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If Slack follows Spotify with a direct listing, it could upturn IPOs

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The avalanche of money that’s piled into Silicon Valley lately may be starting to disrupt more than just the taxi business and commercial real estate — it might upend one of the most celebrated and time-honored traditions of tech startups: the IPO.

The Wall Street Journal reported Friday that Slack, the popular corporate messaging provider, plans to hit the public markets later this year through a direct listing. That’s the unusual process that subscription music service Spotify used last year to go public. Should Slack’s listing prove as successful as Spotify’s, expect the floodgates to open for more of these listings.

Read this:Slack is reportedly following Spotify in going public through a direct listing. Here’s how a direct listing works.

In a direct listing, a company’s private shareholders sell some of their stakes more or less to investors at large on the open market. That differs from a traditional initial public offering, where investment banks typically line up institutional investors to purchase shares at a set price from the company and its early shareholders.

A big reason why companies hold IPOs is to raise additional funds. In a direct offering, the point is to allow insiders and early backers to freely sell some or all of their stakes; the company typically doesn’t raise any funds from the listing event.

Slack and Spotify didn’t need money from the public markets

The reason a company such as Slack and Spotify can go public and not worry about raising any funds in the process is that their coffers are already overflowing with funds. Before it went public last year, Spotify, for example, had raised $2.1 billion, according to PitchBook. It still had about $1.5 billion of that left and, because its operations were already generating cash, it was adding to that stash.

Stewart Butterfield, CEO of Slack, which is well capitalized even before going public.
Cindy Ord/Stringer

Slack is in a similar position. It’s raised $1.2 billion to date, according to PitchBook. Even after CEO Stewart Butterfield said it had more than enough cash, he stuffed the company’s treasury with hundreds of millions of more dollars. In fact, Slack had so much money in the bank that it started using some of it to invest in other startups.

Those companies certainly aren’t alone in having a healthy surplus of funds. Over the last five years, some $445 billion was invested in venture-backed deals, including a whopping $130.9 billion last year alone, a new record, PitchBook and the National Venture Capital Association said in a new report this week. More than a third of that total is going into software companies and large amounts are also flowing into other parts of the tech industry.

And more money could be flowing in. Traditional VC firms — which represent just one of several sources of capital for startups — raised $55.5 billion last year, a new high, according to PitchBook and the NVCA. SoftBank’s enormous $100 billion VisionFund is helping to push traditional VC’s to create larger and larger funds; last year 11 VC funds topped $1 billion in funding, another new high.

With so much money flowing into startups in the private markets, many companies don’t feel much need to tap the public markets for cash. One result has been that on the whole, startups are waiting longer to go public.

For the last five years, the median age of technology firms that went public was at least 10 years old, and it hit 12 years old last year, according to data from Jay Ritter, a finance professor at the University of Florida who closely tracks the public offerings market. By contrast, before the Great Recession, the median age never hit 10 years, and during the dot-com boom, it got down to as low as 4 years old.

IPOs are expensive and time-consuming

But the next place the effects of all that money may be felt is in how companies go public when they decide to do so.

Daniel Ek, right, CEO of Spotify, which used a direct-listing process to go public last year.
Greg Sandoval/Business Insider

Startup have good reasons for rejecting the traditional IPO model. It’s expensive, for starters. The median gross spread — essentially the fee investment banks charge for taking companies public — has been stuck at 7% for the last 30 years, according to Ritter’s data. What that means is that if a company raises $100 million in an IPO, it only sees $93 million of that; the other $7 million goes to its investment banks rather than to its bank account.

By contrast, when Spotify went public, its insiders and early shareholders registered to sell as much as $9.2 billion worth of stock. The company paid about $45.7 million in fees, including about $35 million to its bankers, according to documents it filed with the Securities and Exchange Commission. That works out to less than 0.5% of the potential proceeds, or a huge bargain.

