At least two funding companies have told deBanked off the record that they plan on opening offices in the Miami area in the new year.
It seems that South Florida, particularly Miami, is where the small business finance industry may be moving for a fresh start, and with that potentially ditching the suit and tie for flip flops and shades in the process. The social, political, and economical elements of South Florida make it a well-suited landing spot for an industry that is looking to evolve with the shifting environment.
One catalyst to the potential industry-wide migration could be the S5470B regulations that go into effect in New York on January 1. The new law will require funding companies to navigate a complex system of disclosure to any interested small business finance prospect.
There are other benefits to Florida, of course.
Jordan Fein, CEO of Greenbox Capital, whose operated his business out of Miami since 2012, prides his choice of locale on all the factors that are seemingly pushing those in New York down south. “We do not have state and city tax, we are near water and have a better lifestyle than most companies in New York, or in other areas where it gets very cold in the winter,” he said.
Fein stressed the relaxing Miami lifestyle as the reason why he has only called South Florida home to his company. “The lifestyle here is second to none. Being near the ocean, it makes it much more enjoyable to be able to go to the beach or on a boat to relax and take a load off from the busy work week. New York and other large cities seem to add more stress from [New York’s] super-fast-paced style.”
Despite his love for Miami, Fein respects New York’s ability to churn out top tier employees in the industry. “The talent pool is still among the best,” Fein said, when asked if there were any reasons he or others would ever consider maintaining a connection with the area should an exodus occur.
Fein isn’t worried about the incoming competition should offices relocate to his area. “Location of a funding company has no bearing on competition,” he said. “We all do business over the internet and the competition of funding is dependent on new companies entering the space, not on their location.”
If it is true that the industry is moving to a fully digital competitive space, the idea of a warm weather city with great tax benefits, comparatively low costs of living, and a low-stress atmosphere may be a no-brainer when it comes to finding the funding industry a much needed new home. Not to mention, the mayor of Miami also really wants small business finance companies to relocate there.
In a taped episode of deBanked TV, Miami Mayor Francis Suarez told reporter Johny Fernandez that he really wants small business lenders and MCA companies to set up shop in his city.
Watch: Miami Mayor Francis Suarez talks with deBanked in March 2021“We definitely want to make sure that small business, merchants, and lenders are able to capitalize small businesses in our community,” he said. “Miami’s a very thriving small business community. One of the things that people have criticized us for is we don’t have those big massive companies. We’re actually really built on small businesses. So for us, having fluidity of capital, liquidity of capital, access to capital are enormous things in terms of scaling. And I think that’s one of the things that we’re seeing change now is because of technologies. We’re getting a tremendous amount of access to capital that we weren’t getting before.”
“We’re about people and platforms,” President of National Funding Joe Gaudio said. “PP: People and platforms, not PPP, that’s my little acronym.”
National Funding is back and looking to hire fresh talent, rebuilding their team after the pandemic rolled through the California market.
“Whether it was California or if we resided in another state, it impacted small business owners throughout the country,” Gaudio said. “Small businesses took a big impact. A significant number of customers requested temporary relief loan modifications. And that’s how the PPP program helped bridge that gap for a lot of small business owners, and get them through the pandemic.”
Gaudio said that National Funding was affected like every peer firm was by the pullback, explaining that their normal customer was looking for PPP funding, not a bridge loan. National rolled back their team by about 50%, and rolled back funding for several months. After the worst of it had passed by the end of the summer, National was back, strictly pulling the reigns but still going. Now they are hiring in every department, and Gaudio said nothing is stopping a gigantic 2022 rebound of demand. Benjamin Flowers as CTO and Luca Marseglia to the Data Science Division are just the beginning.
“We’re rescaling, we’re hiring quite a bit this year, and so these two hires are part of our rescaling: rebuilding not only the leadership team, but the rest of the organization,” Gaudio said. “We’re always looking for new high performers and contributors that that fit into our culture. Even pre-pandemic: if you’re an A-player, you’re a high performer, and you can add value, we will take a look at you, we will find room for you.”
National believes the coming year will unleash tremendous pent-up demand, Gaudio said. In the short term, the firm plans to offer intermediate financing to help SMBs handle the bumps on the way. Though there will be some supply chain, labor, and schooling/childcare problems next year, it will still be big, and National has been preparing, working at the office the whole way through.
“That’ll still continue to put somewhat of a cap on the recovery for small business owners, but we expect a big year in 2022,” Gaudio said. “We’ve embraced the hybrid model for certain functions, [but] sales and operations, underwriting: we’re 100% back in the office, and we’ve been like that since last July. It’s important to our culture to be together… I just continue to be very bullish about the future, and I think it’ll be exciting to see the continued evolution of our industry and the platforms.”
Small Business Group Advocates For Community Anchor Loan Program (CAP) In Wake Of PPP Wind Down and Possible RefreshApril 17, 2020
At last tally, more than 800,000 small business PPP applications have gone unfunded since the program reached its limit, many of which are genuine mom-and-pop shops that employ less than 25 people.
