Finally, Some Sanity in the Financial Reform Bill

I ran across a post at Tech Flash, Seattle’s Technology News Source, that says that Senator Dodd’s Financial Reform bill has changed the two provisions that would have negatively affected entrepreneurs search for early stage investors. Originally, one provision sought to raise the limit of an accredited investor from $1M to $2.3M. The current language leaves the level at the $1M but now excludes the value of the primary residence. It also provided that the SEC consider the economic impact of any future changes.

The second provision required entrepreneurs to register with the SEC if they intended to raise money. The new language makes this a requirement for what they call “bad actors” or those entrepreneurs who consistently start bad businesses and lose their investors money.

All in all, not so bad and, more importantly good for entrepreneurs and investors.

Another Ludicrous Statement by a Politician about Venture Investing

Fred Wilson did a post today responding to the ludicrous assertion by Senator Reed about how $30M venture funds might pose a threat to the global financial environment. Is there something in the air around the Capital in DC? Where are these insane thoughts coming from? Check out Fred’s post @ ://www.avc.com/a_vc/2010/04/venture-capital-creating-systemic-risk.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+AVc+%28A+VC%29.

Fueling Job Growth, Bailouts vs. Startups

There was an interesting article by Thomas Friedman in the Op-Ed section of the New York Times on Saturday. The focus was on our immigration policies especially on foreign workers, but there were a couple of interesting statistics included. One was from Robert Litan, Director of Research at the Kauffman Foundation which focuses on stimulating entrepreneurship and innovation in the US.

“Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,” said Litan. “That is about 40 million jobs. That means the established firms created no new net jobs during that period.”

So let’s see if we are focusing our efforts in the right way? Most of the hundreds of billions of dollars that were put into the economy by both the Bush and Obama administrations were targeted at bailing out or saving big company industries like the financial and auto industries who contributed essentially no new net jobs during the 25 years between 1980 and 2005. HHhhmmmmmm!

Obviously, the companies that did create all the job growth were start ups, and what are we doing to help them along, let’s see:

• There were funds provided to banks to stimulate lending to small businesses, but the banks decided not to lend it out.
• There were new SBA Loan Programs put in place that included elimination of loan fees, but again, the banks decided not to support these loans unless you had stellar credit even if the government backed these 90%.
• Senator Dodd added provisions to his Finance Reform Bill that will reduce the pool of available early stage funders for Startups and increased the filing requirements for startup companies.

So it looks like the current score is Big Company/No Job Growth = 2 and Start Up Economic Stimulus/Job Creation engine = 0.

As for those in power and their actions towards fixing this, I look towards to the words of Desi Arnaz, “Lucy, you have some splaining to do!” Although I am interested in hearing how this splaining will roll out, I am more interested in seeing a significant focus on getting more new businesses started and fueling the next level of job growth in America.

Government Funding for Small Businesses, Fact versus Truth

As I was watching Christina Romer, Chair of the White House Council of Economic Advisors, on Meet The Press this morning, I thought about something that I first heard from Maya Angelou who said “Sometimes facts get in the way of truth“. Ms. Romer was talking about how the stimulus is working and how an additional $30B was earmarked for Small Businesses. Obviously this is a fact. But having something earmarked does not mean that these dollars are making it into hands of small businesses who need it (the Truth). Here in Southern California recently, a head of a large bank stated at conference that neither he, nor any of his counterparts, were approving business loans including SBA loans, unless the applicant has a >750 FICO score and are willing to put up personal assets against the loan.

Now the SBA, last year, made some significant changes to their loan programs providing 90% government backing and eliminating all fees. So, one would think that this would open up the deadlock on business loans, but apparently this is not the case. Unfortunately, Ms. Romer doesn’t get the connection that the fact that the government has approved funding does not translate into the truth that small business owners now have access to the much needed cash. Is anybody checking to see if the programs are working properly?

Many times over the last year I have heard government officials state how important small and medium businesses are to the overall economy and their creation and growth are critical to our pulling out of the recession and creating job growth. Nice words, good thoughts, but lacking follow through on results, these are just meaningless concepts. The American public is on the hook for bailing out the big banks last year. Now it should be their turn to get back into the banking business for small businesses. If they either refuse to lend to small businesses or put up unrealistic conditions even though the government is essentially back the loans, then the government should figure out a different way to get these funds into small business owners hands.