November 26, 2023: Fourth Straight Up Week; OpenAI Drama Over For Now

Last week, Dow Jones rose 1.3%, S&P 500 was up 1%, and Nasdaq gained 0.9%. Market indices have had a good November, approaching 2023 highs. The VIX is at lows, leading some investors to believe that the market is due for a healthy consolidation or pullback. In the most captivating story in tech last week, OpenAI said it had reached an agreement “in principle” for Sam Altman to return to the startup. Altman, who was fired just last Friday as CEO, had agreed to an internal investigation into alleged conduct that prompted the company’s board to oust him. The Board was reportedly concerned a new Q* breakthrough could threaten humanity, by enabling AI to “surpass humans in most economically valuable tasks”. An OpenAI employee share sale that values the firm at US$86 billion is back on track following Altman’s reinstatement as CEO. Nvidia forecasted US$20 billion revenue next quarter, expecting a negative impact from China, the stock fell 1.5% after hours. Regulators in Europe and China have questioned Nvidia how it allocates its supply of highly sought-after chips. Apple’s Vision Pro is still not quite ready for launch, and is likely to release around March. Binance’s CEO has stepped down, pleading guilty to federal crimes. The SEC is suing crypto exchange Kraken. In Canada, Sophic Client, Ionik acquired substantially all of the assets of S44 LLC (SHIFT44), for a total aggregate purchase price of ~US$40 million payable in cash, debt and stock. On November 23, 2023, Ocean Infinity Group Limited, sold all of its 21,280,000 shares in Sophic Client Kraken Robotics for ~$0.5011 per share, clearing an overhang on the stock. Sophic Client, Clear Blue partnered with Watt Renewable Partners for its scale up in Nigeria and across Africa. The companies plan to deploy 1000 solar hybrid powered systems for telecom towers across Nigeria and Africa over the next three years. Watt has purchased 160 systems from Clear Blue for a total purchase price of $1.58 million.

Sophic Client Ionik (INIK-TSXV, INIKF-OTCQX) acquires SHIFT44.

PopReach Corporation (dba Ionik) announced that it has acquired substantially all of the assets of S44 LLC (SHIFT44), a first party data acquisition, lead generation and performance marketing platform headquartered in Holbrook, New York for a total aggregate purchase price of approximately US$40.0 million, with the total consideration consisting of a combination of cash, debt and stock. SHIFT44 organically grew revenues at over 15% in its most recently completed fiscal year. The company generates consistent Adjusted EBITDA and Adjusted Free Cash Flow and operates at a financial scale that is a solid enhancement to Ionik’s accelerating financial profile. SHIFT44’s targeted performance marketing platform materially accelerates the growth of Ionik’s first party data asset that is at the core of any performance marketing company’s competitive advantage. Ionik acquired substantially all of the assets of SHIFT44 for aggregate consideration of approximately US$40.0 million, being comprised of US$17.75 million in cash, the issuance of 4,790 Class B non-voting shares of Acquisition Subsidiary, and the issuance of a convertible debenture in the aggregate principal amount of US$16.75 million. The Purchaser is also assuming up to US$1.0 million in current liabilities on SHIFT44’s balance sheet. The Debenture is non-interest bearing, repayable on November 30, 2026 and convertible into Ionik Shares at the option of the Seller exercisable at any time prior to November 30, 2026 at US$0.78 per Ionik Share, representing a premium to the Closing Price of approximately 630%. The Bank of Montreal, as the sole arranger, sole bookrunner and administrative agent, and National Bank of Canada, Export Development Canada and Toronto Dominion Bank, as syndicate lenders, under Ionik’s US$115 million syndicated credit facility previously announced on May 25, 2023 (the “Syndicate Credit Facility”), have shown their support for the Transaction by approving an advance under the Syndicate Credit Facility’s Delayed Draw Term Loans to fund the full amount of the Cash Consideration payable in connection with the Transaction. https://bit.ly/3szWiEO

Ocean Infinity Group Limited announces disposition of shares in Sophic Client Kraken Robotics (PNG-TSXV, KRKNF-OTC).

