Need a Bit of Humour?

Jim Sinclair’s Commentary: It is a little crazy in terms of Einstein’s definition of madness to believe that those who caused all this will pilot us out of it.

Family Business Needs to Manage their Capital Better

I ran an article on my CEO Newsletter which goes out to owner managed businesses and family businesses with the lead story headline:

Why 90% of Businesses in the USA are Still "All in the Family"

I got back many repsones asking about this number and whether Canada has that many owner managed companies. I tried contacting Family Business research centres and CAFE to get figures but Canada also comes in pretty high at about 75% of business owned by a family. I got an interesting reply from a finance expert in South Africa who said:

Because the returns are generally too low to cover a true imputed cost of capital (currently some 9% (3.5% risk free rate plus 5.5% equity risk premium) for an ungeared company) - markets would not stomach such underperformance....

So, do family businesses understand EVA or cost of capital? Is this why they benefit so much by partnering with the private equity teams who bring their market expertise to their business? My book, Money Magnet, will cover these points for owners and founders. Tom Deans, author of Every Family's Business, says that family businesses need to run their companies as if they did not belong to the family. This could also be a factor in why family businesses are not as efficient as they could be. Money Magnet will cover this controversial topic.

Canadian Finance Book Reviews and Web sites

Dig into this pile of book reviews and web sites reviewing the Canadian capitalist money scene.
Every Family's Business by Tom Deans is an entertaining, useful read if you own, have partial ownership or wish to have ownership in a family business.
The Digerati Life has a great article on how to make 10 ordinary things last longer.
Consumerism Commentary has a detailed article on 10 steps to break the credit card habit. Lazy Man and Money gives his thoughts on the middle class.
Quest for Four Pillars questions hedge funds - are we missing out?
Generation X Finance does a book review on Rich by Thirty.
Money Magnet is teaching family business owners how to find investors and get them to value their business at a high level.

For Private Equity, Is It Bleak?

What is the current bleak business landscape and downward fall of the markets doing to business? It does seem that the bottom of the market is being reached as the Times of London reported that Blackstone and CVC have put in a joint proposal to acquire 29.9 per cent of Mitchells & Butlers, the UK pub group whose shares have slide down after a property deal went sour.
Leveraged buyouts have been put aside with the growth of the credit crunch as financing has ground to a halt while banks are forced to work through a backlog of committed but unsyndicated loans.
However, buyout groups are carrying billions of dollars of funds and need to put their money to work, despite the lack of debt funding. Apollo, TPG and Blackstone also signed on to buy $12B of discounted leveraged loans from Citigroup, or 24% of the bank's $43 billion backlog of unsyndicated loans. This has probably set the price for other banks to begin to reduce their backlog. As the Time of London reports, "It calls the bottom globally, although it's a terrible deal for Citi. By calling the bottom, they create the bottom and if it works they unblock the system and the market starts to recover.”Blackstone, KKR and Carlyle have recently all closed new distressed debt funds and in Europe both Permira and CVC Capital have small debt businesses that are also starting to invest in underperforming leveraged loans.
In the meantime, private equity funds, including Apollo, Oaktree, Och-Ziff and Silverpoint are also digging through the market for attractive deals.
Here is Canada, with the closing of Jefferson and other funds, there is concern about private equity deals. This type of financial partnership is not the same as banking. It is high risk money.

Private Equity Flooded with Money

I got a phone call from a fund manager today. I was a bit surprised to get his attention as he normally only deals in public market companies but he tells me he has a new private equity fund and he needs to invest. This is good news for those family owned businesses or owner managed companies because it means they are more and more attactive to this unique type of capital. I wrote about private equity in my new book, Money Magnet which will help owners understand how to attrat and work with private equity.
With the big companies taking a hammering on the stock market, there is a diversion of money happening. The new direction seems to be private equity. I've had phone calls from companies setting up private equity funds as they have heard this is where the high returns lie.
In the USA, Private equity funds closed on a whopping $44.3 billion across 68 funds. While not nearly as huge, the venture capital markets also brought in new money beyond 2007’s totals by $1 billion to $4.9 billion. The data is based on information compiled by Private Equity Analyst, which is part of Dow Jones.
What's going on?
"The thinking in the USA is that if you are in private equity or venture capital, you are not tied up in the credit crunch," says John Loewen, Loewen & Partners, Toronto.

Venture Capital Country

You are entering Venture Capital country when you run a business with some revenue but still need to get a large sum of money to build a plant for that new client. The VCs (Venture Capitalists) are like the pioneers. They would take the big risks and maybe get to develop a ranch and farm, bring up a family and create a booming town serving farms and the stage coach passing through to the big city. Too often though, as Dennis Tobin said to me (he's a venture capitalist lawyer), the pioneer gets the arrows in the back.
It used to be thought that the first business in would get the big rewards but it is becoming clear that the people who come in after the pioneer actually get more reward. The moral of the story is try to be a settler, coming in after the pioneers have staked out the territory. But if you are an entrepreneur, I know you enjoy the thrill of the adventure so never mind – carry on - and watch out for those arrows.

Dragons' Den Wants You

It's the third exciting season of CBC-TV’s Dragons’ Den and they are looking to audition contestants for the show. It is not quite American Idol but if you have a business idea or business needing money, it is well worth entering. Get used to the Dragons' fiery breath because they are actually very generous in saying what they think. Once you've licked your wounds, you will realize you just got the best advice and it was for free. Maybe you will get the money or even win $50, 000 like Trent Kitsch of SAXX who was assisted by Loewen & Partners.