Congress is considering another round of additional PPP funding but Americans may be worrying that such funds will once again go into the hands of some of America’s largest chains. (44.5% of the $349B PPP funds went toward loans over $1 million)
Outspoken successful businessman Mark Cuban has proposed a solution, a lottery system next time around to improve the chances that smaller businesses get their share of the pie. While the public debates the merits of such an approach, one organization (the SBFA) is calling for something much more direct, a targeted fix via a Community Anchor Loan Program (CAP) that would appropriate $10 billion for businesses that were PPP-eligible for loans under $75,000 but did not receive funds.
Deployment of this capital under CAP can and should be administered by non-bank alternative lenders with proven success with this particular small business market, they say.
The proposal also calls for 25% of the funds to specifically be allocated for minority, women, and veteran-owned and agricultural businesses.
In a letter the SBFA submitted to Congress earlier this week, the organization said:
“Women and minority-owned businesses are historically smaller and employ fewer people and, in some communities, are under-banked without the established relationships required to secure a PPP loan. Small farms and agricultural businesses are important to communities and often have trouble qualifying for traditional financing.”
The Small Business Finance Association is a non-profit advocacy organization whose mission “is to take a leadership role in ensuring that small businesses have access to the capital they need to grow and thrive.”
This week proved mixed for many fintech and non-bank lenders who received approval from the SBA to issue Paycheck Protection Program funds, only for the $349 billion allotted to the program to run dry almost immediately afterwards.
On Wednesday evening Senator Marco Rubio tweeted that the funds would run short, leaving at least 700,000 small businesses who applied in purgatory without PPP financing. But more money may be made available, as Treasury Secretary Steven Mnuchin said in a statement on Wednesday that “We urge Congress to appropriate additional funds for the Paycheck Protection Program – a critical and overwhelmingly bipartisan program – at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks.”
BlueVine, OnDeck, Funding Circle, PayPal, Intuit, and Square were among the group of non-bank lenders who were recently approved. While unfortunately late to the party, these businesses will be well-positioned to quickly roll out funding once further PPP money is allocated.
“Millions of small businesses need relief more than ever right now, and providing that relief quickly and diligently is our top priority,” BlueVine CEO Eyal Lifshitz told deBanked. “While most PPP lenders have limited their efforts to existing customers, our aim is to support and protect all small businesses. Using our data and engineering resources, we want to ensure both existing customers and other small businesses seeking relief, are aware of and have access to PPP loans. We will remain a trusted advisor to small businesses and work to get fast capital solutions to those in need.”
Lifshitz’s comment echoes concerns that have plagued the SBA since the announcement of these funds: that its systems, and the processes of the banks it works with to issue this money, are outdated and insufficient to face a financial crisis of this magnitude and speed. Now weeks into the program, businesses are reporting a lack of communication from both their bank and the SBA; and, most importantly for many, no PPP funds in their accounts.
A few years ago, a friend of mine was dropped by the funding brokerage he worked for and put on the waiver wire. He was promptly picked up by a competitor and today ranks among one of the top closers in the industry. It was one of the strangest moves of the season because his numbers had been really good month after month. It turned out that he was turned loose for earning too much money, something the firm wasn’t content with.
Even though he was compensated on a commission-only basis, he was apparently putting the company over their salary cap. That of course begged the question, why was there a compensation cap for a top performer, somebody who was directly leading to the firm’s growth? For what it’s worth, he was entitled to approximately 20% of the company’s gross commission revenue. So on every deal funded the company took home the other 80% of the commission. This worked for both parties until the closer started earning well into the six figures, at which point they told him he wasn’t allowed to earn more than a certain amount.
Although discouraged by the sudden limitation, he continued to work hard to prove why the cap should be removed. It wasn’t. Soon afterward he found himself on the waiver wire.
He was replaced by two rookies fresh out of college who were willing to do the same job for a lot less, but neither had any experience in the field.
As someone who has been active in this industry for nearly a decade, I’ve watched this scenario play out dozens of times.
- Firm needs top talent to grow
- Firm hires Talent
- Talent produces
- Firm grows
- Firm doesn’t like that Talent is making so much
- Firm fires Talent or Talent quits
As the firms gallop off to the next scouting combine to find somebody younger and more malleable, the pool of experienced talent is dispersed across a sea of competitors. A consequence of this is that each of those companies become more evenly matched and it becomes increasingly difficult to stand apart from the crowd.
At trade shows and happy hours, it’s not uncommon for top players to openly question what would happen if they all joined forces to create a funding dream team of sorts. And while such cohesion rarely actually happens, I can’t help but imagine if given the opportunity to build the best team to win, who I would pick.
Top talent is expensive. I know this because I recently spent 89% of my budget in a fantasy football auction draft to acquire just three players. And last year I spent a similar percentage on only four players and won the entire league. My thought process was to build a team that was centered around the best of the best. Previous years of conservative play led to mediocre results and I wanted to change that.
Today, there are hundreds of alternative business financing companies and thousands that can be considered brokers. There’s a lot of decent teams out there but few that are built around a group of all stars. And oddly, some companies seem to be dumping their best and brightest on purpose, just like I described previously. That might lead to improved margins for the firm, but probably won’t help them win in the long run.