On November 23, 2023, the Corporation sold (the “Disposition”) all of the 21,280,000 common shares (“Common Shares”) in the capital of the Issuer held by the Corporation, by way of a block trade over Cboe Canada. Aggregate consideration for the Disposition was CDN$ 10,663,408 (or approximately CDN$0.5011 per Common Share). Immediately prior to the Disposition, the Corporation had beneficial ownership of, or control and direction over, 21,280,000 Common Shares, representing approximately 10.3% of the issued and outstanding Common Shares, on a non-diluted basis (based on the number of Common Shares most recently reported by the Issuer as being outstanding). Following the Disposition, the Corporation no longer has beneficial ownership of, or control or direction over, any Common Shares. Ocean Infinity held a small minority ownership position in Kraken that became non-core as its business expanded to include surface robotics. The Disposition was made to redeploy funds away from its Kraken position at a good profit after 5 years of ownership. Ocean Infinity remains committed to working with Kraken as one of its key suppliers to its subsea data services business. https://tinyurl.com/9euutke7

Sophic Client Clear Blue (CBLU-TSXV, CBUTF-OTCQB) partners with Watt Renewable Partners for its scale up in Nigeria and across Africa.

The companies announced a preferred partnership to deploy a planned 1000 solar hybrid powered systems for telecom towers across Nigeria and Africa over the next 3 years. In October, WATT Renewable announced it has secured US$13 million in funding to support its development plans and for the initial stage of 250, and has purchased 160 systems from Clear Blue for a total purchase price of $1.58 million. Alongside the above purchase, the Parties have executed a Preferred Alliance Agreement, which will see WATT and Clear Blue work together to expand their mutual businesses across Africa. https://bit.ly/47FNj3E

Microsoft looks to scale Québec presence with US$500 million investment.

Microsoft is betting big on Québec as the tech giant earmarks $685 million (US$500 million) to expand its cloud computing and AI infrastructure in the province over the next two years. Microsoft’s investment is aimed to support the construction of multiple data centre locations in Québec, which it expects to launch over the coming months. The firm expects these centres to expand the firm’s computing capacity by approximately 240 percent over the next three years. According to an Ernst & Young report, Microsoft’s existing presence in Québec already contributes $6.4 billion annually to the province’s GDP and supports over 57,000 jobs In addition to its world-renowned AI sector, Québec is also becoming a fast-growing hub for quantum computing, another area Microsoft has taken an interest in. Just last week, the firm participated in a US$100 million funding round for and initiated a strategic partnership with Vancouver-based quantum startup Photonic. https://tinyurl.com/4p9wuaw8

Active Impact Investments launches third climate tech seed fund with $70 million in initial commitments.

Vancouver-based Active Impact Investments has secured over $70 million in initial commitments for its third fund, which will continue the firm’s focus on early-stage climate technology startups. Active Impact aims to raise a Fund III that is twice the size of its second fund, seeking a total of $120 million, the remainder of which it hopes to close in early 2024. These commitments bring Active Impact more than halfway towards that target, at a time when many other venture capital (VC) firms and startups alike are struggling to fundraise. https://tinyurl.com/yc4fmkbu

FinTech startup Peloton Technologies closes $2 million in seed financing.

Victoria-based FinTech startup Peloton Technologies has secured $2 million in seed funding just three weeks after acquiring KIS Payments. A spokesperson for Peloton declined to disclose the investors in the company’s latest equity round but noted that their expertise spans payments, banking, risk management, compliance, accounting, IT architecture, and securities law. https://tinyurl.com/5n64ad95

Canadian SaaS investment rebounded in 2023, reaching nearly $7 billion.