And that’s not the only savings. Investment bankers typically price an IPO significantly below what the market will actually pay for them, thus guaranteeing that the stock will get a press-worthy “pop” when it debuts. But the difference between the actual market price and the IPO price represents an opportunity cost to the company and its early shareholders. Instead of them gaining from what the market will actually pay for the company’s shares, that gain goes to the institutional investors who buy at the IPO price and turn around and sell stock to other investors when the stock begins trading.

In a direct listing, by contrast, the early shareholders receive more or less the full market price for the shares they sell.

The regular IPO process can also be a big time suck for corporate managers. Typically, executives have to tour around the country, meeting with and giving formal presentations to potential investors, hoping to sell them on the offering.

But a direct listing can be much more informal and take far less time. Instead of going on a roadshow Spotify, for example, simply streamed a live webcast of its presentation to potential investors all at once.

Direct listings might succeed where Dutch auctions didn’t

Companies have tried to buck the IPO system before. In the late 1990s and early 2000s, a handful of companies — most notably Google — went public through a Dutch auction process pioneered by investment bank WR Hambrecht. That process attempted to maximize the amount that companies could raise in an IPO by allowing a wide range of investors to place blind binds that stated how many shares they wanted to buy at a particular price. The company would go public at the highest price at which it could sell all the shares it placed to sell.

Eric Schmidt was CEO of Google in 2004 when it went public through a Dutch auction process.
Richard Brian/Reuters

That process never gained much traction. The other investment banks and institutional investors — both of which lost out in the process as compared to a traditional IPO — never really supported it. And companies eager to raise funds in an IPO were generally willing to go along with the traditional process.

The direct listing process represents one of the first big efforts to reform the system since the Dutch auction effort. Spotify’s IPO was novel. If Slack follows in Spotify’s footsteps and its debut goes similarly well, it will likely embolden other companies to give the process a whirl.

And because of all the funding that startups have on their hands, many could feel freer this time around to spur the traditional process. If the company itself doesn’t really need any cash and early shareholders can get a better price in a direct offering, why put up with the headaches and expense of an IPO?

To be sure, there are still going to be companies that go the traditional route, even if direct offerings catch on. Several of the biggest unicorns, such as Uber, Lyft, and WeWork, are still hemorrhaging money and almost certainly won’t pass up the opportunity for an infusion of new cash from the public markets. And many smaller companies that aren’t as well known as Spotify or Slack may feel they need the investment banks to get their names out and market them to investors.

But for startups looking to showcase another facet of an innovative spirit, the best way to buck the trend could be to go direct.

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Trudeau Government Should Turn to Sustainable Floor Heating In Its New Deal

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A consortium has been chosen by Public Services and Procurement Canada (PSPC) to manage the $1.1-billion overhaul of five heating and cooling plants in the National Capital Region. However, this decision has been met with a lot of disapproval by the country’s largest federal public service union.

Early June, the department announced that Innovate Energy has been awarded the 30-year contract “to design, retrofit, maintain and operate the plants,”winning the bid over a rival group that included SNC-Lavalin.

Minister of Environment, Catherine McKenna, said the federal government was “leading by example” in its bid to drastically reduce the amount of greenhouse gas emissions across the country. McKenna noted that by supporting this project, they’re utilizing heating and cooling infrastructure to promote a more environmentally friendly option.

“We’re very proud that our government is working with partners like Innovate Energy to modernize this critical infrastructure,” she said during the announcement at one of the facilities that will be upgraded, the Cliff Heating and Cooling Plant in downtown Ottawa.

The plants would be known as the district energy system and would heat 80 buildings in the area with steam. It is also expected to cool 67 of these buildings with chilled water through more than 14 kilometres of underground pipes.

Under the Energy Services Acquisition Program, PSPC will be tasked with modernizing the outdated technology in the plants to lower emissions and supportgrowth in the eco-friendly technology sector.

During the first stage of the overhaul, the system would be converted from steam to low temperature hot water and then switched from steam to electric chillers—with the estimated completion date being 2025. PSPC notes that the project will reduce current emissions by 63 per cent, the equivalent of removing 14,000 non-eco-friendly cars off the road.

