Now You're Talking, Stephen

Hundreds of aspiring young entrepreneurs will be able to contribute quickly to Canada’s economic recovery as a result of a $10 million grant to the Canadian Youth Business Foundation (CYBF) announced in today’s federal budget.
Stephen Harper's Conservative government recognizes the value of CYBF.
“Canada has no shortage of young people ready and willing to defy the current doom and gloom. This grant from the Government of Canada will let us increase dramatically the number of business start-ups that we can finance and support through our partners in more than 150 communities across the country,” said Vivian Prokop, CEO of the national charity.
“I would like to thank in particular Industry Canada, Industry Minister Tony Clement, and Minister of State for Small Business and Tourism Diane Ablonczy for their enthusiasm in nurturing a culture of entrepreneurship at a time when Canada needs it most.”
While access to business credit is tight and unemployment is rising, the demand for the CYBF’s financing and mentoring services continues to grow. The number of CYBF-funded start-ups from October 2008 through January 2009 was 68 percent higher than during the same period in 2007, and the Government of Canada’s investment will enable CYBF to meet this growing demand and accelerate its pace of lending.
An estimated 20,000 young people want to start businesses every year but find it difficult to obtain financing through traditional sources. CYBF offers an experienced volunteer mentor and a loan of up to $15,000 with no collateral. Qualified applicants can access a further $15,000 through a partnership with the Business Development Bank of Canada.
The one-year grant will provide much-needed stimulus in communities from coast to coast, enabling the launch of an estimated 800 new businesses within 5 years. Based on the performance of CYBF clients to date, these businesses will generate an estimated 5,000 new jobs, $135 million in sales revenue and $32 million in tax revenue within 5 years

Snapshot of Canada's 2009 Budget

Finance Minister Jim Flaherty delivered Canada’s 2009 federal budget earlier today on January 27, 2009. Members of the KPMG National Tax Centre attended the budget lock-up in Ottawa and have prepared a new edition of TaxNewsFlash-Canada summarizing the announced tax changes.
Thanks to Scott Tomenson, Wealth Management Consultant, for providing us with this link. Read.
Visit Scott at http://familywealthmanager.blogspot.com/

Business owners need private equity

Entrepreneurs and business owners would like Frank McKenna - the fellow who was put forward to head the Liberal Party, but who sadly declined.
I was at my Secret Handshake Bay Street Club - The Ticker Club - where Frank McKenna was the guest speaker and he blew the roof off with his dynamism. Coming from New Brunswick, Frank is prgamatic and gets the role of the manufacturing and other technology businesses in building a strong Canada.
He said, "We need to expand our thinking around innovation from just pumping oil to other countries. We need to be the best at the supporting manufacturing, equipment, technology and service busineses around oil. The same goes for forestry."
"Sounds great but the reality is tough. Many of those types of companies suggested by McKenna are potential clients for Loewen & Partners' services - raising capital for owner managed companies," says Jacoline Loewen, author of Money Magnet. "The problem is that these companies do need to get to be over $100M to survive in the global market. It is very difficult for these companies to do this on their own. Yet, many of these owners do not understand or trust private equity, their ideal partner to grow their companies."
http://www.moneymagnetbook.ca

$1 Trillion and Counting...

Astoundingly, and possibly incomprehensible to most, London based Private Equity Intelligence reported this month that Private Equity Funds raised the second highest level of annual funding in 2008.  Approximately $1 Trillion of capital is currently ready to be deployed.  Only a quarter of this was raised by large buy-out funds, though this amounts to $284.2 billion last year, about the size of Ireland's GDP.   The rest was raised by funds with other focuses, such as real estate funds ($153.5 billion) and funds focused on SMEs, 217 funds raised money in this category, the most of any other.  

However, this news may seem counterintuitive to the news released today, that 50,000 jobs were lost in the U.S. in one day.  Coping with the shock is likely on the mind of all of 50,000 newly minted unemployed.  However, to fund managers with bulging war chests, the wait is on to discover the bottom.  With asset prices falling, demand slumping, and credit inaccessible for most, fund managers are in a very comfortable position to deploy the tremendous amount of cash at their disposal at the plethora of deals not finding an investor right now.  The difficult part is finding the bottom.

A report in the Globe and Mail today suggests that the worst of the economic turmoil may now have passed.  The argument made by Allan Robinson is that Treasury yields have stabilized and have actually shown preliminary signs of rising (judge for yourself the significance of the the rise, but the decline seems to have stabilized...for now).  This means that investors are looking to move their money from out of the wing of the Treasuries and into, likely, investment grade corporate bonds.  This is significant because it means investors are beginning to trust the relative stability we are seeing right now.   

Of course, the economy is not going to recover overnight, but it is likely that by June the consensus amongst economists will be that we have turned the corner, and look to activity in the private equity market to lead the way, and likely significant deal activity to begin in half that time. 

Jack Welch blames the i-bankers

The major banks have taken the biggest hit from last year's financial crisis and they continue to feel the effects of it. The sheer numbers in terms of wealth destruction due to the ongoing de-leveraging process in the financial sector will blow your mind. Check out the financial rapidly dissolving value from a different perspective; thanks to a friend from JPMorgan who sent the above chart.

I was listening to a Businessweek podcast from Jack Welch, former CEO of GE, who said the banks used to be privately held with the result that the top executives - in the form of a Partnership - were lending their own money. They got the upside but they also got the downside.

Jack Welch says that if there is someone to blame for the financial mess, he would lay it at the front door of the i-bankers taking their companies public. Suddenly, they had access to other people's money to lend.

"This is like going to Vegas to gamble," says Welch. "If you get upside, you keep the gains but if you lose, well you come back and apologize."

Jack goes on to describe i-bankers coming to him at GE to invest in risky oil deals.

"If that had been their own money," says Jack, "They would not have risked it. They were looking for my deep balance sheet to take the hit for the risk."
Private equity will be coming into its own for exactly the reason Jack says - these are mostly privately held funds. The best funds will be those that risk the fund partners' money, not just yours. Otherwise, you can put your money back into the public market, but maybe you should head for Las Vegas instead.