Last year’s SaaS investment results were characterized as a “disaster” by L-Spark executive managing director Leo Lax, as investment fell by nearly 60 percent from the $9.16 billion raised in 2021. “2023 has been a year of constant change. Economically, geographically, politically, and financially. Our industry has suffered accordingly,” Lax said in the report. While SaaS investment in 2023 is still short of its 2021 peak by over $2 billion, it represents a marked improvement in what remains a challenging fundraising environment for Canadian software startups. Investment in 2023 has also exceeded pre-pandemic years like 2019, which saw $5.13 billion in financing deals. The report’s findings are generally in line with investment figures released by the Canadian Venture Capital and Private Equity Association (CVCA) last week. That report found that Canada’s investment results in Q3 2022 signal a return to pre-pandemic normalcy. https://tinyurl.com/43msybpz

Wealthsimple rolls out private equity offering for retail investors.

Toronto FinTech startup Wealthsimple has launched a new private equity (PE) offering. The move makes the traditionally tough-to-access asset class available to select retail investors using Wealthsimple’s investment platform. Wealthsimple Private Equity is being delivered in the form of a new fund managed by Switzerland-based co-investor LGT Capital Partners, the Liechtenstein royal family’s wealth management group. PE now marks Wealthsimple’s third alternative investing option for retail investors, alongside its venture capital (VC) and private credit offerings. Through these options, Wealthsimple aims to give qualified retail investors access to asset classes typically available only to institutional investors and the ultra-wealthy. In May 2021, Wealthsimple raised $750 million from a list of big-name backers at a post-money valuation of $5 billion, making it one of Canada’s most highly-valued tech startups. https://tinyurl.com/yc5hm4vf

Altman agrees to internal investigation upon return to OpenAI.

OpenAI said Tuesday night that it had reached an agreement “in principle” for Sam Altman to return to the startup as CEO. Altman, who was fired on Friday as CEO of OpenAI, had agreed to an internal investigation into alleged conduct that prompted the company’s board to oust him, The Information reported. As part of a compromise deal to return to OpenAI, neither Altman nor former OpenAI President Greg Brockman, who also departed Friday, will be on the company’s board. Brockman was the chair of OpenAI’s board before Friday’s shakeup. The returning executives also agreed to a new three-person board that includes Quora CEO Adam D’Angelo, who was part of the old board that fired Altman. The new agreement means that OpenAI is retaining its structure in which a nonprofit—where the three person board resides—oversees a for-profit arm, which holds the employees and business. https://tinyurl.com/arauc9du

OpenAI’s employee share sale to continue after Altman returns.

An OpenAI employee share sale that values the firm at US$86 billion is back on track following Sam Altman’s reinstatement as CEO late Tuesday night, The Information reported. The deal, which is led by Thrive Capital, would buy up to US$1 billion of stock or more from employees and other investors. It is expected to close next month. Other investors that were expected to participate, at least before the Altman saga, included Ashton Kutcher’s Sound Ventures, which had committed about US$100 million to the tender offer. The tender is significant because employee share sales are the easiest way for outside investors to buy into OpenAI. The US$86 billion valuation tripled the price of a previous tender in April, reflecting how much OpenAI’s business has exploded this year, since its release of ChatGPT in late 2022. https://tinyurl.com/5yzzpt8r

OpenAI board was concerned a new Q* breakthrough could threaten humanity.

The mystery of what led the OpenAI board to take the precipitous step of firing CEO Sam Altman may now have been solved. A new report says a number of researchers warned them of a new breakthrough which they said could threaten humanity – after Altman seemingly failed to inform them. In a letter to the board, the researchers suggested that the breakthrough – dubbed Q* and pronounced Q-Star – could let AI “surpass humans in most economically valuable tasks” https://tinyurl.com/4tvwzbma

OpenAI’s Board approached Anthropic about merger.