Here’s something to think about while you’re watching Monday Night Football. If you had to build your company around a core group of talented people, who would you pick? Don’t worry about whether or not they’re available or if they fit into your budget. Those are obstacles that can be overcome.
Here’s a list of positions to help you imagine your fantasy funder:
- 1 Senior Manager
- 2 Underwriters
- 2 Closers
- 1 Flex Spot
- 1 Admin
- 1 Collector
- 1 Tech Person
Erez Stamler, Managing Director of Fresh Funding, said that the events of the past year has been an up and down ride, from the initial shutdown shock to rushes in demand. Now that the world is back, those that survived are here to stay and need capital to grow.
“At first the system was in shock, then a phase where we saw a strong spike in submissions [where] the owners were probably looking for some sort of PPP-type solution, and that was not available by us,” Stamler said. “Going into 2022 we believe there’s a lot of demand out there. A lot of businesses have demonstrated growth during Covid and hopefully will continue that into 2022. As far as we can see right now, we’re going strong this year for sure.”
Alex Vasilakos, who tracks online interest in alt finance as the director of marketing for Finance Marketing Group, said there had been an increase in online searches for non-bank financing solutions in the past year because banks weren’t sure how the pandemic would pan out.
“We are back in the office, and we are seeing a large uptick in digital advertising since Covid, and it is continuing to increase,” Vasilakos said in an email. “I am seeing and predicting that people will be leveraging more online sources for financing than they have in the past.”
Amotz Segal, a startup co-founder of Edge Funder, said that if the Covid spikes and black swan events are over, there is no limit to demand, and the hybrid model is here to stay. Edge Funder uses lead generation and AI underwriting to make SMB deal-making easier, Segal said.
“I think nobody’s really bullish enough, I think we’re facing the beginning of the biggest expansion period of our lifetime,” Segal said. “Our team based in New York City will hopefully gradually go back to the office this fall. That being said, I don’t think that we will ever see a one-hundred percent office-space environment. I think what the pandemic did is accelerated a trend that already began of people working from home, working remotely, and not having to attend the office daily.”
Segal has grounds to be bullish: Edge was just acquired by Yes Lender after only a year of development.
James Lee, CEO and co-founder of Julius Technologies, said that people had definitely gotten a feel for remote work, but virtual does not replace in-person communication. Julius is a startup that creates cost-effective back-end infrastructure for fintechs, building efficient data analytics for credit underwriting.
“We will see some shift. People got a taste of what it’s like to work from home; the hybrid model is a possibility in the short term,” Lee said. “In the long term we’ll see if Covid comes back in the fall with people working closely together. Hybrid works, but face-to-face time is irreplaceable and very difficult to replace in a virtual sense.”
Lee said that in-person interaction is vital for networking, mentorship, and even random, spur-of-the-moment conversations that bring a team together. Lee recently completed the Techstars incubator program fully virtually. Everything but launch day was virtual in a process that is usually hands-on.
Some firms are back in the office full time. Samuel Yakubov, director of ISO Relations at Maverick Funding, said he was already working in the office in June and had high hopes for 2022.
Tyler Deters, president and CEO of Paradigm Equipment Finance in Utah, said his business was back indoors and on track.
“We are optimistic for the future,” Deters said. “Our staff has all returned to the office, and we are full steam ahead.”
Joe Lustberg from Upwise Capital couldn’t agree more and said his team had been working in the office through the shutdown. Lustberg is confident that the post-pandemic world will be great for business, and Upwise has been doing well servicing PPP, equipment and trucking financing, and niche cannabis industry funding. Upwise also took advantage of the dip in real estate to snag an office in Manhattan and “never looked back.”
“We made sure that everybody was vaccinated, and before the vaccination was available we were still in the office. We were getting tested monthly and my guys had the option to work from home,” Lustberg said. “To be honest, most of them want to be around the company culture, the show floor. It’s much easier for them to walk in my office and ask me a question than FaceTime. It’s good New York is coming back.”
Six or seven months ago, it might have been a market full of PPP loans, but MCA is coming back strong, Lustberg said. With government funds exhausted, he said even firms that had never taken an advance before are looking for funding.
Steven Hunter would agree the industry is back. As a consultant that works best coaching underwriting teams in person, however, the work from the home model has been a drag. He said hybrid may work for relaxed work environments, but to get ahead, in-person is the way it has always been and always will be.
“I think the fact that we have proven we can, in most situations, work remotely has made [funding shops] think: ‘well you know airfare, hotel, meals and Ubers.. you know it adds up.’ So, I think I think a lot of people are going to be cost-sensitive to travel in a way they weren’t before,” Hunter said. “But if you want to make it in this industry as a startup funder, and you want ISOs to give you deals, you cannot do that by the phone and you cannot do that via Zoom call. You have got to show respect for the good shops.”
Hunter said in the actual MCA business, you don’t win deals by calling them 100 times. You get deals from the best of the best by selling face to face.
