Entrepreneurs get on with it

Business owners do not have the luxury of the Fortune 500 to ask committees to do an analysis and white paper before making a decision (or not). I heard that 99% of registered companies in Canada are SMEs - (small and medium sized enterprises.) That high number is quite astounding but should not have suprised me as I do believe Canada is a great place to start and run your own company.
Naomi Klein stoked a fire with her negative spin on the evil of corporates. I will leave that topic but the smaller companies are just too busy surviving and are surprisingly devoted to their staff. The hardest part of this downturn for many of the CEOs is letting people go.
Private equity in Toronto has played a big role in getting SMEs transformed into professionally run companies who can then operate globally. I believe the credit crisis is part of a larger fundamental shift in power shifting away from large institutions like banks, who used to be the only place to get money to grow companies - along with the public market. I expand on this shift in Money Magnet. Over the past ten years there has been an explosion of private money being invested into companies but these venture capitalists would also get in guide the entrepreneur.
Here's The Economist bolstering the role of the entrepreneur.

Credit rating agencies are broken

I have spoken many times about the credit rating agencies. Their model is broken.
- Pennsylvania Railroad went into receivership in 1970 – rated triple A.
- Venezuela defaulted in 1982 – rated triple A.
Over the past several years lots of structured products were rated triple A only to go to triple C in the blink of an eye.
Rating agencies are paid by the issuer. Why would a buyer of securities rely on a rating provided by the seller.
Companies rate shop. They visit all the rating agencies and give the business to the agency which accords them the highest rating.
Mary Schapiro, the incoming Chair of the SEC, testified earlier this month, “until we deal with the compensation model, we’re not going to deal with a conflict of interest and people are not going to have confidence that the ratings are worth relying on, worth the paper they are printed on”.
In my opinion, rating agencies are dangerous because they provide investors with a false sense of security.

Paul Krugman despairs about the Obama Plan

The policy to get this financial crisis tamed from a raging hurricane is no offering comfort to Paul Krugman. His worries are outlined in the NYT.

Private equity partners with Ontario Government

If you know you will be eating the food that you cook, do you think it would make you more careful how much salt you add? When there is self interest, we human beings are absolutely going to pay more attention.

In the same vein, people investing their own cash into a business are more likely to pick winners.

It is uplifting to see that the Ontario government is recognizing this human trait and is partnering with private equity to invest in up and coming companies.

Karen Mazurkewich, Financial Post, writes about useful government initiatives that support venture capitalists and what entrepreneurs really think of them. Marzio Pozzuoli started his company RuggedCom and recognizes that the VC funds are the most competent at funding early stage companies.
"The best guys to fund the emerging technologies and start-ups are the VCs because they are doing diligence to do the investments," says Mr. Pozzuoli. Earlier this week, the Ontario government announced a new $250-million co-investment fund intended to help companies working in clean technology, life sciences, digital media and information and communication technology. If a venture capital firm invests money in a company, the government will match it dollar for dollar. Another bone to the sector was a new $205-million Ontario Venture Capital Fund created last June, comprised of Ontario government cash and funds from institutional players.
Mr. Pozzuoli says the best program the government has for companies like his is the Scientific Research and Experimental Development Tax credit, which has a federal and provincial component. "We still use it today as a public company."

Private equity would be better for AIG

I talk a great deal about the difference in the psychology of investing, in my book Money Magnet. But if you want to see some real life examples of people's behaviour when they invest other people's money, not their own, then take a seat to learn from the drama of AIG. Watch the US government and their tax payers' treatment of one of their "investments" - AIG.

Now the American government and many of their nation's tax payers believe they have "given" money to AIG. This delusion is understandable but in fact, the US government has bought shares in AIG making tax payers one of the biggest investors. They hold shares in what was a very successful company. Now they are destroying wealth by braying for blood. Who will want to work at AIG in the next few years - only dolts. There goes AIG to the garbage heap and tax payers will not earn back a cent of profit. Joe Nocero at The New York Times explains why tax payers and government need to understand their position as an investment partner in the business.

In other words, it is in the taxpayers’ best interest to position A.I.G. as a company with many profitable units, worth potentially billions, and one bad unit that needs to be unwound. Which, by the way, is the truth. But as Mr. Ely puts it, “the indiscriminate pounding that A.I.G. is taking is destroying the value of the company.” Potential buyers are wary. Customers are going elsewhere. Employees are looking to leave. Treating all of A.I.G. like Public Enemy No. 1 is a pretty dumb way for a majority shareholder to act when he hopes to sell the company for top dollar.