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.

Too much leverage is a bad thing

there is just too much leverage in the financial system. Banks, dealers, hedge funds and private equity firms. Too much leverage. The big U.S. investment banks were, by far, the worst offenders followed closely by European banks.
In April 2004 the SEC granted the five big U.S. investment banks virtually unlimited leverage.
Following this decision, the assets and leverage ratios of the five firms exploded.
In just the four years to the end of 2007, the aggregate assets of these five firms doubled from $2.1 trillion to $4.2 trillion and the average leverage ratio, as measured by total assets to common equity, increased from 23 times to 33 times.
These ratios were “off the charts” – especially when you consider these weren’t investment banking firms at all.
Over a decade these firms had morphed into being gigantic hedge funds, dealing in risky assets and they were financed largely by wholesale money.
They were an accident waiting to happen.
Financial firms love leverage because it can do wonders for your profits and your return on equity in the good times.
Unfortunately, leverage can kill you when business turns down.
Most people do not appreciate the destructive power of leverage. At 33 times leverage, as these five big investment banks were, if your assets drop by just 3.3%, you are out of business. And at 40 times leverage, where some European banks were, if your assets drop by just 2.5%, you are gone. With these leverage ratios, there was zero room for error – no cushion.
Leverage is especially destructive in a deflationary environment.
Asset prices decline, debt remains the same and the equity gets crushed.

Great news from Canadian Youth Business Forum in an email from Flavian, the PR magnet!

Prime Minister Stephen Harper visited Toronto today to officially announce a $10M grant to my company CYBF. He visited some friends of mine in their Tortilla restaurant on St. Claire & Dufferin and then headed off to a press conference to make the announcement. La Tortilleria is only 10 months old with 3 locations....best authentic Mexican in Toronto. The entrepreneurs, Axel and Juan are 26 yrs old...and immigrants from Mexico.
Some stories so far...http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090318/harper_presser_090318/20090318?hub=Canadahttp://www.thestar.com/News/Canada/article/604397

The ability to say no

One of the most difficult things in banking or investment banking is not to follow your competitors over a cliff.
This is incredibly difficult because if one, or a few, increase their risk profile and start taking your clients, there is strong pressure within your own company – and from the market place to, increase your own risk profile to maintain your competitive position.
In boom years this process rachets up the risk profile across the entire industry on a continuing basis. As Jacoline Loewen discusses in Money Magnet, "The business goes to the private equity fund prepared to take the most risk."
It’s the same thing in investment banking. If one firm increases their risk profile on new equity issues, usually the others fall in behind.
I don’t know how many times I’ve heard we’ve got to go into this business, or we’ve got to make that loan or we’ve got to go into that deal because everyone else is in it.
My conclusion is that the most important word in the financial business, apart from please and thank you, is the ability to say no.
- No, we are not going to do that deal.
- No, we are not going into that new business.
- No, we are not going to make that stupid acquisition.
- No, we are not going to make that loan.
Many times the best deals you do are the ones you don’t do.
In the course of my career I wish I had said “no” more often.

Bank of Canada a winner

For over 100 years increased government regulation of financial institutions has followed financial crises as night follows day.
This time will be no exception.
The fact is the market has lost confidence in the Federal Reserve, the SEC, the Bank of England and the Basel One or Basel Two regulatory regimes.
This crisis built for years under their watch.
I believe OSFI and the Bank of Canada have provided better oversight. In particular, the SEC has acted like a head waiter to the securities industry in the U.S.
In any event, there is a ray of light and that is Paul Volcker age 81, who was Chairman of the Federal Reserve from 1979 to 1987 and is arguably the greatest central banker alive today.
Last July the group of 30 nations launched a project on regulatory reform under the leadership of Paul Volcker. This report was tabled just ten days ago and contains four core recommendations and eighteen sub-recommendations, focused directly on problem areas which have emerged over the past two years including;
- structured products
- proprietary trading by banks
- regulation of hedge funds and private equity firms
- leverage
- and several more
At the press conference tabling the report last week Mr. Volcker called the current financial system by a four letter word – he called it a “mess”. He said “we are going to have to rebuild this system from the ground up”.
We are fortunate, indeed, that the highly capable, blunt talking, Volcker has been appointed Chairman of President Obama’s Recovery Board.
The long and the short of it is;
The grand experiment of deregulation of financial markets and financial institutions which started with President Ronald Reagan’s appointment of Alan Greenspan in 1987, is over.

