The Silicon Prairie may be taking shape…


November 11, 2019

November 11, 2019

TOGETHER WITH

POLICYGENIUS

 

Happy Monday, people. First, a big shout out to American veterans on this Veterans Day — thank you for your service. 

In totally unrelated news, it’s also Alibaba’s Singles Day — so hold onto your wallets and your PIN codes, people, because Big ’Baba is hoping to crank out more than $30B in sales.

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Indiana is rolling out a historic welcome mat for Big Tech. Is it clever… or is it crazy?

Indiana passed a new law offering any business that commits at least $750m towards building a data center in the state 50 freakin’ years of exemption from sales taxes, according to a Bloomberg report.

Since most local neighborhood tech startups don’t have $750m lying around, the legislation seems to be a clear effort to lure Google, Apple, or Facebook — all of which have data centers in other Midwestern states — to the Hoosier state. 

Other states also offer incentives, but Indiana’s is in its own league 

A total of 30 US states offer some kind of deal sweetener to encourage tech companies to build data centers within their borders. 

But, in most cases, those incentives (usually tax breaks) expire in 10 years — maybe 15 — instead of a half century. 

So the question is: Will Indiana’s offer be worth it?

First, the facts: Since Indiana’s sales tax is 7%, the deal would cost the state a guaranteed $70m in tax revenue (and potentially much more) if a company takes the bait for a $1b center. A data center of that size would also provide local construction companies with millions of dollars worth of contracts.

But, beyond those bare bones facts, opinions differ on the law’s ultimate  impact in terms of dollars and sense…

  • The case that it’s clever: Big tech companies are set to spend big bucks on data centers: In 2019 alone, Facebook, Google, and Apple plan to spend $16B, $13B, and $4.5B on data centers, respectively. So proponents of the plan argue that it will ensure a big chunk of that cash ends up in Indiana… and not elsewhere.
  • The case that it’s crazy: The law doesn’t guarantee jobs for Indiana, so critics of the plan say it could cost the state hundreds of millions of dollars without providing jobs or protecting workers. Plus, many construction contracts could provide one-time benefits, while tax breaks represent 50 years of costs.

Despite the controversy, other Midwestern states now must decide whether they should offer similar incentives or sit this round out: Michigan legislators are currently debating a proposal to offer data center sales tax breaks through 2055.

So this is either the start of a Midwestern arms race for data center supremacy — or a 50-year headache for Indiana. 

Want to read more about tech’s great migration to the Midwest? Check out this Hustle story about life in the “Silicon Prairie.”

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Dating app Bumble is acquired, but business is still buzzing

In a deal announced Friday, MagicLab leadership sold their stake in the app company — which owns Bumble — to the private-equity biggie Blackstone. The acquisition highlights Bumble’s growth and profitability.

The deal includes a smart exit strategy

As part of the deal, MagicLab founder and majority shareholder Andrey Andreev will sell his entire stake in the company. Bumble founder Whitney Wolfe Herd will retain much of her stake and become the CEO.

With about 75m users, Bumble is one of the top 10 lifestyle apps in the US. It is widely hailed as a feminist dating app because it’s designed to allow women to initiate all conversations… meaning fewer incidents of unsolicited phallus photos.

Things got weird when Forbes published an exposé this summer revealing a culture of misogyny at Badoo, another Andreev-owned dating app. His divestment in MagicLab allows Bumble to lose the baggage.

Meanwhile, let’s look at seriously sexy numbers

Blackstone earlier this year launched a business dedicated to growth investing. 

But rather than racking up minority stakes in unprofitable companies like Uber and Lyft — a standard investor practice for the past few years —  it is going for majority stakes in companies that can make money. MagicLab is profitable and it sees annual revenue growth of about 40%.

The Blackstone deal values MagicLab at about $3B — a nice bump up from a $1B acquisition offer from Match group. As part of the deal, Blackstone will invest in Bumble, which will allow it to expand geographically and develop additional services.

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Amtrak is finally on track to make a profit (well, almost)

Last week, Amtrak reported an operating loss of $29.8m across its entire transcontinental network of railroads in the fiscal year 2019 — a huge improvement over its $170.6m loss in 2018.

But, even more surprisingly, Amtrak also announced that it’s on track to break even by next summer — which would be a first in the company’s 48-year history. 

Wait a second — how has Amtrak never turned a profit?

It all has to do with Amtrak’s strange origins: The company — whose full corporate name is technically the “National Railroad Passenger Corporation” — was chartered by Congress to address declining railroad usage across the country.

So, while the company is technically private, it is also almost entirely owned by the government (and, well, you know how that goes… ).

But, although the company has relied on one continuous government rail-out for 50 years, it could finally straighten out its operation soon.

That’s right: Amtrak has finally achieved ‘economies of rail’

So, how did Amtrak reverse its fortunes?

Amtrak says it has doubled down on its service in the Northeast Corridor (AKA between DC and Boston), which is the only regional corridor where it actually makes money. Elsewhere, the company says it has plans to scale back its long-distance, cross-country trips.

The railway’s expansion efforts have garnered mixed reviews among customers in different regions. 

Critics have railed against the company’s plans to cut rural routes, while proponents have gushed over Amtrak’s plush new railcars as just the kind of infrastructural improvements they’d been freighting for.

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Small business of the week: Kickbike company makes “scooters sexy again”

One day, Jordan Crowder was watching Macklemore’s “Thrift Shop” music video with his daughter. As Mack rode out on an old school 80’s scooter, he thought, “I used to rock those!” His mind was blown when found the Finland-based retro scooter company Kickbike.

Crowder teamed up with Dave Nadolski, and they’ve introduced Kickbike to North America. The product is about more than looking cool. It has emerged as a cross-training and rehab tool for athletes. Dogs use the scooters for dryland mushing.  

The company recently launched their eCruise Electric Kickbike and is planning races and events. The business is making about $400k a year, with no debt and little  marketing. 

Crowder’s advice to first-time founders? 

“Entrepreneurs sometimes feel as if you need to invent something new, but often times, there is something amazing out there that already exists and just needs the right recipe of people and timing to make it something special,” he says. “You don’t always have to start from scratch.”

  • Founder: Jordan Crowder and David Nadolski
  • Employees: 3
  • Years in business: 5
  • Cost to launch: $10k
  • Funding methods: Personal savings
  • 1st-year revenue: $100k
  • Current annual revenue: $400k

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