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VC Fundraising Hits 10-Year High Despite Startup Doubts

Venture capital firms raised $12 billion in the first quarter — the largest amount in 10 years and double the amount raised in the previous two quarters combined — despite growing doubts about startup valuations. The amount raised is a promising sign for entrepreneurs and startups that rely on venture capital funding to launch their companies and expand. The $12 billion was up 59% year over year and more than double that of the previous quarter, said the National Venture Capital Association, which reported numbers tallied by Thomson Reuters. It was the most raised in a quarter since $14.3 billion in Q2 2006. “While it’s unlikely for this strong pace to continue, we do expect this to be a solid fundraising year when all is said and done,” said Bobby Franklin, CEO of the National Venture Capital Association, in a statement. Investors in venture capital funds include pension funds, endowments, insurers, banks, corporations and rich individuals hoping to get above-average returns on their investments. Venture capital firms receive annual management fees as they invest in startups. The funded portfolios are typically active for about 7 to 10 years until profit is distributed to the portfolio investors. Venture capital firms also keep a percentage of the gains. The funding provided to venture capital firms comes even as the value of some highly valued startups has declined and as the market for initial public offerings has cooled. But the overall rate of return from VC portfolios is better than what it might seem. The 10-year return by venture funds for the period ended Sept. 30 was 11% versus 6.8% for the S&P 500 index and 7.9% for the Nasdaq composite, according to Cambridge Associates, a provider of investment advice and research. The largest recipient of funds in Q1 was Founders Fund VI portfolio, which raised $1.3 billion. The Founders Fund venture capital firm was launched by Peter Thiel, a founder of PayPal ( PYPL ) and an early investor in Facebook ( FB ). Founders Fund is an investor in SpaceX, which has a multi-billion dollar contract to resupply the International Space Station. SpaceX also has numerous contracts for the launching of satellites. Founders Fund is also an investor in accommodations listing provider Airbnb and music streaming service provider Spotify. The second- and third-largest funding amounts, both receiving $1.2 billion, went to Norwest Venture Partners XIII and Accel Growth Fund IV.

JPMorgan, Bank Of America Earnings Seen Hurt By Q1 Stock Volatility

The horrendous start to the first quarter for stocks, coupled with losses in energy and commodities, is expected to kick bank earnings in the teeth as JPMorgan Chase ( JPM ), Bank of America ( BAC ) and others report this week. Plunging oil prices in January and February sent the market into a tailspin, lodging its worst-ever start to the year. Accordingly, a weak environment for trading and capital markets is expected to hurt banks. JPMorgan and Citigroup ( C ) are among the lenders who have issued warnings on trading revenue. JPMorgan, which reports Wednesday, is expected to see its earnings decline 13% to $1.26 a share, according to estimates compiled by Thomson Reuters. Revenue is expected to fall 5.5% from a year earlier to $23.4 billion. The New York-based bank’s shares tumbled 10.3% during the first quarter. In February, the nation’s largest bank warned that its trading revenue should decline 20% in the quarter. The drop in trading revenue is expected to be exacerbated by the surge of the Swiss franc in January 2015, resulting in tough year-over-year comparisons. But CEO Jamie Dimon said at the time that improved market conditions in March could help. Dimon himself helped out in February, when he bought $26 million of JPMorgan shares. The bank also boosted its energy loan-loss reserves by $500 million for the quarter, though oil prices have rebounded somewhat since falling below $27 a barrel earlier in the quarter. BofA Earnings Bank of America, which reports Thursday, is seen earning 21 cents a share in Q1, down 22% from a year earlier, while its revenue is expected to decline 5.2% to $20.4 billion. The Charlotte, N.C.-based lender’s shares plunged 20% in Q1. Q1 typically is the strongest quarter of the year, but weak trading and investment banking revenue this year “would set up for a tough operating environment through the rest of 2016,” according to Jason Goldberg, an analyst at Barclays, in a research note last week. Wells Fargo’s Revenue To Rise Wells Fargo ( WFC ), which is also slated to report on Thursday, is expected to earn 97 cents a share, down 6.7%. But revenue is expected to grow a modest 1.6% to $21.6 billion. Its stock slipped 11% in Q1. The San Francisco-based bank focuses more on lending to consumers and businesses. As a result, it isn’t quite as exposed to stock market fluctuations as some of its rivals. But Wells Fargo set aside $1.2 billion last quarter for nonperforming energy loans. Also looming overhead is the constant concern over how many times the Federal Reserve will hike interest rates this year. After December’s 0.25 percentage-point increase, some Fed officials talked about four hikes in 2016. But the stock market’s gyrations, coupled with weak overseas economic growth, has led some to speculate that there will be two rate hikes — or maybe even none. Net Interest Margins In a healthy economy, higher interest rates help boost banks’ net interest margins, a key measure of profitability. A bank’s net interest margin is the difference between the interest it pays out to depositors and the interest it charges borrowers. “We want to see higher rates for the right reasons,” said Jeffery Harte, an analyst at Sandler O’Neill & Partners. “If the economy is strong enough to handle higher rates, that’s good news for the banks as well.” Analysts at Barclays said they’re closely watching Wells Fargo’s mortgage activity. UBS analysts last month rated Wells Fargo a sell, arguing that its portfolio is tilted toward risky energy and auto loans. Most analysts remain positive on Wells Fargo. Citigroup, Morgan Stanley, Goldman Sachs Citigroup will earn $1.06 a share, a 30% decline, analysts expect. The revenue forecast is for a tumble of 11% to $17.6 billion. The New York-based bank’s stock fell 19% during Q1. Citi reports Q1 results on Friday. In March, CFO John Gerspach warned that fixed-income trading is expected to fall 15% in Q1 and investment banking revenue is seen declining 25%. Morgan Stanley ( MS ) and Goldman Sachs ( GS ) report Q1 results next week. Both investment banks are expected to post year-over-year declines in EPS and revenue. Image provided by Shutterstock .