Afterwards, the natural gas powering the plant will then be replaced by carbon-neutral fuel sources, which according to estimated will reduce emissions by a further 28 per cent. The renovation project is bound to save the government an estimated fee of more than $750 million in heating and cooling costs in the next 40 years.

Furthermore, the implementation of radiant floor heating in Ottawa by the federal government would be an additional step in driving its agenda for a more eco-friendly state.

According to the U.S. Department of Energy’s Energy Savers website, radiant floor heating has a lot of benefits and advantages over alternate heat systems and can cut heating costs by 25 to 50 per cent.

“It is more efficient than baseboard heating and usually more efficient than forced-air heating because no energy is lost through ducts,” the website states.

Radiant floor heating provides an equal amount of heat throughout a building, including areas that are difficult to heat, such as rooms with vaulted ceilings, garages or bathrooms. Consideringit warms people and objects directly—controlling the direct heat loss of the occupant—radiant floor heating provides comfort at lower thermostat settings.

“Radiators and other forms of ‘point’ heating circulate heat inefficiently and hence need to run for longer periods to obtain comfort levels,” reports the Residential Energy Services Network (RESNet).

Radiant heating is a clean and healthy option—a perfect choice for those with severe allergies—as it doesn’t rely on circulating air, meaning there are no potentially irritating particles blowing around the room. Additionally, it is more energy efficient, aesthetically pleasing with wall radiators or floor registers and virtually noiseless when in operation.

“They draw cold air across the floor and send warm air up to the ceiling, where it then falls, heating the room from the top down, creating drafts and circulating dust and allergens.”

It is important for the leadership in Ottawa to equally drive the adoption of radiant floor heating as doing this would lead to increased usage in residential buildings—and even government-owned buildings.

However, in October, the Public Service Alliance of Canada (PSAC), a representative body of employees of the plants,began a campaign target at the government against their decision to use a public-private partnership (P3) for the retrofitting project, citing concerns about costs and safety.

According to the union, outside employees won’t be bound to the same health and safety standards of government workers and that typically P3 projects cost a lot more than traditional public financing deals.

The union demands that the government scraps the proposed project and meet PSAC members and experts to brainstorm on a new way forward that would ensure federal employees continue to operate and maintain the plants.

However, parliamentary secretary to public services and procurement minister, Steve MacKinnon said that the union officials have consulted him but that after conducting an analysis, the P3 option was still the best for the job.

“We didn’t have (to) sacrifice on safety or health — we didn’t have to sacrifice on job security,” he said.

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Steps to becoming a Data Scientist

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Data science has become one of the most in-demand career paths in this century, according to Business Insider. With the amount of information being circulated online, it has created a huge demand for storing, interpreting and implementing big data for different purposes—hence the need for a data scientist.

Today, there too much information flying around for regular people to process efficiently and use. Therefore, it has become the responsibility of data scientists to collect, organize and analyze this data. Doing this helps various people, organizations, enterprise businesses and governments to manage, store and interpret this data for different purposes.

Though data scientists come from different educational backgrounds, a majority of them need to have a technical educational background. To pursue a career in data science, computer-related majors, graduations and post graduations in maths and statistics are quite useful.

Therefore, the steps to becoming a data scientist are quite straightforward.  After obtaining a bachelor’s degree in an IT related field—such as computer science, maths or physics—you can also further your education by obtaining a master’s degree in a data science or any other related field of study. With the necessary educational background, you can now search for a job and obtain the required experience in whichever filed you choose to invest your acquired skills.

Here are the necessary steps to be taken to become a data scientist.

Step 1: Obtain the necessary educational requirements

As earlier noted, different educational paths can still lead to a career in data science. However, it is impossible to begin a career in data science without obtaining a collegiate degree—as a four-year bachelor’s degree is really important. However, according to a report by Business Insider, over 73% of data scientist in existence today have a graduate degree and about 38% of them hold a Ph.D. Therefore, to rise above the crowd and get a high-end position in the field of data science, it is important to have a Master’s degree or a Ph.D.—and with various online data science masters program, obtaining one is quite easy.