“You get deals from [top brokers] by putting your ass on a plane and flying into LaGuardia, taking a cab to their office and camping out there for three days, and talking to them looking them in the eye and saying this is what I’m going to do for you,” Hunter said. “Sales is always going to be boots on the ground. You got to put people out there.”
The first merchant cash advance enthusiast ended up the richest man in the history of the world. Jakob Fugger was the cash king of Europe 500 years ago, and his climb to wealth indirectly caused the Protestant Reformation. One of the pivotal events in western history, the Reformation led to the eventual “fad” of democratic representational government— all because some guy bought the future receivables of a silver mine.
In Jakob Fugger the Rich, historian Jakob Strieder writes the Fugger enterprise began as one of the upstart merchant families of the Renaissance. The Fuggers were traders and cloth merchants from Augsburg, Germany. They created a network of aristocratic clients, furnishing weddings and parties through trading warehouses in modern-day Venice, Florence, and Austria. Jakob Fugger I lent some money around, but when Jakob Fugger II joined the family shipping warehouse in Venice, he looked for a better return on capital.
According to International Business History: A Contextual and Case Approach, Fugger entered an agreement to supply some cash- 23,627 Florins to a silver mine owned by Archduke Siegmund in 1487.
Siegmund had plenty of silver laying around for collateral; he just needed cash for the day-to-day. It was a collateral-backed loan, common today: if he couldn’t pay it back, the Fuggers would get paid in silver. The transaction worked so well that a year later, Siegmund reapplied, this time in a revolutionary way. Siegmund would get 150,000 florins, and the Fuggers would get paid the future receivables of the silver mine: unrefined and cheap future silver for cash now.
The problem, written by historian Greg Steinmetz in The Richest Man Who Ever Lived, was the Church. Any interest-based transaction was specifically outlawed, though there were hundreds of lenders during this era. The line from Luke 6:35, “Lend and expect nothing in return,” was taken by the Church to mean an outright ban on usury, defined as the demand for any interest at all.
Even savings accounts were considered sinful, but Venetians ignored these rules as they preferred making money to pleasing God, entombed in the motto “First Venetians, then Christians.” Fugger began accepting deposits like a bank to his clients, with a 5% return to investors.
But convicted usurers could be excommunicated and denied a Christian burial, a nightmare for a capitalist who relied on a Christian network. Fugger did not worry about punishment or the apparent sin of money lending, but as he became a fixture in European society, his reputation became increasingly vulnerable.
Fugger needed the laws to be changed, or at least relaxed, or his lending business was in trouble. In 1515, he wrote a letter to Pope Leo X and funded a debate in the St. Petronius Basilica in Bologna. The debate ran for five hours, a back and forth of philosophy, scripture, and rampant crowd heckling. In the end, it was declared a tie, but Pope Leo X that year signed a papal “bull” reforming the concept of usury.
Originally, the Church pointed to the philosopher Aristotle’s model for determining what was okay to charge for and what wasn’t. Aristotle had said that charging someone for a cow because it produced milk was fine, but money was a dead thing and unfair to profit from.
A silver mine produced silver and as such paying cash for the future proceeds of the mine had allowed Fugger to more or less carry on his business. It wasn’t called merchant cash advance back then but he applied that model wherever he could. Not everyone in need of money had a business, however, and it was critical that he be allowed to charge interest when circumstances called for it.
More than a millennium after Aristotle, Pope Leo X found that risk and labor involved with safeguarding capital made money lending a living thing. As long as a loan involved labor, cost, or risk, it was in the clear. This opened a flood of church-legal lending: Fugger’s lobbying paid off with a fortune.
Jakob Fugger was off to the races and he greatly expanded his financial services business. Historian Dennis McCarthy found that the Fugger family grew their war chest nine times over in the next seventeen years, a gain of 927%. Their funding efforts bought a trading empire, and they entered into agreements with nobles that placed entire countries as collateral.
McCarthy wrote: That was one of the problems with the Fugger model- “how does one take possession of Austria or France or Spain when its rulers default or lag behind debt repayment schedules?”
After gaining the good faith to lend in the Church’s eyes, the papacy itself became a Fugger customer. Positions in the Church were inseparable from social and political power, and the only way to get a place on the totem pole was by paying for a title. Just as the richest silver mine owners didn’t have the cash to pay for lunch- so did wealthy aristocrats need capital to afford positions in the cloth.
By the time Martin Luther “nailed” his 95 theses to the door of a church in 1517, he was rallying against the Fugger funding family and its stranglehold on the Roman Catholic Church.
It all came down to an in-house promotion. Albert Brandenburg brought a whole new meaning to the concept of “moneychangers in the temple.” A German Archbishop of Magdeburg, Brandenburg was promoted to Elector of Mainz: the second in command of the Holy Roman Empire. Unfortunately, he had to pony up 21,000 ducats to pay the Roman Curia (the Church’s admin)- for the title. Naturally, he didn’t have the cash, and the Fuggers stepped in.
