Politicians at Work – Jack Reed (D) Senator, Rhode Island

About a month ago, I wrote about a nonsense statement that Senator Reed made about making it a requirement that all funds, including Venture and Private Equity, with >$30M under management, should have to register and report to the SEC. His rationale was that these funds can have an adverse effect on the global financial markets. I realize that using “rationale” was probably improper; I should have used irrational instead.

Well it seems that Senator Reed has been convinced to modify his position and has changed it to funds > $100M (See article in the WSJ). Now some people might think that Senator Reed has come a long way. After all, his raised his view by greater than 3X. The problem is that his belief that venture funds, of any size, have the ability to negatively affect the global economy. I would love to hear an explanation of how this would work.

He is also working hard to have this as part of the Financial Reform Bill that Senator Dodd is working on. So he couldn’t get enough support to have this passed as a separate bill. So he tries an end run to incorporate it in a massive piece of legislation.

The real question is exactly who does Senator Reed’s legislation benefit? For the life of me, I just can’t figure it out. Maybe someone else can shed some light on it and help me understand.

This Week In Venture Capital, Worth a Look or Listen

Recently, Mark Suster, General Partner @ GRP Partners Venture Capital firm, took over as the host of This Week in Venture Capital a weekly Internet TV show/podcast. The link takes you to a recent show with Jim Armstrong a managing director of Clearstone Ventures.

One of the things I am always stressing is that entrepreneurs should gain an understanding of investors and what drives the investor process. During this 55 minute, there are a number of discussions that entrepreneurs should find interesting. For instance, why a VC who invests $5M in a seed or A round is not as excited if after 5 years there is an exit which pays them back $25M, which sounds like a good return unless you are a VC who has Limited Partners who are expecting better results.

There is also an interesting discussion on mobile coupon apps, which I have seen a number of in the last couple of years and why they are difficult to fund.

I get a lot of questions about taking strategic investments, and there is a great discussion by both Suster and Armstrong on the topic.

This is a pretty new show and I think I have seen all episodes. I think this is certainly worth your time if you want to know more about what’s going on in Venture Capital.

I realized after posting this on Startup Coast, that it is very relevant to what’s happening in Southern California Business. So I decided to post it here also.

Enjoy

Is Social Media a Fad?

I put this post up on StartupCoast, but thought I would also put it up on the buzz.

There are still quite a few entrepreneurs and business leaders who think that Social Media is a passing fad. I think this is an extremely short sided viewpoint. Erik Qualman, author of Socialnomics, is certainly agrees. He put up a short video on YouTube the other day that stresses his point and is certainly worth looking at. For one, he gives an answer to the always asked question, “What is the ROI of Social Media?”

As a side, I like that he used “Right Here, Right Now” by Fatboy Slim.

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.

What is Driving Senator Dodd in His Financial Reform Bill?

I was catching up on reading through blogs when I came across this post on Venture Capitalist’s Fred Wilson blog AVC http://tinyurl.com/y8nm5vy. If you are an entrepreneur who is currently or will be looking for early stage financing or a person who provides early stage capital, then you need to understand what is being proposed and aggressively oppose it.

Senator Dodd of Connecticut has a Finance Reform Bill moving through the Senate that has a couple of provisions in it that will adversely effect early stage company investing. One is a proposal to raise the criteria of an Accredited Investor from a net worth of $1M to $2.3M. Now I have no idea why this is relevant to bank finance reform? The only connection that I can come up with around the last financial crisis and Angel investing is that Angels now have significantly less money to invest in companies! So, if the passage of this bill shrinks the pool of investors, then even fewer companies will get the funding they need and one of America’s economic development engines will be seriously effected. Has Senator Dodd forgotten how many private sector jobs are created through startups? Is Senator Dodd proposing that people with $2,3M of net worth are that much more able to understand the risks in early stage investing? All the Angel investors that I know are quite aware of the risks.

The other provision, if I understand it, requires businesses to make an SEC filing before seeking capital or they will have to register with each state where they intend to fund raise. There is a post at TechFlash, http://bit.ly/96uuEx, that covers this in much greater detail.

Angel investors and entrepreneurs need to read through these and then think about how this bill will adversely effect them in the future, and, if you come to the same conclusion that I did, contact your Senators and Representatives to oppose the passage of these two provisions.

I also think that someone needs to educate Senator Dodd on the differences between funding early stage companies and bank finance reform. Maybe someone should have him look at the Fortune 500 today and what it looked like ten years ago. How many companies on the list were started in the last 10 years? How many jobs and how much economic impact would be missing if these new companies had not received early stage funding they needed and weren’t able to get started?

