IN THIS ISSUE:
1. The Fed’s 50-point rate cut drives markets up
2. OpenAI’s transformation into a for-profit business
3. The acquisition of Smartsheet is bound to show a rise in potential exits for tech entrepreneurs
For dictionary reference, see the end of the newsletter.
Market Update
The Fed’s 50-point rate cut drives markets up
Over the past two weeks, major indexes have posted steady gains, rallying following the Federal Reserve’s first interest rate cut* of this business cycle. The decision to reduce rates by 50 basis points** was anticipated by some, but it left the market divided—some viewing it positively, while others considered it too aggressive. For students new to finance, “50 basis points” might sound like a large number. However, when we convert it to a percentage, we see that it is actually a 0.50% decrease in interest rates. Yet, this seemingly small change can have significant effects on the economy, influencing everything from mortgage rates to credit card interest. The cut, driven by a cooling labor market and inflation declining to 2.5% in August (just above the Fed’s 2% target), spurred positive performance across major indexes and companies. Additionally, investor speculation about further rate reductions has helped sustain the market’s upward momentum, contributing to overall strength in equities.
Market data: finance.google.com
Business of AI
OpenAI’s transformation into a for-profit business
OpenAI, the developer of ChatGPT, is undergoing a dramatic transformation, evolving from a nonprofit research lab into a global leader in AI under CEO Sam Altman. However, the transformation has sparked internal turmoil, as tensions rise between its original risk-mitigating non-profit model and the drive for profitability and, likely, efficiency of capital raising. Recent high-profile departures, including CTO Mira Murati, highlight the internal conflicts, with some employees concerned that the company’s focus on product development and monetization is overshadowing its research roots. While OpenAI’s growth looks clear—YTD revenue has tripled to $4 billion—the pressure to stay competitive in the AI space has led to frustrations as rivals, founded by former OpenAI leaders, challenge its lead. Meanwhile, OpenAI is aiming to raise as much as $6.5 billion dollars in a matter of next week or two. Microsoft and Nvidia are likely to provide capital, while Apple exited the talks.
Acquisitions
The acquisition of Smartsheet is bound to show a rise in potential exits for tech entrepreneurs
Smartsheet, a work-management software firm, is posied to agree to be acquired for an $8.4 billion acquisition agreement by Blackstone and Vista Equity Partners, highlighting a renewed interest in software companies by buyout investors***. The deal offers an 8.5% premium over Smartsheet’s recent stock price and includes a 45-day “go-shop” period, allowing the company to seek competing offers. However, while companies like Google and Zoom could potentially be interested, many on Wall Street believe a higher bid is unlikely.
This acquisition reflects increasing private equity activity as U.S. interest rates are predicted to decline further after the fist-in-a-while cut of 50 points on September 18. Lower rates offer investors the chance to acquire assets at more favorable prices, and with buyout-backed mergers and acquisitions up 39% this year compared to 2022, the Smartsheet deal is, perhaps, a prime example of this trend.
For tech entrepreneurs, the deal signals potential growth in both investment and exit opportunities. As buy-side firms increasingly direct capital and attention toward the technology sector, late-stage startup founders may find greater opportunities to scale their companies or achieve profitable exits. It is likely that the recent rate cuts will boost investments not only for private equity firms, whose profit margins are heavily influenced by interest rates, but also for venture capital firms. With interest rates making fixed-income instruments less attractive, suppliers of capital are likely to seek alternative opportunities, driving more cash into growth equity and venture capital**** funds as they pursue sustainable returns in high-growth sectors like tech.
Dictionary Reference:
*Fed rate cut: A reduction in the federal funds rate (the interest rate at which banks lend money to each other) by the Federal Reserve System aimed at making borrowing cheaper to stimulate economic activity.
**Basis Points (often abbreviated as “bps” or “bips”): A unit of measurement used in finance to describe changes in interest rates. One basis point is equal to 0.01%, or one one-hundredth of a percentage point. This may seem like a small amount, but in the world of finance, these tiny changes can have significant impacts. To convert basis points to percentages, divide the number of basis points by 100. For example: 100 basis points = 1.00%, 50 basis points = 0.5%.
***Private equity firm / buyout investor: A financial organization that invests in or acquires companies, often using a lot of leverage (borrowed money) with the goal of restructuring and increasing the company’s value before selling it for a profit.
****Growth equity: A type of investment where firms provide capital to established companies that are looking to expand operations, without taking full control of the business. Venture capital: A form of private equity financing provided to early-stage, high-growth startups with strong potential, often in exchange for equity in the company.
Top Finance & Business Opportunities
B2B Networking Hacks: The Power of “Coffee Chats” aka Informational Interviews (Thursday, 5pm)
2025 Commercial & Investment Banking Innovation Development Insight Program
INSIGHT: Jane Street
SMBC: 2025 Summer Intern Program – BCDAD Operations Transformation Group
Soka Business Review is created in collaboration between Bridges to Business and Soka Finance Society.