Brandenburg got a loan on interest. To pay it back, he also paid Pope Leo X for the right to sell indulgences. Indulgences were contracts the church sold to forgive sins, allowing believers to purchase their way out of purgatory and into heaven. A fresh round of indulgences was printed to fund the construction of St. Peter’s Basilica, and Brandenburg was entrusted to sell them in 1517. (Their sale was later banned by the Church in 1567).
The sale of indulgences interlinked the Church with Fugger, and solidified Luther’s desire to maintain the Faith through an alternate system. Luther’s complaints spawned the Reformation, and his followers and independent revolutionaries like John Calvin would bring the rise of Protestantism, the Church of England, and ultimately what historian Alec Ryrie wrote as the foundation of modern mercantilism.
“I’m saying that there are some specific parts of modern life that derive directly from the Protestant Reformation. We couldn’t have these features if it hadn’t happened.” Ryrie said. “That combination of free inquiry, democracy, and limited government is pretty much what makes up liberal, market democracies. It runs the modern world.”
To this day, no one is sure of the extent of the Fugger fortune. Historian Mark Häberlein found that Fugger struck a deal with Augsburg Tax authorities in 1516: he agreed to pay an annual lump sum on the condition that his family’s true wealth would never be revealed. He died in 1525.
To get an idea of the extent of his wealth, we can base calculations on the cost of butchering a pig in 1522 (yes, that’s a real metric.) It cost one Gulden, a new coin minted in 1500 to butcher a hog. The German coin contained about the same amount of gold as a Florin.
Based on those ham prices, Jim Ulvog from Ancient Finances estimated that in 2017 a single florin would be worth ~$900, and other writers have put the florin in the same range. Though the true wealth of the Fuggers may never be known, when Charles V aimed to take control of the Holy Roman Empire in 1519, the Fuggers were lending Charles 543,000 guldens to buy votes: approximately $448 million. That’s just in a single deal.
It’s been said that merchant cash advances or sales-based financing is relatively new, but it could be argued that such transactions are so old that life as we know it in the modern world only exists because a guy 500 years ago was engaged in non-loan transactions to fund businesses in a manner that was Church-compliant and wanted to expand.
In April of this year, Threadgill’s – a legendary Austin music venue and beer joint that, in the 1960s, famously launched the career of blues singer Janis Joplin — turned off the lights and pulled the plug on its sound stage.
A converted gasoline station, Threadgill’s had been a rollicking music scene since 1933 when musician and bootlegger Kenneth Threadgill secured the first liquor license in Texas after Prohibition. His juke box was crammed with Jimmie Rodgers songs and Threadgill himself famously sang and yodeled Rodgers’ tunes.
For generations of students at the University of Texas, Threadgill’s was a rite of passage.
“The first time I went to Threadgill’s was in the fall of 1968, when I was a freshman at UT,” recalls Perry Raybuck, a songwriter-folksinger and retired government worker who, as a member of the Southwest Regional Folk Alliance, played the stage in 2018. “It was the beginning of an education for me,” he adds. “I had been a Beatles and rock n’ roll kid and it opened me up to different music styles. I became a convert.”
In 1981, Threadgill’s was taken over by another acclaimed club owner, Eddie Wilson, who previously had been the proprietor of the Armadillo, a fabled music venue. Wilson began to actually pay musicians – Threadgill had compensated them mainly with free cold beer – and installed a circular stage.
It was Threadgill’s and an assortment of funky clubs and stages with names like the Soap Creek Saloon and Liberty Lunch helped put Austin on the map as “The Live Music Capital of the World.” The city remains home to the widely acclaimed television program “Austin City Limits” on PBS and the internationally renowned South by Southwest festival, which was canceled this year amid fears of a “superspread” of the coronavirus.
“Live music,” says Laura Huffman, chief executive at the Austin Chamber of Commerce, “is why people come here. It is a central component of Austin’s cultural and economic life.”
Omar Lozano, director of music marketing for Visit Austin, the city’s main tourism organization, says: “We have close to 250 places in the greater Austin region where you can hear live-music, although it’s closer to 50-70 on any given night. During South by Southwest, no stone is left unturned — everything becomes a stage: parking garages, grocery stores, housing co-ops. There are also four or five stages at the Airport, which helps liven up the mood.”
But that identity is being put to the test. So far this year, Austin has lost a raft of live music venues. Among those joining Threadgill’s in honky-tonk heaven since the pandemic struck are Barracuda, Plush, Scratchhouse, Shady Grove, and Botticelli, all of which provided niche audiences to both established musicians and up-and-coming acts.
The roller-coaster ride of government mandated shutdowns followed by a limited re-opening in the spring and another shutdown since July fourth is making life miserable and untenable for both club owners and already hardpressed musicians and artists, says Marcia Ball, a piano player and blues singer.
Ball, who was named by the Texas Legislature as “2018 Texas State Musician” and whose musical style was once described by the Boston Globe as “mixing Louisiana swamp rock and smoldering Texas blues,” told deBanked: “There was already a limited amount of opportunity for musicians to perform and monetize their work in Austin, so it has always been necessary to travel to make a living. But we still depend on a thriving local scene, and we’re losing that when key venues like Threadgill’s disappear.”