Forget being globally competitive

In Canada over the past fifteen years there has been a constant drumbeat, from every point of the compass, for our banks to make large foreign acquisitions to become, so called, globally competitive.
What is globally competitive anyways?
Does that mean like Citigroup, Deutsche Bank or UBS?
If so, forget it. If there’s a pothole, these big global banks will find it. There are probably more than 12,000 banks in the world.
Why do you have to be in the top five or ten? It’s all egos run amok.
What’s wrong with being the twenty-fifth, or the fiftieth, largest bank in the world and growing your business organically by offering good service. Shares of the biggest banks in the world have been the worst performers as long as anyone can remember.
I have learned that the financial business is a marathon and not a hundred yard dash –
- slow, steady and dull often wins the race –
in many cases because your fast moving hot shot competition blows up. Bear in mind every time a competitor blows up and goes out of business, the survivors win.
In my view Canadian banks are plenty big enough to compete where they want to compete.

Take away the punch bowl

In just the last ten years we have had two explosive bubbles which have been extraordinarily destructive. The telecom and internet bubble which burst in 2000 and the U.S. housing bubble which burst in 2007. In my view, the record clearly shows that the Federal Reserve should have moved to choke off these euphoric, speculative manias.
They could have done this by aggressively raising interest rates at an earlier date, increasing stock margin requirements and perhaps by also increasing bank capital requirements.
It didn’t happen.
Once again it was the age of deregulation. Let the market take care of itself. It’s been said that one of the primary jobs of a central bank is “to take the punchbowl away just when the party is getting started” which, in retrospect, looks like sound policy.
In short, should central banks target, and rein in, overheated and speculative industry and market bubbles even if it causes a slowdown or a recession – the answer is yes.

Innovation and financial engineering

FINANCIAL ENGINEERING AND INNOVATION - the headlines would scream. If your bank was not working at these, you were no where.
This has been a big problem area – actually disastrous.
Toxic complex structured products developed and aggressively marketed around the world by U.S. dealers and banks were the multi-trillion dollar time bomb that finally blew up the system.
In the five years or so up to 2006, big U.S. banks and dealers were bringing new and complex highly leveraged structures to market a mile a minute.
There were CDOs, CLOs and CMOs and a dozen other acronyms.
Many of these structures were leveraged more than ten times with exotic derivatives. For hundreds of billions of these structured products there is now only a market at distress prices – if there is a market at all.
The financial industry should get out of complex structured products.
If a security has more than two bells and one whistle, just say no. Think $32 billion of frozen Canadian non-bank asset backed commercial paper. It took a small army of top lawyers and top accountants a year to figure it out and, even now, no one knows what it’s worth.
It’s an amazing story that this could happen.

What's happening to our money?

If you haven’t had a chance to see the Stewart versus Cramer Video yet, here’s the link: Link
http://www.thedailyshow.com/video/index.jhtml?videoId=221516&title=jim-cramer-unedited-interview

This video raises many questions and whether you like Jim Cramer or not, at least he had the guts to come on the show and get publicly humiliated for his “mistakes”. My personal problem with the investment community though is still the fact that there are pervasive conflicts on interest throughout the industry. And despite or perhaps because of regulatory oversight any recommendation must always be taken with a grain of salt. Nobody can predict the future and yet many institutions are paid to do so. Personally I feel the bigger blunders are with the ratings agencies who are after all still getting paid by the companies and institutions they are supposed to rate, including those sub-prime CDO’s and CMO’s. Compare that with the simple conflict of interest rule for brokers. No broker can accept gifts of over $100.
It is also clear that the news media and reporters are not free of conflicts of interest. To that extent we must question why reporters (disguised as comedians) could not or did not expose these conflicts of interest, the false predictions, the questionable role of CNBC and other organizations earlier. When things are good, everyone including John Stewart’s 401K enjoyed the (false) benefits of a booming economy. Yet, a rational person should have questioned how on earth someone’s home could double in value every 5 years … and continue to do so indefinitely?

Too big to manage

Forget about too big to fail, how about too big to manage.
There are six banks in the world with assets in excess of $2 trillion each and perhaps another twelve with assets of between one and two trillion.
Banking has become incredibly complex.
If a bank has a trillion dollar balance sheet, operating in perhaps thirty countries, with trading desks, loans and proprietary trading books all over the world, it becomes immensely challenging.
In the financial business, risk grows exponentially with the size and complexity of your balance sheet and I think many of these banks just became too big to manage and they lost control.
That’s what the record shows.
I learned long ago not to expand your business beyond your ability to closely and tightly manage. I think a strong case can be made to break up these big global banks into smaller, more focused and more manageable institutions. I think it’s going to happen.
In fact, it has already started.

