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Who knew? Tax talk can be used for more than just political debates

(BUSINESS FINANCE) Knowing how states collect taxes can help individuals and companies decide where to start or where to move. Do you know about your state?

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cash flow

Time to talk about taxes

Don’t run! I promise, this will be neither a) a godawful political screed on how The Fedral Gubmit should or should not be dealing with your funds nor b) a dust-dry finance tract riddled with the kind of economic obscurities that would make Andy Dufresne doze off.

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Instead, courtesy of Pew Charitable Trusts, here’s an easy-to-read breakdown of how and how much every state in the Union bring in their taxes.

8 flavors of taxes

Per Pew, state taxes come in eight conveniently color-coded flavors:

Personal income, the “ouch” that comes with the paycheck, the money taken out of what individual citizens earn.

Corporate income, the literal cost of doing business.

General sales, a little bit of extra money charged for (almost) everything. When by some weird, wee little number the price tag matcheth not the receipt, this is your guy.

Licenses, the little extra fee you pay for your official license to do anything worth licensing. Hunting, marriage, surgery: if you want the government to recognize that you can do it, pony up.

Other, where the tax code honors what makes your state… what’s a nice word? Special. What makes it special. Nevada skims about 8% of its annual revenue off casino and lottery winnings. That kind of thing.

Property, tax paid for the privilege of actually owning a thing, rather than borrowing it, renting it, or just generally hanging out with, on or by it.

Selective sales, tax applied to particular products as opposed to just everything. Rates are usually higher than general sales, and they’re frequently applied to things your state would rather you use less of. Alcohol, gasoline and tobacco are the big hitters.

Severance, the tax you pay for pulling nonrenewable resources out of a state so you can sell them, because then they’re not there anymore.

Matt’s Glossary of People Taking Your Money

What’s the value of Matt’s Glossary of People Taking Your Money, you ask?

The value is that understanding how the tax structure works, and above all what places do it in which ways, is how you keep as much of your coin as possible.

Try it like this

Imagine, if you will, the life of a prospector in North Dakota. I assume you have a mule, some overalls, one of those helmets with the little light on it (I have never been to North Dakota).

Like any self-respecting member of your profession, your dream is a comfy digging operation where you can cook your sourdough and play your harmonica in profitable peace.

Before you pound in your tent stakes, it might just be worth your time to know that your home state makes 41.8% of its tax revenue in severance tax, which is to say, taxes levied on your business model. Hop the border to Montana? 6.3%. Oh, and if you can find something to dig up in Iowa, guess what? No severance tax. At all.

That’s how it works everywhere

AG’s beloved home of Texas lives and dies by general sales tax: 62% of state tax revenue. There is no, repeat no, personal income tax at the state level. Instead, we charge 6% extra on everything. That makes Texas utterly rad if you roll with comparatively high income and comparatively few purchases.

By contrast, Oregon gets 70% of its state income from personal income tax.

Ouch, right?

But there’s no sales tax. If your lifestyle, business plan or both involve a whole lot of buying and selling, going Evergreen rather than Lone Star, much as I hate to say it, could be what it takes to bring your business to life.

That’s why this matters

“Taxes” aren’t one thing. They’re a field, a complex interaction of policies, and understanding how – and where – they work is make-or-break knowledge for any serious entrepreneur.

Dig in the right spot.

#MattsGlossary

Matt Salter is a writer and former fundraising and communications officer for nonprofit organizations, including Volunteers of America and PICO National Network. He’s excited to put his knowledge of fundraising, marketing, and all things digital to work for your reading enjoyment. When not writing about himself in the third person, Matt enjoys horror movies and tabletop gaming, and can usually be found somewhere in the DFW Metroplex with WiFi and a good all-day breakfast.

Business Finance

What this Gamestop stock upheaval could mean for the future of finance

(BUSINESS FINANCE) Yay America! We’ve witnessed our first populist uprising in finance, all thanks to the Gamestop drama unfolding in the last week.

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Gamestop storefront in a shopping mall.