OpenAI’s board of directors approached Dario Amodei, the co-founder and CEO of rival large-language model developer Anthropic, about a potential merger of the two companies, said a person with direct knowledge. The approach came after OpenAI’s board had fired CEO Sam Altman on Friday and was part of an effort by OpenAI to persuade Amodei to replace Altman as CEO, the person said. It’s not clear whether the merger proposal led to any serious discussion. Amodei quickly turned down the CEO offer due to his position at Anthropic. The 2-year-old startup, which sells Claude, a chatbot that competes with OpenAI’s ChatGPT, is in fierce competition with OpenAI to recruit researchers and win customers. The proposal for a merger is a major turnabout for OpenAI, which until Friday had been the clear leader in a race to develop generative AI products. Amodei is also a former employee of OpenAI who with a group of others left in late 2020 to launch Anthropic over concerns the company was moving too quickly to commercialize its technology. Amodei has been an outspoken advocate of the need for caution in AI development. At a conference in September, Amodei stressed the need for increased regulation to make sure AI systems can’t be used for nefarious purposes like developing biological weapons. Anthropic has a large team of staff focused on ensuring “alignment,” or making sure the AI reflects human values. https://tinyurl.com/4p2car86

Nvidia forecasts US$20 billion next quarter, expects negative impact from China.

Nvidia’s revenue continued to surge in the past quarter, driven by demand for its graphics processing units, which are used to develop artificial intelligence software. Revenue rose 206% percent to US$18.1 billion in the three months ended October 29 compared to the same period last year. Nvidia’s data center chip revenue, which includes GPU sales, was US$14.5 billion, accounting for 80% percent of total revenue. Sales of the chips were split between cloud providers, which rent out the chips to customers, and big companies which buy their own. Nvidia projected revenue would soar to US$20 billion in the current quarter, up 230%, although Colette Kress, Nvidia’s chief financial officer said revenue would have been even higher had there not been new restrictions imposed by the federal government on what semiconductor firms can sell to China and other countries. Kress told investors that revenue from these areas will “decline significantly” next quarter. China typically represents 20-25% of Nvidia’s revenue. Nvidia’s stock fell 1.5% after hours. https://tinyurl.com/ea57xfb6

Zoom posts slim revenue growth, improves profitability.

Zoom Video Communications reported 3.2% growth in October quarter revenue, the latest sign that growth has almost evaporated for the once high-flying video conferencing firm. Zoom’s cash generation, however, remains robust. Free cash flow totaled US$453 million, up 66%, the highest it has been in six quarters. Subscription sales to enterprises accounted for most of the company’s revenue growth, increasing 7.5% year-over-year. At nearly US$661 million, enterprise revenue accounted for 58% of Zoom’s top line. On the flip side, subscriptions sold to individual consumers online shrank 2.4% in the quarter, though it still represented more than 41% of Zoom’s top line. The company has streamlined expenses, thanks in part to its decision to lay off 15% of employees, or roughly 1300 people, earlier this year. Operating margin widened more than eight percentage points to nearly 15% in the quarter. Zoom raised its revenue forecast for the rest of the year, but still expects that revenue for the full year will be just 2.7% higher than last year. The stock is down 1% this year. https://tinyurl.com/mpu99s96

Chinese search giant Baidu reports ad sales recovery.

Chinese internet search giant Baidu’s revenue for the third quarter rose 6%, thanks to a recovery in ad sales. Baidu’s online marketing revenue in the quarter rose 5%. Last year, China’s advertising market slowed down sharply, as the country’s draconian Covid-19 lockdowns dealt a blow to numerous domestic businesses. In the third quarter of 2022, Baidu’s online marketing revenue dropped 4%. Despite the recovery in ad sales, Baidu, whose shares are listed in New York and Hong Kong, faces bigger challenges as it tries to become China’s domestic leader in the development of artificial intelligence. Last month, Baidu unveiled Ernie 4.0, a new version of its conversational AI software also known as a large language model, as well as new applications powered by the model. But it’s unclear whether those efforts will lead to more revenue or profits. Analysts say fierce competition in China could make it hard for Baidu and its local rivals to collect meaningful fees from businesses that use their AI models for building apps. https://tinyurl.com/2s4zaf43

EU set to approve Amazon’s iRobot acquisition.