Too big to fail

Many today say that Lehman, with total assets of $700 billion, should not have been allowed to go bankrupt.
Ladies and Gentlemen.
Lehman deserved to go bankrupt.
Capitalism is the freedom to do outstandingly well and make a lot of money and it’s also the freedom to go bankrupt and that has to be demonstrated from time to time.
There has to be at least some discipline in the market place.
It is unfortunate indeed, that many more like Citi, AIG and RBS were too big to fail because of systemic risk but make no mistake - - they all deserved the same fate as Lehman – to go bankrupt because they all mismanaged their businesses and had lost the confidence of the market place.
One thing to think about. If some banks in the U.S. were too big to fail before this crisis, with all the mergers and acquisitions, they are going to be much bigger still after the crisis. While in the U.S. there will always be thousands of banks, the system is gradually reducing down to three or four super giants which are going to be so big and so highly regulated, they will operate almost as arms of the government.

Where the heck were the Economists

Thomas Carlyle, who died in 1871, called economics the “dismal science”. How right he was. Jacoline Loewen said that “banks and dealers should have as many economists on staff as possible to increase their chances of having one that’s right”.
Along with Wall Street, it is quite incredible that central banks and the IMF, with all the firepower they devote to economic analysis and forecasting, did not pick up on this credit bubble and a possible crisis.
The second largest financial crisis in a hundred years wasn’t on the radar screens.
Worse still, since the crisis first started, policy makers have vastly underestimated its rapid spread and devastating impact every step of the way.
Actually, all of us in the financial business should be wondering why we did not see this crisis coming. All the signs were there. We should have picked it up.
There were a small handful, probably less than one-half of one percent of all economists and market participants, who did foresee some of these major problems. But when everyone is making money, no one wants to listen to a naysayer.
In the future we must do a better job of forecasting.

The TSX is only down 50% - great!

I don’t think even today that we truly comprehend the incredible magnitude of what has happened, and what is happening, to the global banking and financial business.
With so much government involvement and government ownership of big banks in both the U.S. and the U.K., we won’t know the full impact of all of this for a decade. The stock market impact has been significant.
- the Standard & Poor’s diversified bank stock index is down 72%
- the financial index is down 76% and
- the insurance composite index is down 72%
The TSX Bank Stock Index is only down 50% - isn’t that wonderful – (we have outperformed).
I am not going to dwell on the causes of this crisis because they have been extensively and well covered in the press.
They include;
- Major public policy failure in the U.S. in the housing area.
- Far too low interest rates and easy credit under Alan Greenspan.
- Failed financial innovation on a massive scale.
- Almost complete regulatory failure in the U.S., U.K. and Europe – it was the age of deregulation.
- Total rating agency failure - - for the tenth time and
- Finally, too much leverage everywhere you look.
You could write a book on each of the above but for business owners, I recommend you pick up a copy of Money Magnet to find out about the new money - private equity.

The old model for Finance is dead

The collapse of this twenty-five year credit bubble made 2008 a year for the history books. I never thought I would see the day when the likes of Citigroup, AIG, Royal Bank of Scotland, UBS and B of A, the biggest names in the banking world, had to be bailed out by their respective governments and partially nationalized – to forestall collapse.
I never thought I would see the likes of Merrill Lynch, Wachovia, Washington Mutual, and Countrywide Mortgage, all huge financial institutions, being forced to sell to forestall bankruptcy. In particular, the five big investment banking firms in New York, which a year ago had total assets of $4.2 trillion, blew themselves out of the water.
- Bear Stearns, with total assets of $350 billion, forced to sell out for a pittance and Lehman, with assets of $700 billion, bankrupt.
- Merrill forced to sell to Bank of America which over-reached itself and is now in trouble.
- Morgan Stanley and Goldman forced to raise equity at distress prices and convert to bank holding companies to get federal aid.
For these five big investment banks, this has been a complete and unmitigated self-inflicted disaster.
As I said in my book, Money Magnet, the old model of investment banking for these five big firms on Wall Street is dead. The new era will have private equity race ahead with its focus on relationships and its manageable size.