Adds Graham Williams, a prominent Texas promoter of touring bands: “These venues and bars are vital to the music ecosystem. Local bands and cover bands need hangouts, even if people are not buying tickets. They’re places to play every night of week.”
While unheralded outside the Austin scene, the local music joints were often a port-of-call for out-of-town promoters and nightclub owners checking out Austin talent – “most notably Barracuda (which) had super-popular acts and was like a hipster garage venue,” says promoter Williams. “A lot of touring bands played there on their way up.”
A July study by the Hobby School of Public Affairs at the University of Houston found that the city’s live music industry is in desperate straits. Sixty-two percent of live music spots and 55% of the bar-and-restaurant businesses reported to researchers that that they can endure for no more than four months, making them the most vulnerable of 16 industries surveyed.
And the situation has become “even more ominous” since the report was published, explains Mark P. Jones, a political scientist at Rice University in Houston and a lead researcher on the Hobby study. “That survey finished polling two hours before all bars and restaurants closed back down,” he says. “Everything people were saying was when bars were at 50% capacity. That’s a best-case scenario.”
Austin’s experience amid the Covid-19 pandemic mirrors what is occurring nationwide as bars, nightclubs and music halls in myriad cities and towns experience similar trauma. In Seattle, Steven Severin is co-owner of three nightclubs – Neumos, Barboza and recently opened Life on Mars – all in trendy Capitol Hill, the hub of the city’s club and live-music scene. He reports that he is barely holding on thanks to some help from the city and a sympathetic landlord who is “a big music advocate.”
“He knocked down the rent a little bit,” Severin says of his landlord, but the situation is dire. “We just had a fifth venue, Re bar, close at the end of August,” he says. “It was a punch in the gut. This could be me.”
The Bitter End in Greenwich Village is also keeping its head above water despite not opening its doors since March. The nightclub has a storied past: owner Paul Rizzo recounts that it is where pop singer Neil Diamond got his start and where “everyone from Curtis Mayfield to Randy Newman” has performed since its opening in 1961. But the club is silent now since the pandemic overwhelmed the city’s hospitals and made New York the epicenter of sickness and suffering during the spring. So far the club is getting help from a landlord’s forbearance and loyal musicians.
Peter Yarrow (the “Peter” in the bygone trio Peter, Paul and Mary), donated a streamed concert to patrons who contributed to a fundraiser that raised more than $50,000. And grateful local musicians also put on a benefit directing people to a Go Fund Me page on the Internet that raised another $16,000. “We’re a major venue for local musicians,” Rizzo says. “We should pull through.”
It’s in their self-interest for artists to do whatever they can to keep the doors open at a club like The Bitter End. “These days because of the last two decades of declining record sales — live music is the bread and butter of a musician’s income,” says journalist Edna Gundersen, a recently retired, 28-year-veteran of USA Today. “That’s true whether it’s a local entertainer or an international superstar.” (Gundersen earned the reputation as Bob Dylan’s favorite journalist; it was she who scored his only interview after he won the Nobel Prize for literature in 2018, publishing his eccentric musings in the The Telegraph of London and breaking the news that he would indeed accept the prize.)
“Touring has been crushed,” Gundersen adds, “and festivals have been canceled. So people doing the circuit and clubs are gone for all intents and purposes. Streaming — while initially up — is down because people aren’t listening to music in the gym or in their cars. Physical record sales are also down because people aren’t going to stores. All of this is just killing musicians.”
The Paycheck Protection Program, the multi-billion, multi-tranche aid package for small business which Congress authorized as part of the CARES Act in March, has provided some funding for the live-music and entertainment industry. But because of the PPP’s requirements that only 40% of the funds can be spent on rent, mortgage and utilities, which are major expenses for nightclubs and music venues, the program has largely been a disappointment.
Hoping to win attention and assistance for their plight from the federal government — “We’re the first to close and the last to reopen,” Severin says — live-music entrepreneurs like himself and Rizzo and more than 2,800 club-owners and promoters across the country have banded together to form the National Independent Venue Association.
Their membership includes independent proprietors (no corporate members allowed) of saloons, cabarets and concert halls as well as theaters, opera houses and auditoriums from every state plus the District of Columbia. To help plead their case with Congress, the organization hired powerhouse law firm Akin Gump Strauss Hauer & Feld, the largest Washington, D.C. lobbying firm by revenue.
NIVA also blanketed Congressional offices with two million letters, e mails and correspondence generated from hordes of fans and performers. Among the many scriveners are a slew of boldface names: Mavis Staples, Lady Gaga, Willie Nelson, Billy Joel, Earth Wind & Fire, and Leon Bridges. Comedians Jerry Seinfeld, Jay Leno and Jeff Foxworthy have also penned notes to lawmakers championing NIVA’s cause.
Their message: without federal funding, 90% of independent stages will go under over the next few months. “The heartbreak of watching venues close is that once a building is boarded up, it’s not going to be a music venue any more,” warns Audrey Fix Schaefer, communications director at NIVA. “They operate on thin business margins to begin with and they’re too hard to develop.” For touring acts, each city stage is “an integral part of the music ecosystem,” Schaefer explains. “When artists finally do get back on the tour bus, they might have to skip the next five cities and go on to the sixth.”
