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17.04.18 | The crypto and the machines.

17.04.18 | The crypto and the machines.

Coinbase venture capital; Google's new machine learning; Theranos asks for more money.

17 April 2018 · 4 min read

Newsletter: Published Tuesday 17 April, 2018

  1. Coinbase Venture Capital
  2. Google's new machine learning
  3. Theranos asks for more money


Coinbase Venture Capital.

Sometimes investment bankers in a large institution possess juicy, very material, non-public information concerning a publicly traded company.

And sometimes traders, within the same institution, would actually step over the warm bodies of their mother (in-laws) to get their hands on that information.

But generally a self-imposed Chinese Wall stops that flow of knowledge. (Otherwise known as; a company policy that says “you are not allowed to share information like that”).

In crypto-land, some are worried that Coinbase - the largest cryptocurrency exchange - and its new Venture Capital arm might not be as vigilant about its own Chinese Wall as Wall Street (theoretically) is.

This month Coinbase announced it plans to allocate capital in $100,000 to $200,000 bursts to cryptocurrency startups, namely stablecoins and decentralised exchanges.

In the week following that announcement, it snapped up, a paid messaging platform for a reported $100 million. Which is...more than $100,000 and not a stablecoin or a decentralised exchange.

Regardless, the ball is rolling!

But Coinbase has been pretty open that it will look to “enthusiastically invest in ideas from our own alumni network”, and that has a few investors raising eyebrows.

Especially given in December last year, a group of investors filed a class action lawsuit against Coinbase, accusing employees of tipping off outsiders about its support for Bitcoin Cash.

And Charlie Lee, who created Litecoin, was still an employee at Coinbase when the exchange added the alternate coin to its list. In the weeks before that, the price of Litecoin enjoyed considerable buying support, possibly thanks to Lee's enthusiastic tweeting.

The Wall Street Journal has reported that Coinbase is in talks to become an SEC-regulated broker, rather than just a cryptocurrency exchange. This would force greater control and transparency, so it might have to formally erect a Chinese Wall.

Meaning the employees operating the exchange and those operating the fund will have to work hard not to give each other the eyes over their desks.

Another way crypto is becoming more Wall Street-ed.


Google isolates voices in a crowd.

Scientists call it the “cocktail party affect”: the nifty way the human brain can focus on one source of audio while filtering out others.

It has been the next step for Google researchers for some time and this week a team within the search engine giant announced they’d cracked a way for a machine to isolate voices.

Using an “audio-visual” model (using voices within videos), the team developed an algorithm that watches for when a person’s mouth is moving.

The researchers gathered 100,000 videos of "lectures and talks" on YouTube, extracting nearly 2,000 hours worth of segments from those videos featuring unobstructed speech, then mixing that audio to create a "synthetic cocktail party" with artificial background noise added.

Then the machine practiced splitting that mixed audio by finding the “face thumbnails” of people speaking and matching it to a spectrogram (an electronic visualisation of all the voices at the party). Their system was able to determine which voice belonged to which face and create separate speech tracks for each person.

Given the reliance of video in this tech, it’s likely Google will apply this to its Hangouts and YouTube features.



Theranos asks for money.

Remember the disgraced unicorn that raised $US700 million by telling investors they'd invented a portable blood analyser, but actually hadn't?

And then a month ago the SEC sanctioned them for investor fraud?

Well, that company just asked those investors for more money.

Buzzfeed has published a letter that Elizabeth Holmes, the founder and chief executive officer of Theranos, sent to shareholders that is a weird mix of optimistic, embarrassed and kind of grumpy.

"Unfortunately, we are behind schedule on our first product milestone under the Fortress loan, and as a result will soon face a cash shortage," it reads.

Though, "in light of where we are," it acknowledges, "this is no easy ask".

Theranos is in a tough spot; it might default on a $US100 million loan from Fortress Investment Group because the FDA hasn't approved its most recent Zika virus product and the company has been forced to layoff the vast majority of its 125 staff.

That they've had to ask investors for money to keep the doors open, makes sense?

But, remember the investor fraud?

Anyway, the letter goes on to sort of point out that those existing investors are also in a tough spot...

"Holders of Series C-1B and Series C-2A Preferred Stock should also be aware that their failure to participate in a financing having a purchase price of less than $5 per share would result in mandatory conversion of their shares into nonvoting Series C-1B or Series C-2A Preferred Stock,"

and if Theranos doesn't raise enough money to keep going,

"Fortress would be entitled to control a foreclosure sale and/or monetization of the assets and to realize up to a three-times return on its investment."

One could read that as a warning that if investors don't front up more money, then they will be (more) hosed.

Ah, and then Theranos employees made a game where you shoot the investigative journalist who exposed the starup's major problems.

At least they made one thing that worked.

The information in this article is prepared by Spaceship Capital Limited (ABN 67 621 011 649, AFSL 501605). It is general in nature as it has been prepared without taking account of your objectives, financial situation or needs.

Jessica Sier is a financial journalist. Prior to that she led content at Spaceship and was a reporter at the AFR where she discovered that breaking down financial jargon was a public good.

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