Quite a Laundry List - Bubbles

Look at U.S. household debt as a percentage of GDP – a huge rise in just the last ten years.
Look at the incredible decline in the U.S. personal savings rate over the last 20 years.
Look at the acceleration of U.S. housing prices starting in 2000 (existing houses doubled 2000 – 2006).
Globally, from 2002 to 2006 there grew a euphoric feeling that low interest rates, easy credit, vast liquidity and rising house prices would last forever.
It was a classic example of herd mentality, “when everyone is thinking alike, no one is thinking”.
Commodity prices took off, and the private equity and hedge fund industry exploded on cheap money. Borrowing and spending were in vogue and saving was out.
It was obvious the trends on these charts were unsustainable, but where was the tipping point.
A credit bubble is like blowing up a balloon – it gets bigger and bigger and bigger and you never know when it’s going to burst. This bubble could have broken three years ago, or it could have broken two years from now.
But now we know, this bubble broke in the Spring of 07.
(One thing investors should learn about investment bubbles and manias – “it’s much better to leave the party an hour early than two minutes late”.) Every bubble is different, but in many respects every bubble is the same. The difference this time is that we have an all encompassing credit bubble and it’s global. This was a bubble;
1. In housing prices and mortgage debt
2. In consumer debt
3. In new and untested financial products
4. In commodities and
5. A bubble in bank lending, private equity deals and hedge funds

Quite a laundry list.

Twenty-Five Year Credit Bubble

So what sort of mess have we gotten ourselves into this time?
Well, over the past two years we have witnessed the bursting of a twenty-five year credit bubble of monumental proportions.
The epicentre of the bubble, of course, has been in the U.S. sub-prime mortgage market.
Contrary to almost all forecasts, it spread quickly to all sectors of the banking and credit markets and now to the real world economy – main street.
This economic contraction is the first synchronized global downturn since the 1930s.

What is the new risk?

I think that systemic risk in global financial markets has increased quite dramatically.
- What is the long term impact of one to two trillion dollar deficits in the U.S. annually for the next few years?
- Who will purchase all these treasury bonds”?
- Will the Federal Reserve ultimately resort to printing money?
- Will some of these big banks have to be nationalized.
- Do we have now, in effect, a bubble in U.S. treasuries?
- Will all the credit creation lead to major inflation three or four years out?
- Will we have a major crisis in the U.S. dollar over the next year or two?
This is all uncharted water and, no one on the face of the planet knows how it will play out.

Dr. Bernanke explains quantitative easing

Finance deep freeze

We are now in a deep freeze of credit. It is trickling down that it is no longer business as before. There are new rules and it's back to the basics.

So, what does “back to basics” mean for the financial business. To me, it means.
-running a more conservative business across the board
-reining in your growth expectations to more realistic levels.
-reducing leverage
-much less financial innovation and much less financial engineering
-more focus on client business
-more organic growth and fewer grandstanding acquisitions and
-for the world’s biggest financial institutions it means downsizing your business and scraping your plans to rule the world.

Of course, running a more conservative business, with less leverage, will mean somewhat lower profitability than we have been accustomed to in the past. That’s the price of running a more conservative business but at least, over time, you will be in business.

The Human Capital of Private Equity

- The stock market is down 50 percent.
- Banks are in trouble and have curtailed lending.
- Commentators predict widespread industrial bankruptcies.
- Unemployment is rising fast.
- Interest rates are volatile.
It all sounds familiar. But those headlines aren’t from today. They’re from 1974. Doomsayers foresaw disaster 35 years ago, predicting hundreds of corporate bankruptcies. New York City and State, and utilities like Con Edison, seemed on the brink of collapse. Business publications wrote that major money-center banks would fail and ran articles like, “I’ll Never Own a Stock Again!” Struggling companies got little help from financial institutions, which had problems of their own. Businesses with the highest returns on investment, the most innovation and the fastest growth were starved for capital. The debt of good companies sold for pennies on the dollar.
In 1974, as now, those who once thought they had the answers came to realize their assumptions were flawed. But opportunity emerged from that crisis as people with creative solutions and the skill to implement them stepped forward and developed new ways to access capital. Over the next two years, the markets recovered strongly. That skill in finding new opportunities when things look bleak is part of what economists call human capital.
In financing companies that could grow and create jobs, I always considered management skills as important an asset as numbers on the balance sheet. And it’s never more important than in times of crisis.
While people worldwide have recently suffered some $60 trillion in losses on financial instruments and real estate, that figure is actually dwarfed by the value of the world’s human capital, worth substantially more than $1,000 trillion. With a value like that on our collective potential, a cancer cure would be worth more than $50 trillion in the U.S. and well over $100 trillion globally.
This suggests that investments in medical research may have more value than building new bridges or highways. And it underscores what we already know about education: in the long run, it’s the single best investment in stimulating the world’s economy.
Also - the human capital that private equity brings to a company is the reason their results are superior to the public market investments.

Famous words

You do need to keep your head when those around us are going off their rockers. CNBC had a very telling slideshow of famous last words: Go to show.
My favorite classic line:

"In today's regulatory environment, it's virtually impossible to violate rules...it's impossible for a violation to go undetected, and certainly not for a considerable period of time."
Bernard Madoff, Oct. 27, 2007.