Thanks to the bi-partisan efforts of Senator Amy Klobuchar (D-Minn.) and Senator John Cornyn (R-Texas), NIVA’s campaign has gotten traction. The unlikely couple have teamed up to author a rescue bill, known as the Save Our Stages Act. If enacted, it would establish a $10 billion grant program for live venue operators, promoters, producers, and talent representatives.
The legislation would provide grants up to $12 million for live entertainment venues to defray most business expenses incurred since March, including payroll and employees’ health insurance, rent, utilities, mortgage, personal protection equipment, and payments to independent contractors.
NIVA’s chief argument for the legislation is coldly economic rather than sentimentally cultural. The organization cites a 2008 study by the University of Chicago that spending by music patrons produces a “multiplier effect” for the broader economy. For every dollar spent by a concert-goer at a live performance, the Chicago study determined, $12 in downstream economic activity occurs.
Explains Scott Plusquellec, nightlife business advocate for the City of Seattle: “You buy a ticket to a show and the direct economic impact of that purchase is that it pays the artist, bartender and the club itself as well as the band, advertisers, and promoters. The indirect economic impact,” he adds, “is that after you bought the ticket, you went to a barber shop or a hair salon to look good that night. You might also have dinner, go to a bar for a drink and tip the bartender. That’s the whole the idea of a ‘multiplier.’”
In Austin, that economic logic is an article of faith with city burghers, asserts Lozano of Visit Austin, who reports that live music in the capital city is roughly a $2 billion industry. To promote live music, the tourism bureau sponsors such endeavors as “Hire an Austin Musician.” That program, Lozano says, “sends musicians around the U.S. to represent us during marketing season.” In another promotional campaign, Visit Austin arranged for singer-songwriter Julian Acosta to play a gig at travel agents’ offices in London when Norwegian Air inaugurated direct flights between London and Austin in 2018. “The U.K. is one of our best markets,” he reports.
Even so, efforts by the business community and the City of Austin have failed to stanch much of the industry’s bleeding. According to its website, the city has disbursed $23.7 million in loans and grants to small businesses and individuals, but slightly less than $1 million of that has gone to live-music and performance venues, entertainment and nightlife, and live-music production and studios.
In late September, The city of Austin’s Economic Development Department released a slide show breaking down how the $981,842 in industry grants and loans – of which $484,776 was provided by the federal government under the CARES Act – were awarded. Most top recipients appeared to be well known nightclubs and entertainment venues downtown or close to the city’s inner core.
The Continental Club on South Congress – a key fixture in the hip “SoCo” strip just over the Colorado River from downtown – appeared to do best. It picked up $79,919 from two programs: $40,000 in the CARES-backed small business grants program, and $34,919 from the city’s Creative Space Disaster Relief Program. Other clubs receiving $40,000 in the small business grants program included Stubbs, The Belmont, Cheer Up Charlies and the White Horse. (For a full list go to: http://www.austintexas.gov/edims/document.cfm?id=347299)
Joe Ables, owner of the Saxon Pub, a major Austin venue for jazz – blues singer Ball hailed it as one of several important Austin clubs “that sustains creative endeavor, especially for songwriters” – was vexed that his grant application was denied by the city “with no explanation.” Ables also voiced dissatisfaction that the city paid the Better Business Bureau a 5% administration fee to handle $1.14 million in relief funds, including determining which applicants were approved. “What would they know about live music,” he says.
Even for clubs that received city largesse, it hasn’t been nearly enough to sustain them. The North Door, which got $15,240, closed for good on September 11 (an ominous day — the anniversary of the attacks on the World Trade Center and the Pentagon.)
Meanwhile, enough clubs and venues were left out in the cold that club owner Stephen Sternschein could tell deBanked just before the slide show was released: “I’ve heard talk of a $21 million grant program but most people I know haven’t seen a dollar of that.”
Sternschein is managing partner of Heard Presents, an independent promoter and operator of a triad of downtown clubs that includes the spacious Empire Garage, which features hip hop and urban jazz, and has space for 1000 music-goers. A member of NIVA, Sternschein describes efforts by both the state and local governments as “woefully inadequate.” Says he: “People are looking to the federal government for answers.”
The diminution of places for musicians to ply their trade is a double edged sword. If Austin loses its luster as a hot music town, it puts the city’s overall economy in jeopardy. Explains Jones, the Rice political scientist: “The difficulty for Austin is that it could lose its comparative advantage. Unlike restaurants, movie theaters or sports events, which people can find just as easily in other cities, the Austin music scene draws capital and revenue from across the country.
“You can go out to dinner in Waco,” he observes, referring to the mid sized Texas city between Austin and Dallas best known as home to Baylor University and its “Bears” football team, fervent Baptist religiosity, and unremarkable night life. “Music brings in revenue to Austin and to Texas that wouldn’t otherwise come here.”