Amazon’s US$1.4 billion acquisition of Roomba maker iRobot is set to receive unconditional antitrust approval from the European Union, Reuters reported on Thursday. iRobot shares were trading up 39% at US$41.45 as of midday on Friday, though that’s still well short of the companies’ proposed deal price of US$51.75 per share. Amazon and iRobot first announced the deal in August 2022. The U.K.’s Competition and Markets Authority approved the deal this June, while the U.S. Federal Trade Commission is still reviewing it. The FTC did not mention Amazon’s proposed iRobot acquisition in a wide-ranging antitrust lawsuit it filed against the e-commerce giant in September. https://tinyurl.com/5n86wczw

Cruise plans service resumption in a single city.

Robotaxi developer Cruise plans to resume service on a much smaller scale, after a series of recent setbacks that saw its license revoked in California and the resignation of CEO Kyle Vogt. Cruise, which is majority owned by General Motors, said it is planning to retart in an unspecified city before expanding to elsewhere, Reuters reported on Thursday. Cruise also plans to cut some jobs, mainly in non-engineering roles, and more details will be provided in mid-December, according to the report. Last week, Vogt announced his resignation on X after Cruise’s license was revoked by the California Department of Motor Vehicles. The license revocation happened after Cruise allegedly didn’t reveal the full extent of an incident in October, when one of its driverless vehicles dragged a pedestrian who got stuck underneath the vehicle. Cruise is valued at US$30 billion on paper and has about 2,000 employees. It lost more than US$1.7 billion in the first nine months of the year, The Information reported previously. https://tinyurl.com/2y77e63f

Apple Vision Pro still not quite ready for launch, likely to release around March.

In the latest edition of Mark Gurman’s Power On newsletter for Bloomberg, he writes that Apple had at one time planned for the Apple Vision Pro headset to be released in January 2024. However, the company is still preparing distribution plans for the product and doing final device testing. For its part, Apple has officially said the Vision Pro will go on sale early next year in the United States. Gurman says he now expects that the device will debut “sometime around March”. Apple Vision Pro will launch first in the United States, with availability in additional international countries following later in 2024. Apple is expected to sell the device by appointment only in Apple retail stores, or on the web through the Apple online store. https://tinyurl.com/3r755vxh

Unsealed Meta lawsuit reveals internal knowledge of teen harms.

Newly unsealed portions of a lawsuit filed by a collection of state attorneys general against Meta Platforms has offered fresh insights into what the company knew about how its apps harm teenage users—and how, on several occasions, senior leaders thwarted measures to promote teen well-being. The unsealed passages include material about an internal test conducted in 2021, which showed that after a “test user” followed several Instagram accounts promoting eating disorders, the app’s recommendation system pushed the user to follow more accounts related to anorexia. An internal presentation from the same year, which is also cited in the suit, notes that teenage users struggle with “constant negative comparisons” on Instagram because of the types of content they are recommended and the fact that “like” counts on their posts are visible to all. Meta has been focused for several years on getting more teenagers on its apps after observing a decline in young users and battling competition from TikTok. The lawsuit surfaced an internal email from 2018 showing that Meta considered “The lifetime value of a 13 y/o teen is roughly US$270 per teen,” undercutting the company’s public denials that it places a monetary value on young users. https://tinyurl.com/ybccavm3

Nvidia probed by EU, Chinese regulators over GPU sales.

Regulators in Europe and China have questioned Nvidia about how it allocates its supply of highly sought-after chips used for running AI software, the company said in a regulatory filing on Tuesday. The chips, known as GPUs, have been in high demand over the past year as developers have embraced generative AI software en masse. The demand for GPUs has meant that customers of cloud providers like Google, Microsoft, and AWS often wait months to rent GPU servers. Nvidia has capitalized on the shortage by routing chips to smaller cloud computing companies, including those it has invested in, The Information has reported. In Tuesday’s filing, Nvidia said regulators in the EU and China requested information about “our sales of GPUs and our efforts to allocate supply.” The company’s offices were raided by French regulators in September as part of an antitrust probe, The Wall Street Journal reported at the time. https://tinyurl.com/mr254jua

Elon Musk should face an SEC probe over his claims that no monkeys died as a result of Neuralink implants, lawmakers say.