Alphabet Upgraded As Forex Headwinds Calm, Ads Strong

Alphabet ( GOOGL ), the parent of search leader Google, got a ratings upgrade and price target boost on Monday from Pivotal Research, which said it expects foreign-exchange headwinds to calm. Pivotal upgraded Alphabet stock to buy from hold, as well as hiking its price target to 970 from 800. Alphabet stock was up a fraction in afternoon trading in the stock market today , near 765. Alphabet reports Q1 earnings on April 21. Pivotal analyst Brian Wieser wrote in a research report Monday that he estimates Alphabet will log 16% revenue growth year over year in Q1, or 18% revenue growth excluding traffic acquisition costs — the fees Google pays to other companies to carry its ads. Alphabet’s dominant position in digital advertising alongside Facebook ( FB ) “is fundamentally unchanged, and we continue to expect Google to sustain double-digit growth rates in advertising on an ongoing basis,” wrote Wieser. The same factors that led to Alphabet’s growth in Q4 will continue, he said, including revenue from Google video wing YouTube and programmatic display-related ads. Wieser said he is watching display ad revenue because that growing share of Alphabet’s overall revenue mix is generally less profitable than search ads, “largely because of the needs to continually innovate on related products and provide service and marketing support to those products.” Programmatic advertising, for example, “does not eliminate the need for costly humans in the process of trading media, but instead requires different humans to manage these businesses,” he wrote. “This issue is exacerbated with YouTube, where content delivery and capital costs are even higher, and content costs are now a factor that both drives growth, but also constrains profitability.” Alphabet’s non-core, or “Other Bets,” are “likely to continue dragging on Alphabet overall , although at least their scale is relatively minimal overall,” said Wieser. For example, Nest, the smart home device maker Google bought for $3.2 billion in 2014 to compete with Apple ( AAPL ) in that growing market, is falling short of expectations, news site Re/Code reported last month. ITG Investment Research analyst Steve Weinstein, said in an industry note Monday he expects to see Alphabet post revenue of roughly $2 billion for “Google other” and $150 million for “Other Bets” for Q1, with total gross revenue coming in at roughly $20.57 billion, slightly ahead of consensus of $20.3 billion.