Some institutions provide data science programs with courses that will equip students to analyze complex sets of data. These courses also involve a host of technical information about computers, statistics, data analysis techniques and many more. Completing these programs equips you with the necessary skills to function adequately as a data scientist.

Additionally, there are some technical—and computer-based degrees—that can aid you begin a career in data science. Some of them include studies in, Computer Science, Statistics, Social Science, Physics, Economics, Mathematics and Applied Math. These degrees will imbibe some important skills related to data science in you—namely, coding, experimenting, managing large amounts of data, solving quantitative problems and many others.

Step 2: Choose an area of specialization

There rarely exists an organization, agency or business today that doesn’t require the expertise of a data scientist. Hence, it is important that after acquiring the necessary education to start a career as a data scientist, you need to choose an area of specialization in the field you wish to work in.

Some of the specializations that exist in data science today include automotive, marketing, business, defence, sales, negotiation, insurance and many others.

Step 3: Kick start your career as a data scientist

After acquiring the necessary skills to become a data scientist, it is important to get a job in the filed and company of your choice where you can acquire some experience.

Many organizations offer valuable training to their data scientists and these pieces of training are typically centred around the specific internal systems and programs of an organization. Partaking in this training allows you learn some high-level analytical skills that were not taught during your various school programs—especially since data science is a constantly evolving field.

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Artificial intelligence pioneers win tech’s ‘Nobel Prize’

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Computers have become so smart during the past 20 years that people don’t think twice about chatting with digital assistants like Alexa and Siri or seeing their friends automatically tagged in Facebook pictures.

But making those quantum leaps from science fiction to reality required hard work from computer scientists like Yoshua Bengio, Geoffrey Hinton and Yann LeCun. The trio tapped into their own brainpower to make it possible for machines to learn like humans, a breakthrough now commonly known as “artificial intelligence,” or AI.

Their insights and persistence were rewarded Wednesday with the Turing Award, an honor that has become known as technology industry’s version of the Nobel Prize. It comes with a $1 million prize funded by Google, a company where AI has become part of its DNA.

The award marks the latest recognition of the instrumental role that artificial intelligence will likely play in redefining the relationship between humanity and technology in the decades ahead.

Artificial intelligence is now one of the fastest-growing areas in all of science and one of the most talked-about topics in society,” said Cherri Pancake, president of the Association for Computing Machinery, the group behind the Turing Award.

Although they have known each other for than 30 years, Bengio, Hinton and LeCun have mostly worked separately on technology known as neural networks. These are the electronic engines that power tasks such as facial and speech recognition, areas where computers have made enormous strides over the past decade. Such neural networks also are a critical component of robotic systems that are automating a wide range of other human activity, including driving.

Their belief in the power of neural networks was once mocked by their peers, Hinton said. No more. He now works at Google as a vice president and senior fellow while LeCun is chief AI scientist at Facebook. Bengio remains immersed in academia as a University of Montreal professor in addition to serving as scientific director at the Artificial Intelligence Institute in Quebec.

“For a long time, people thought what the three of us were doing was nonsense,” Hinton said in an interview with The Associated Press. “They thought we were very misguided and what we were doing was a very surprising thing for apparently intelligent people to waste their time on. My message to young researchers is, don’t be put off if everyone tells you what are doing is silly.” Now, some people are worried that the results of the researchers’ efforts might spiral out of control.

While the AI revolution is raising hopes that computers will make most people’s lives more convenient and enjoyable, it’s also stoking fears that humanity eventually will be living at the mercy of machines.

Bengio, Hinton and LeCun share some of those concerns especially the doomsday scenarios that envision AI technology developed into weapons systems that wipe out humanity.

But they are far more optimistic about the other prospects of AI empowering computers to deliver more accurate warnings about floods and earthquakes, for instance, or detecting health risks, such as cancer and heart attacks, far earlier than human doctors.

“One thing is very clear, the techniques that we developed can be used for an enormous amount of good affecting hundreds of millions of people,” Hinton said.

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