In Ontario:

April 12th at The Accelerator Centre London, ON

April 16th at Richard Ivey School of Business

Money Magnet: Attracting Investors to Your Business

Time to pop the champagne - I finished the final editing of my book Money Magnet with the great editorial team at Wiley. Since this is my third book, I am asked why I choose to go with an old technology publishing house rather than post as an e-book or do it myself with a vanity press.

Well, because Wiley is firmly planted in the 21st century and knows its place is no longer the gate keeper of authors clamoring to get their work out to their adoring public. What they are doing is helping experienced writers like myself learn the new technology cyber ropes. They are building my book website and have done a superb job of editing my book with not one, not two by three editors who have cut my ramblings to a sporty, fast read.

The bigger job I have is fitting Money Magnet to my company, Loewen & Partners as the client base for our company are business owners with companies making more than $10M revenues and Money Magnet is definitely a broader readership. Any advice?

Would You Think Agriculture Was the Next Bubble?

The housing bubble helped us get out of the mess from the tech bubble bursting and so now begins the next bubble - alternative fuels.

Loewen & Partners was invited to listened to Mayo Schmidt, the charming and erudite CEO of Viterra which is Canada's fastest growing agricultural company - their tag line is "Leading Canadian Agriculture." Mayo is one of those mid-West men with the folksy trustworthiness but he is probably the sharpest tool in the shed. He blew me away with first of all his company's earnings and future vision, but also reminded me of how fast the world is switching away from oil. Mayo says that Brazil has converted more than half their fuel needs to sugar cane and other cellulose fuel. This land use and conversion of agriculture away from food to energy use will bring challenges as the world population is expected to keep escalating.

While I was in South Africa, I met with one of the investors from the Dubai Fund who are busy buying up land in South Africa where the property rights are still stable - no crazy Bob Magabwe types taking land.

Here's a quick list of fuel prices around the world:
Prices are quoted in US dollars per gallon for regular unleaded. March 1, 2008
Oslo, Norway $6.82
Hong Kong $6.25
Brussels, Belgium $6.16
London, UK $5.96
Rome, Italy $5.80
Tokyo, Japan $5.25
Sao Paulo, Brazil $4.42
New Delhi, India $3.71
Sidney , Australia $3.42
Johannesburg, South Africa $3.39
Mexico City $2.22
Buenos Aires , Argentina $2.09

Riyadh, Saudi Arabia $0.09
Kuwait $0.08
Caracas , Venezuela$0.12

Does writing a business plan have power?

Starting your own business makes you rich, right?

Unfortunately, that fairy tale does not always end happily. You are probably aware of the statistics on just how many companies fail before reaching their five year mark. It is just not true that owners take home the big bucks. Too often they are paying everyone else first and when it’s time to pay themselves, they find the cupboard bare.

Many entrepreneurs also discover that a mortgage, a pension plan, a medical plan or other long-term benefits provided to employees, are not available to them because of their status as “self employeed”.and also out of reach of their budget. After a couple of years of that reality, the entrepreneur stops dreaming and decides that working for “The Man” looks pretty good, particularly if it entails union wages or a government pension plan.

Business entrepreneurs are crucial for the future wealth of our country but are often given little thought (look at the last Ontario provincial election – need I say more?). Now with the alarming question of “Is this a recession?” even the news headlines have turned away from Hollywood celebrities and toward the economy” – although CNN did still make Heath Ledger’s death their top story the same night that every stock market on the globe was falling off a cliff. But what the heck, I enjoyed looking at Anderson Cooper’s blue eyes and his combination of Wall Street pinstripe suit with purple and gray striped tie!

With this incoming tsunami of trouble, our provincial governments are turning their attention to SMEs and pondering how to help them. If you buy the life-boat theory - you cannot save everyone from drowning - you need to answer the question of just who does get to climb into the life boat. Rather than encouraging any and every start up, government can focus on assisting industries with high growth potential. If you start a computer industry-based company, your chances of growing far exceed those of starting a hotel, a clothing store or a consulting company.

What is missing in the economy are those growing companies finding a financial investment of $1M to $10M. Supporting those investors ploughing money into growth companies would be a smart move. Venture capitalists and private equity funds investing amounts under $10M tend to excel in filtering out which businesses and owners are most likely to grow our Canadian economy.

As an entrepreneur, you know economic change is upon us. You no longer have time to point the finger at China, India or our government policies. Right now, you need to make decisions to get ahead of the global crowd. Scott Shane, professor of entrepreneurial studies at Case Western Reserve University and author of The Illusions of Entrepreneurship, says, “the typical entrepreneur makes decisions that lower the chances for success. Part of it is that they're in a hurry and don't have time. So to give you a good example -- a business plan. We have lots of evidence that all kinds of performance measures of startups are enhanced if you write a business plan” [www.businessweek.com, 1/7/08]. Why doesn’t the average owner write a plan? Besides being busy, owners just don’t see the benefit.

If you want your business to be more than a lifestyle, write that plan. Take this weekend to break out your laptop, Google “business plan” and you will find a plethora of templates to use. Then share it. If your only employee is your dog, tell your mother. “Tell everyone,” says Tony Griffiths, one of Canada’s top investors in growing entrepreneurial companies. Tony, who invests in growing companies, recalls how years ago, while he was watching his wife play tennis, a young man sitting next to him struck up a conversation. The subject moved to business and the young man shared his business plan with such enthusiasm. Tony made the decision there and then to become an investor.

The young man had no idea that there was private equity interested in his size of business, but since he had completed a step toward a higher level of success – writing a business plan – he accidentally gained access to capital. According to Tony, the company went on to grow all the way to a public listing on the stock exchange. The young man is now much older and does own a mansion. One answer to surviving the looming economic storm is remembering the fundamentals: make sure your business plan is in great shape and perhaps you will reach the level of entrepreneurship that earns you the big money.