So You Think Small Business is ‘Dead’


In late August, comedian Jerry Seinfeld took author / influencer James Altucher to the mat (via a NYT op-ed) on the latter’s widely circulated article that NYC is dead. Irrespective of one’s conclusions on the topic, we can agree that definitive statements calling for the “death” of anything – let alone New York City – can spark strong reactions. We enjoyed reading the moving and funny sparring – see here and here if you missed them.

In our galaxy far, far away – digital private credit – the sweeping proclamation we hear from myriad Cassandras is that “Small Business is Dead.” Given the range of challenges confronting the U.S. these days, how could small business be anything but dead?

We won’t even pretend to possess Jerry’s comedic wit to refute this claim; we are nerdy investors who dig into data and analyze trends. What we see is a divergent experience – one that mirrors the heterogeneity of small businesses: Some have shuttered, some are struggling, some are prodding along, and some are thriving. We also see that many small business owners harnessed their restless energy and resilience to adapt: they changed, mutated, and re-formed to survive and/or bounce back.

According to the U.S. Census Bureau’s Small Business Pulse survey (shown below), in late April, over 50% of respondents stated that the pandemic had a large negative effect on them. As of early September, this number has fallen to around 30%. Over the same timeframe, those that felt the pandemic had little or no effect increased from under 10% to almost 20%.

Data from the U.S. Census Bureau also indicates that the second quarter saw record levels of new business applications – an unexpected trend.

Statistics from our portfolios corroborate an improving environment for small business.  For example, beauty salons – one of the worst-hit small business segments in the country – have been performing at 80% of like-for-like 2019 levels, compared to 10% in April.

The digitization trend exposed the positive impact online adoption has had on small business – from enabling survival to sparking new concepts. One of the best proxies for small business activity in the U.S. is Square, Inc.  According to the company’s second quarter disclosures, over 25% of its merchant gross payment volume came through online channels, almost double the level of the previous year.  Square saw its market cap increase from $36 billion at the end of February to over $70 billion on August 31.

Another example of conviction in small business – and digital credit – is American Express’ announcement to acquire Kabbage, an originator of loans to small business, for a rumored $1 billion. According to media reports, American Express intends to use Kabbage’s technology and suite of products to offer a broader set of cash flow management tools and working capital solutions to small business customers.

Is Small Business Bruised, Beat Up, and Dented? Certainly. Worn Out? Probably. Retooled? Likely. Dead? No way.

See you at the corner store.

 

Confidentiality and Non-solicitation: No information herein constitutes an offer or a solicitation to buy or sell any securities or any interests in any product or investment strategy managed by HCG Fund Management LP (“HCG”).  Any offer or solicitation relating to any such investment will be made only by means of confidential offering documents and only in those jurisdictions where permitted by law.
Reliance: This presentation may not be relied upon for investment decision-making purposes. It does not contain all the information necessary to make an investment decision, including the risks, fees, and investment strategies of investment funds advised by HCG. Eligible investors are described in official offering documents, all of which must be read in their entirety and will supersede the information contained herein.  No offer to purchase any securities or interests by a prospective investor will be made prior to receipt of all official documents, and no offer to purchase any securities or interests will be accepted without receipt of all official documentation that has been completed to HCG’s satisfaction.
Opinions — No obligation to update:  The information contained herein represents the views and opinions of HCG.  It is intended solely for informational purposes and is not intended to constitute investment, legal, tax or accounting advice.  The views about digital finance investing and estimated future investment opportunities expressed herein reflect those of HCG management as of the date herein and are a reflection of our best judgment at the time.  They are subject to change based on market and other conditions, and we have no obligation to update.  Actual results, however, may prove to be different from our expectations.  No warranty is given to the completeness or the accuracy of the information contained herein.
Suitability and Risks:  Any such investment is appropriate only for financially sophisticated investors capable of analyzing and assessing the associated risks fully disclosed in the Private Placement and/or Information Memoranda. Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The Private Placement and/or Information Memoranda contain this and other information about the investment. A prospective investor should have no need for liquidity with respect to its investment and should view it as long-term and not a trading vehicle.  Additional risks are disclosed in the Private Placement and/or Information Memorandum including, including, limited liquidity and restrictions on transfer of the securities, dependence on HCG’s principals, and short operating history of certain products. As with all private investment funds, investments are deemed speculative and involve risk of loss.
Third Party Data: We do not verify third party data used in certain calculated metrics shown here. 

This material is confidential and intended to the recipient only. It cannot be republished, reproduced or retransmitted without our permission. No information herein constitutes an offer or a solicitation to buy or sell any securities or any interests in any fund or investment strategy managed by HCG Fund Management LP (“HCG”). Please see here for important additional information.