

The release added that, “With lower acidity and higher sugar content than other cold-hardy grapes developed here, the new white grape Itasca will broaden Minnesota winemakers’ opportunities, said Matt Clark, Extension specialist and assistant professor of horticulture at the University. The first Itasca vines are being planted this spring; commercial wine made from Itasca will arrive in another two to three years.

“‘Minnesota is showing growth rates similar to other emerging wine markets like Oregon, which has grown dramatically in the last 25 years. And we have a lot of enthusiasm for local foods,’ Clark said. ‘Wine is made in the vineyard, with the quality of grapes. At the University, we’re focused on helping build best practices in the growing community and sharing them.'”

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U.S. Bee Production, USDA Update

Yesterday, USDA’s Economic Research Service (ERS) released its monthly Sugar and Sweeteners Outlook, which stated in part that, “U.S. honey production in 2016 totaled 161.9 million pounds, a 3.4-percent increase from 2015 based an increase in colonies. There were 2.775 million colonies in honey production in 2016, a 4.3-percent increase from the previous year and the highest number of colonies in production since 1994. Honey yields of 58.3 pounds per colony were down a slight 0.9 percent from 2015 but were in line with levels of the past 5 years.”

Graph from, “Sugar and Sweeteners Outlook.” April 17, 2017 (USDA-ERS).

The ERS update noted that, “Stocks held by honey producers totaled 41 million pounds in 2016, a 2.3-percent decline from the previous year. Stock levels in 2016 were in line with the 10-year average, however. National average honey prices were 207.5 cents per pound, which is 0.4 percent below the revised 2015 price. It also represents the second consecutive year of annual decline in national honey prices. Honey producers have experienced a sustained upward trend in prices since the late 1990’s through 2014 as apparent domestic honey use increased. As demand has leveled off the past few years, prices have also plateaued, although both prices and demand remain substantially higher than in any historical period.”

Graph from, “Sugar and Sweeteners Outlook.” April 17, 2017 (USDA-ERS).

Yesterday’s USDA report also explained that, “Trends in production of individual States are well reflected in the number of colonies producing honey in each State; production is influenced by honey colony yields, which can vary widely due to conditions that change from year-to- year, such as weather. Many States have had a gradual increase in colonies over the past 5 years, with growth leveling off or even slightly declining in the last 2 or 3 years. California, which once had the greatest number of colonies in the country–peaking at over 500,000 in 1999–has seen honey bee colonies declining steadily since 2010; although the number rebounded slightly in 2016. This trend is likely due to a combination of factors, including sustained drought conditions in recent years and competition for bee colonies in the pollinator markets, which are in high demand in the State, rather than a focus on honey production.”

Graph from, “Sugar and Sweeteners Outlook.” April 17, 2017 (USDA-ERS).

The ERS update stated that, “By contrast, honey bee colonies in the aggregate All Other States have had the strongest and most sustained growth over the past 5 to 10 years. This could indicate that honey producers are finding demand within their local markets, although there is limited data on honey marketings for concluding how honey production and consumption interact from a geographical and industrial organization standpoint.”

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Iowa Bill Puts Craft Liquor on Level Playing Field With Craft Beer, Wineries

Brianne Pfannenstiel and William Petroski reported in today’s Des Moines Register that, “A bill allowing Iowa’s craft liquor distillers to mix cocktails at their manufacturing facilities gained final legislative approval Monday, with both Democrats and Republicans praising the bill as a good step for economic development.

“The issue has been under discussion in the Legislature for years as distillers tried and failed to advance legislation they say puts them on a level playing field with Iowa’s craft breweries and wineries, which already are able to open lounges and tasting rooms where patrons can buy a glass of beer or wine made on-site.

“‘We are so pleased that the Legislature was able to reach across the aisle and put together a solution that everyone could come together on,’ Garrett Burchett, owner and distiller at Mississippi River Distilling Co., a family-owned small batch distillery in Le Claire, Iowa, said in a statement.”

The Register article noted that, “[Sen. Roby Smith, R-Davenport] predicted more people will visit Le Claire, stopping at local tourist attractions, staying at local hotels and eating at restaurants, as well as spending money in the Quad Cities.

“‘This bill is great for Iowa’s economic development and small businesses,’ Smith said.”

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