This is just so bad in so many ways.

Talking to Entrepreneurs – Bay Schmooze IV

One thing that I like about talking with entrepreneurs is when you realize that a lot of what you know and take for granted is completely new to someone else. Two of the conversations I had yesterday were with entrepreneurs who are very early in the creation of their new busineses. Both are focusing on completely different different customers and attempting to solve different problems. However, they did have something in common. They are creating service business using the Internet as the place where they will conduct business.

I believe that anyone using a website as the primary communication tool between them and their customers should be either creating or re-designing their sites using software and tools that are designed to easily build communities, manage content easily, and support a wide range of media. This is not  based on some “Aha” moment of insight recently but from working with these types of tools for the past three years.

With so much press about MySpace, Facebook, LinkedIn, Twitter, WordPress, and other tools, I just assume that most people, especially in the age demographic of the entrepreneurs I was talking with, already know all about the capabilities these tools provide.

Entrepreneur one is about six month into development. The business is focused on providing information about an industry and the people and companies in that industry. Clearly this fits nicely into to social media/marketing space. I ask, “Are you going to provide your customers the ability to talk about their experiences, good and bad, with people and companies?”. “Not in the first phase, we are thinking about it as in Phase 2.

We talk about how the site is being created. The old way is to use standard web development tools including some combination of XML, CSS and PHPmaybe with something like Dreamweaver. Certainly a solution, but unless you become functional with these tools, you have to rely on a web developer for all changes to the site , which can be time consuming, frustrating and expensive (I realize that there are some supposedly higher level tools to help with changes like Contribute, but learning Contribute and managing content on a blog are miles apart).

Being so early into the development, I ask if they had considered using a Content Management System(CMS) based solution like Joomla or Drupal? More importantly they are open source (think Free Software), and have all the basic community tools built in. They hadn’t heard of this but were dealing with slowness of getting content on and off their current site.

Entrepreneur two is just beginning and has not selected a platform as yet. In fact, getting some insight on what to consider was among the list of things she wanted to find out during the Schmooze if possible. We had the Open Source conversation. She asked if I know of any developer resources that I would recommend, and I tell her about the San Diego Drupal Users Group that meets monthly (currently at the Hall of Champions at Balboa Park). I also mention that, if she wants to learn more about Drupal, meet more people and talk with some great resources from both San Diego and LA, there is a LA Drupal Camp scheduled for August 8th and 9th at UC Irvine. It is free, all you have to do is sign up.

Someone else mentions looking at similar, complementary  or competitive sites. She says she is having difficulty finding out who is talking. I ask if she knows about Technorati? “Doesn’t that have something to do with blogs?” I explain what Technorati is all about, and she writes down the web address.

Whenwe have been working in an area for a couple of years, especially one that is still pretty nascent to smalland medium business, we tend to forget who much we really know. So, it is great to talk with people who are just starting out and all this is new to them. You get to share some information, hopefully help them move forward and feel good about the conversation as time well spent.

Bay Schmooze IV – Interesting Concept

Yesterday morning I joined a large number of entrepreneurs and some investors in a rather interesting setting. Marco Thompson, who is very well known in the San Diego business community especially for creating unique venues to showcase entrepreneurs, put together Bay Schmooze IV at the end of Mission Bay park.

It started at 7:30 AM with lots of coffee, some bagels, pastries, fruit, OJ and other assorted goodies to get you started followed by a number of choices for anyone who wanted to get their brains and bodies started with exercise for about an hour. Then from 9:00 to around 11:00, people got to network.

So, how many people will actually show up at 7:30 on a Saturday for three and a half hours of networking at the beach? Surprisingly, around 90! 

On Friday, I met with an entrepreneur and while we were talking he asked if I know Marco and had I been to any of his Schmooze events. Although I do know Marco, I was not familiar with the Schmooze events. Friday afternoon, I got two emails from Marco about the event with one chiding investors for not signing up. After all, if 70-80 entrepreneurs could drag themselves out of bed to attend, why couldn’t investors? Hearing about the event from two different sources, so close together, got me curious to see what this was all about.

I have to say, that I thought the time was well spent. I was able to re-connect with a couple of people, and hear about some interesting new companies from enthusiastic entrepreneurs. In fact, I am looking forward to Bay Schmooze V.

Thanks for the invite Marco!