If you haven’t been living under a rock for the last week, chances are you’ve heard about the drama surrounding the GameStop stock. Essentially, GameStop – or that spot I used to frequent in middle school to search through bins for used N64 games – has become the epicenter for what’s being called the first populist uprising in finance. We love to hear it.

What happened?

For some background, GameStop became one of the most shorted stocks on the market. Groups within Wall Street’s hedge funds, known as the short sellers, have been colluding with each other and using the media to manipulate the market – and in doing so, were able to drive down the value of specific stocks (i.e., GameStop, which was essentially put on-course for bankruptcy) and, in turn, collect billions. This is common, legal practice on Wall Street. Just in case you were wondering.

Enter Reddit’s r/WallStreetBets page; another key player in this drama. With just shy of 2 million users last week (and now with over 7.4 million), WallStreetBets is a place where amateur day traders can exchange tips on penny stocks and rake in the “tendies”. Recently, one user popularized the fact that over 100% of GameStop’s stock was being shorted for no valid reason, so many from the group decided to take action – they began buying up cheap shares of the stock and demanding that their brokers not lend their stocks to short sellers, which in turn exploded the market value of GameStop as the short sellers attempted to “cover their shorts”.

Long story short (ha!), the entire GameStop drama has resulted in at least $3.3 billion disappearing from hedge fund balance sheets. One of the Wall Street hedge funds targeted by the Redditors, Melvin Capital, had to take a $2.75 billion bailout from other industry insiders. GameStop’s stock skyrocketed from $17.25 at the beginning of the year to $325 by this past Friday – reportedly the largest gains the company has seen in 18 years.

What you should consider

  • GameStop is brick-and-mortar. They sell the clunky, physical versions of games, which can be bought online with less hassle. Let’s face it; outside of the few nerds who still enjoy the experience of standing in line to be the first to buy the new game, the retailer is essentially becoming obsolete. COVID, of all things, has only expedited this process. Even with the release of new gaming consoles, such as the PS5, the likelihood of GameStop bouncing back to its former heyday is highly unlikely. Hence the term “meme stock”. With a meme stock, users chose to invest in the name of an allegiance, based on a feeling, or just “for the lulz”, not because of perceived value. Wall Street elites do this all the time (Tesla, anybody?), but with the complicity of the media so we all buy into it as well. When people say: “The stock market is just a graph of rich people’s feelings”, they’re not kidding.
  • Many of the involved Redditors are likely unemployed millennials, disenfranchised by the economic fallout from the pandemic, who have sat by and watched as the rich have gotten richer. Like, so much richer. According to some, this movement is less about the financial gains (though they must be sweet) and more about screwing the shorters – it’s about pointing out how corrupt a minimally-regulated free market is when it is only truly serving the elite inner circles of Wall Street at the expense of everyone else. So why can shorters short with mainstream backing just because they’re wearing suits?
  • While I wish GameStop-gate was a simple populist win, it’s important to note that the rich own most of the market shares. Though some Wall Street wealth is undoubtedly being redistributed into the pockets of Main Street right now, let us not forget that a byproduct of the Redditors’ rebellion is that the already rich stockholders are now even richer. This poses the question of if you can have a real populist financial uprising if you’re working within the current market systems in place, which are designed to feed the few and deregulated to insure it.

What does the future hold?

Good question. As of now, everyone is scrambling to make sense of what has happened; Redditors are celebrating with a sleuth of victorious memes while politicians (*cough* Janet Yellen), the hedge funds, and the media gatekeepers are calling foul play, collusion and even meddling from the Russians (LOL).

Also, can we talk about the fact that the politicians (on both sides!) who reacted so urgently to the GameStop mania were the same ones dragging their feet to come up with a stimulus checks agreement?

In addition, Robinhood — the now infamous commission-free investing tool — put a pause on GameStop and other meme stocks, like AMC, Nokia, BlackBerry, and American Airlines. Others want the FCC to get involved. The pot WOULD call the kettle black.