In addition, Jones says, the large presence of “artists, creative types, and freelancers” helps make Austin a strong selling point for “brain industries” to attract talent from the East and West Coasts. “It supports the technology industry by making it easier to recruit employees to live there,” he says. “Austin is an alternative to Silicon Valley. People who are progressive might be hesitant to come to conservative, red-state Texas from California but they’ll come to Austin because it’s culturally cool.”
Austin, which embraces the slogan “Keep Austin Weird,” is on the verge of becoming just like every place else in Texas. Should it relinquish its flavor and charm, it could discourage many of the assorted business groups and professionals from keeping Austin on their dance card as a popular destination for meetings, conferences and get-away trips.
Howard Freidman, managing director at Bluechip Jets, a broker of private luxury aircraft, had an earlier career as a technology industry executive. Partly drawn by his previous experiences with the city, Freidman moved to Austin earlier this year. “It had the same coolness and weirdness of New Orleans — but also with the professionalism of a tech city,” he says.
“Whenever we’d come here,” Freidman adds, “the music was always integral to the Austin scene. Even when you’d go to private parties you’d end up downtown at the club scene on Sixth Street. Austin was always a place everybody liked going to.”But as Austin has steadily been morphing into more of a high-technology center than a live-music town, it’s experiencing a silent exodus of musicians and artists who are being gentrified out of their apartments and Craftsman duplexes. Displacing them are software engineers, website designers and the like, their sleek BMWs and black, tinted-glass SUVs glistening in the parking lots of steel-and-glass corporate centers.
Many of the technology firms – including such needy companies as Samsung, Intel, Rackspace, Facebook, and Apple – have each received tax breaks, grants and subsidies worth tens of millions of dollars from a variety of local jurisdictions. Not only have the city of Austin and Travis Country been beneficent, but adjacent county governments and the state of Texas have provided abundant support. A 2014 study by the Workers Defense Project, in collaboration with UT’s Lyndon B. Johnson School of Public Affairs, reported that the state of Texas showers big business with $1.9 billion annually in state benefits. Most recently, officials with Travis County and a local school district granted Tesla more than $60 million in tax rebates to build a massive “gigafactory” southeast of town near Austin-Bergstrom International Airport.
To house the burgeoning cohort of “knowledge workers,” there are condominium conversions, tear-downs, high-rises and other forms of frenetic real estate development which, in their train, bring higher property taxes, steeper rents, and unaffordable housing.
Add in some of the country’s most snarled traffic, dirtier air, and a growing homeless population, and members of the artistic community are increasingly decamping for smaller satellite towns like Lockhart and San Marcos. Others in the diaspora are abandoning Texas altogether for more hospitable locales like Fayetteville Ark., Asheville, N.C., or Olympia, Wash. “Whatever made anybody think this would be a better town with a million people,” laments blues singer Ball. “This was a perfect town with 350,000. Now we’ve got Silicon Hills, Barton Springs are cloudy, and drinking water’s going to be scarce. Why is this supposed to be better?”
The drop-off in live music and the belt-tightening by musicians is causing third-party pain for people like veteran Austin journalist and publicist Lynne Margolis, whose national credits include stories for Rolling Stone online, and radio spots for NPR. “The public relations aspect of my work has dropped away because artists can’t afford to pay,” she says, “and music journalism is falling by the wayside. It’s hard not to feel to like a double dinosaur.”
Led by bars, restaurants and music venues, on many days the solemn departure of small establishments has the business news sections of Austin newspapers reading more like the obituary page. One hardy survivor is Giddy Ups – a throwback honky-tonk on the town’s outskirts that advertises itself as “the biggest little stage in Austin” – promising “just about everything,” says owner Nancy Morgan, including “country, blues, rock, bluegrass, and soul.” For the past 20 years Giddy Ups has developed a devoted following of musicians and patrons while fending off hyper modernity.
“It has an untouched, back-to-the-seventies, cosmic cowboy vibe,” says local musician Ethan Ford, a guitarist and bass player whose trio, The Slyfoot Family, has graced its stage. “It’s a time capsule,” Ford adds.
Morgan declined to disclose her annual receipts but in 2019, she reports paying out $188,000 in wages to employees, $72,000 to musicians, and $185,000 in combined sales taxes to the city of Austin and to the state. Despite her status as a taxpayer, employer and entrepreneur, she has received no state aid and is disqualified from receiving city pandemic assistance programs, meager as they may be, because she’s located in an extra-territorial jurisdiction.“
Nancy still bartends most nights and does all of the booking,” says Ford. “Her knowledge of the Austin music scene could fill a couple of books. I know a decent fistful of Austin venue owners and she’s about the only one that hasn’t given up, been forced out, or just retired. She’s a dynamo.”
Unless the cavalry arrives for Morgan and other holdouts, though, their musical days may be numbered.
Editors Note: Threadgill’s didn’t make it. The venue “has closed for good, the property has sold, and the building will eventually be torn down,” according to information disseminated for its Last Call Music Series. Its November 1st grand finale show featured Gary P. Nunn, Dale Watson, Whitney Rose, William Beckman, and Jamie Lin Wilson.
The building will be replaced with apartments.
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