Elon Musk is facing renewed scrutiny over the deaths of Neuralink’s test monkeys as the company prepares to begin human trials. Four members of the House of Representatives have written to SEC chair Gary Gensler asking the regulator to investigate the Tesla CEO for securities fraud over statements he made about Neuralink’s brain chip. The news comes after reports that a dozen monkeys experienced a range of health issues after having the implant installed, before they were eventually euthanized. Musk has long faced intense controversy over claims that the monkeys Neuralink tested its brain interface technology on had experienced “extreme suffering.”. https://tinyurl.com/ycxzrpac

Adobe: Thanksgiving US online sales nudge up to US$5.6 billion; Salesforce: US$31.7 billion spent globally.

Adobe Analytics said that people in the U.S. spent on Thursday spent US$5.6 billion online, which it calculates at an increase of just 5.5% on last year. Salesforce, which also calculates sales based on data collected by its Commerce Cloud division, noted that globally, online sales reached US$31.7 billion with its U.S. tally at US$7.5 billion — both up only 1%. Salesforce’s calculations of average order value were equally modest. Globally, average orders were up just 2% to US$103 per “basket” while in the U.S. they were up a paltry 1% to US$119. Mobile devices had a standout year: Adobe said that some US$3.3 billion was spent over mobile devices on Thanksgiving, up 14% and an all-time record for the day. Salesforce added that online traffic in general to e-commerce sites, which will include browsing, were up too, but again only in single digits of 4% globally and 6% in the U.S. For some context on today’s Thanksgiving figures, last year’s published figures from Adobe were US$5.29 billion, which actually represents an increase of just under 4%. (It’s likely Adobe Analytics readjusted its final figures for last year, which is why we see a higher percentage of growth.) Today’s 5.5% rate is definitely an improvement on last year’s 2.9%. But it’s. nothing compared to the years preceding Covid-19, such as 2017, where we were seeing growth of 18% or more. Buy Now Pay Later (BNPL) remains a popular option for paying up front. BNPL drove US$390 million in online spend, Adobe said, up 7.5% on last year. https://tinyurl.com/bdzbrk4s

Binance CEO steps down, pleads guilty to federal crimes.

Changpeng Zhao, the co-founder and CEO of Binance, agreed to step down from the world’s biggest crypto exchange and pleaded guilty to violating U.S. anti-money laundering laws, the Justice Department said on Tuesday. Zhao, who faces sentencing at a later date, will retain his majority ownership of Binance under the settlement but cannot serve in an executive role. Zhao wrote on X that Binance executive Richard Teng will take his place as CEO, saying “I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.” Binance also pleaded guilty to a criminal charge and will pay $4.3 billion in fines, which includes a settlement for civil allegations. The deal brings to an end long-running probes into Binance, including a DOJ investigation, Commodity Futures Trading Commission charges and Treasury Department claims. A Securities and Exchange Commission lawsuit is ongoing and the deal does not include a settlement between the crypto exchange and the securities regulator. https://tinyurl.com/692pfs76

SEC sues crypto exchange Kraken.

The Securities and Exchange Commission sued crypto exchange Kraken on Monday, alleging that the company failed to register as a national securities exchange, broker-dealer and clearing agency and has commingled billions of dollars in customer assets with its own. The lawsuit follows similar legal action taken by the SEC against other crypto exchanges, including Coinbase and Binance, for operating as unregistered securities exchanges. In the Kraken lawsuit, lawyers for the SEC stated that Kraken’s independent auditor wrote in its 2022 report that the company put customer holdings at “a significant risk of loss” with how they held their crypto assets. The regulator also alleged that popular tokens that trade on Kraken such as solana, polygon and cardano are unregistered securities. A Kraken spokesperson said that the firm disagrees with the complaint and stands firm in their view “that we do not list securities and plan to vigorously defend our position.” Kraken agreed to pay a $30 million fine and shut down its U.S. staking services in a settlement with the SEC in February after the regulator alleged it sold unregistered securities through the services. https://tinyurl.com/mr2vbvep