All this being said, I think that GameStop-gate has, in a lot of ways, opened Pandora’s box, exposing the possibility of power-shifts and new financial realities to many who might feel powerless and financially vulnerable, especially right now. That the average Reddit day trader, when properly rallied alongside her fellow troops, could give such a massive middle finger to the hedge funds and make a little extra cash along the way is truly inspiring.

I think we’re going to see more meme stock shenanigans (AMC’s stock had quadrupled at one point!), and the weeding out of greedy short sellers with the methodical drole-ness that only a subreddit could conjure. Unfortunately, I do also see an eventual crash, a bubble bursting, that will leave many investors who didn’t get out in time at a loss. And many plan on riding out the storm, when she comes, in solidarity.

Gamestop stock meme - Billionaire encourages middle class to invest in stock market, increases stock against them, Billionaire gains angry eyebrows in response.

My two cents

Don’t get me wrong – I don’t think short selling as it stands now should be legal, nor do I think speculative buying is a good idea. It’s gambling. And it’s dangerous.

But the Government would never enforce a blanket policy against all speculative buying, not when the billionaires who reap the majority of the benefits are buddy-buddy with the media and lawmakers. Plus, how would the right, in all its free-trade glory, react to increased market regulations? Could this mania uncover the elusive partisan glue we’ve all been looking for? Oh, how the turn tables.

My take? Beyond everything else, I see this as an opportunity for something even larger. We’ve learned that everyday people like you and me can be a part of something greater; something that shakes our market’s foundations. GameStop (sorry nerds!) is a random company that doesn’t have too much appeal beyond the games they sell (the same ones you can get online).

But what if we could drive up the market price on other companies that are being shorted for the wrong reasons? Companies that we could all get behind, such as ones that pay their workers well or that share equity with their employees. What we’ve learned from this all is that with collective action directed towards the corrupt “cartel” of Wall Street’s inner circle, you can take key players down and make waves.

And, at the end of the day, isn’t that the best way to approach a free market — to make it serve the people?

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Business Finance

6 questions to ask when considering a startup accelerator

(BUSINESS FINANCE) Accelerators can help change startups from unknowns to leaders in the industry, but does your startup need one? And if so, which one?

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accelerator pitch

When I’m advising startups, I often hear the question: “which accelerator is the best fit for me?” (Besides the obvious YC or Techstars.)

First off, I’ll ask if your company would benefit from an accelerator, or if you need to pursue something for early early stage companies before you achieve more market validation, like an incubator. (Side note: If you’re curious about incubators, here is a comparison of the two.)

If you’re new to these terms, here’s a brief recap on startup accelerators:

Startup accelerators are for companies with established co-founders and market validation – companies can be anywhere from pre-revenue/self-funded, or even have raised at least $1M.

Most programs can last anywhere from 10 weeks to 3-4 months. With many top accelerators like YC and Techstars, you’ll be expected to move to the city where it’s hosted and spend 40+ hours a week minimum in their dedicated coworking space, and several accelerators will often offer housing stipends to make the move easier. These programs typically conclude with a demo day to pitch your product to a variety of community leaders, angel, and institutional investors.

If your product has achieved market validation and is in a place where you’re ready to scale, congrats!

Before you commit to an accelerator, ask yourself and the program these six questions:

1. What kind of mentorship is available?

By and large, one of the most valuable portions of an accelerator is the networking with peers and mentors. Ask what kind of mentors are available to you as a part of a program, and ask their specific involvement and the opportunities to connect. These mentors will be crucial in guiding your company’s growth. Even if they aren’t in the same industry or have solved a similar problem that your company is trying to achieve, their advice and connections could prove to be invaluable.

2. What are the perks?

You’re giving up a lot of equity to be in a program, but it doesn’t come without its perks. Many programs offer not only a cash investment or stipend for housing or other growth costs, but programs like Techstars offer free services such as web hosting costs (an upwards of ~250k), legal and accounting services, and other credits and perks that can be worth 6-7 figures. Make sure you know what you’re getting before you say yes to a program.

3. Do I want an industry-specific or industry-agnostic program?

This one is important and is directly related to #2. If your company sells CPG products, web hosting credits may not be valuable to your business, but a CPG-specific accelerator like SKU or The Brandery with direct connections to Sephora, Target, and Whole Foods may make more sense.

4. How much equity am I willing to give up?

Try not to make this a guessing game and make as many data-driven decisions on this as you can. Create a revenue and valuation model and see how much your company would benefit from the networking, fundraising opportunities, and perks offered, and see what the ROI would potentially be.

5. What are the funding and exit numbers?

This is an objective way to view the success of an accelerator: # of funding raised and exits. Of course, younger accelerators will have smaller numbers, but it’s worth looking to see if a company has raised $ after. Seed-DB is a great resource to view these numbers for hundreds of accelerators globally.

6. What do alumni think?

All accelerators are going to tout the transformative experience that is their program, and program mentors will likely have a similar narrative.

The best resource to learn the real experience of an accelerator: ask its alumni, and they’ll give you the truth. Make sure to survey both recent and more experienced alumni, as they’ll be able to speak to both the short term and long term benefits.

Personal experience: the night before I was set to hear from an accelerator on my application status, two alumni stressed to me that the time and equity investment wasn’t worth it. I consider this providence!

Finally, two items to note:

Choosing an accelerator is all about finding the right fit between you and the organization. Sadly, not all accelerators are created equal, and try to view a potential relationship with an accelerator as an investor relationship, or better yet, dating. There’s a reason the phrase “no money is better than bad money” is prevalent in the startup community.

Make sure to do your due diligence and ask the right questions to make sure a specific program is worth the investment of time, energy, and equity.

And sometimes? That may not mean an accelerator is a right fit right now or at any point, and that’s okay.

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Business Finance

Under-representation of women in fintech: Let’s talk about it

(BUSINESS FINANCE) Representation of women in fintech remains scarce despite a prevalent population of interest. Why is this the case, and what can we do about it?

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Woman reading a document in front of her computer, one of the women in fintech.

Women are 50% of the population – so why are there only 9 of us on the 2020 Forbes Fintech 50?

I’m personally shocked by how underrepresented women are in such a lucrative industry. By 2022, it’s predicted that fintech, or financial tech, will be worth $26.5 trillion, and we cannot afford to miss out.

And I’m serious when I say fintech is truly taking over. This includes payment processing, online and mobile banking, person-to-person payments (think Venmo or Cash App), financial software, to name a few. For some perspective, half of consumers use digital banking services as the primary way to manage their money. That’s a big deal.

So why does it matter that women are drastically underrepresented in leading roles at these companies?

  • Women CEOs receive only 2.7% of all VC funding – that is astonishingly low, considering that the remaining 97.3% is secured by their male counterparts.
  • While a study conducted by the Harvard Business Review on leadership skills found that women scored higher than men in 17 out of 19 categories (I could’ve told you that), women founders make up only 17% of fintech companies. Some of the categories tested on were:
    • Bold leadership
    • Taking initiative
    • Resilience
    • High integrity & honesty
    • Collaboration and teamwork (this is a big one!)
    • Inspiring & motivating others

If you’re a woman interested in business, tech, or entrepreneurship looking to break into the big leagues, here’s some exclusive advice from lady CEOs, founders, and COOs:

  • Stay Passionate
    Suneera Madhani, Founder + CEO of Fattmerchant, says: “…remember why you started and hold that close to your heart when times get tough.”
  • Be Open to Learning
    “Never behave as the smartest person in the room because you may miss some of the best ideas.” Says Snejina, Co-founder + CEO of Insurify.
  • Trust Your Intuition
    As the Founder + CEO of Tala, Shivani Siroya urges us to: “Stay excited, focused on results and be incredibly optimist. It’s okay to really believe in your gut – just make sure that you see the results with it.”

2021 is a new year full of opportunity – even though the odds are (and always have been) stacked against us, let’s have this be the year where women techies and business owners capitalize on their leadership skills. We have lost time – and profit – to account for.

Author’s Note: Thank you to CreditRepair for the linked infographic!

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