Maybe this could be used in MBA classes?

Triple Whammy - stock market, banking, real estate

Now, the IMF has described this as the largest financial crisis since the Great Depression in 1929.
I think we would all agree.
A reasonable question to ask is why banks and dealers, as well as investors, never learn from previous financial crisis. If you look back over the past 150 years, booms and busts and financial crises occur with depressing regularity – almost like clockwork.
Ton Fell often said, if your country hasn’t had a banking or financial crisis in the past decade, just wait – one will be coming shortly.
There was a major banking crisis in the U.S. in the late 1870s following an incredible railroad boom. The U.S. Federal Reserve was created in 1913 following a series of bank crises and runs on deposits.
And then, of course, we had the stock market crash in 1929 and the Depression. This was followed in 1934 by the establishment of the Federal Deposit Insurance Corporation in the U.S. to protect depositors and the Securities and Exchange Commission to protect investors.
Crises over the last seventy-years have been less severe, although I can tell you they seemed, and were, very serious at the time.
The LDC banking crisis in 1982 – the Canadian Bank Stock Index fell by 42%.
The U.S. Savings & Loan crisis in the late 1980s when 2,000 S & Ls went out of business – U.S. bank shares fell by 45%.
Until now, the all time high water mark for massive market and business excesses in living memory was the breaking of the Japanese bubble in 1989. While this crisis was confined to Japan, it is the second largest economy in the world so it was big.
This was a triple whammy. A stock market bubble, a banking bubble and real estate bubble all wrapped up in one. When the bubble burst many banks and insurance companies were forced to merge, restructure or were bailed out by the government. The Japanese bank stock index topped out just after Christmas 1989 and dropped by 45% in just the first year but eventually declined by 91%.
(I call that a bear market)
It is of interest that, even now, the overall Japanese stock market, as measured by the Nikkei Dow, is 80% below where it was twenty years ago. The Japanese crisis lasted more than a decade and total losses were estimated at about $750 billion.
Finally, in the late 1990s we had the incredible telecom and internet bubble which broke in 2000. We can all remember this - you know, when Nortel had a market cap of over $350 billion.
The late 1990s was a period of wild investor hysteria.
It was a true feeding frenzy with the Nasdaq tripling in less than two years and IPOs doubling and tripling on the first day of trading.
As always, the bubble broke, the Nasdaq Stock Index declined by 77% over the next three years with the bankruptcy of Enron, Worldcom being two of the biggest in American history.
That crisis brought us Sarbanes-Oxley.
When you look back on all these cycles, a central question is “why do we have to go through constantly recurring market and business bubbles.
Kindleberger, the late MIT historian, is well known for his 1978 book “Manias, Panics and Crashes” which traces four centuries of booms and busts.
Cycle after cycle the similarities are striking. It all gets back to;
- over-optimism and herd mentality
- greed in the financial business
- excessive leverage
- borrowing short and lending long
- flawed financial innovation and
- regulatory failure
(usually all wrapped up with a good dollop of fraud and corruption)
Those who don’t learn from the mistakes of history are doomed to repeat them and that’s why we are here again – one more time.

5 Reasons Canada is Better Off than the USA

First, the Canadian economy and our financial institutions have benefited from certain elements of plain good public policy. For the past eleven years the Federal Government has been running surpluses aggregating over $100 billion. Accordingly, Canada’s economy and financial system are in a stronger position than most, going into this downturn.
Second, the national retail banking franchises of the Canadian banks provides them with a strong and stable funding base, less dependent on volatile wholesale funding. This is a huge asset in difficult times.
Third, we have benefited in Canada from a strong regulatory framework. Our banks are the most conservatively capitalized in the world.
Fourth, in Canada we have kept tighter control of our residential mortgage market.
Fifth and final, I believe Canada’s financial institutions have been inherently more risk averse than those in the U.S. and Europe.

Less cowboy capitalism and less bet the bank mentality. This more conservative approach over the years has served us well.

CVCA Portfolio Management

Critical to proactively manage portfolio company performance through a downturn - increased focus on dashboard reporting and managing expectations
- Cash flow "Quick Hits": Dial back growth; Focus on streamlining direct costs as opposed to SG&A; Aggressively manage working capital
- Very rarely are cuts too deep - need to react to current environment quickly and prepare for the worst - revisit downside case
Clearly, we are operating in very difficult and uncertain times. That being said, there was a general consensus that good deals will get done in 2009.

CVCA Valuation & Structuring

Valuation of Canadian PE deals never reached the heights of their US counterparts - many Canadian sponsors sat on the bench and leverage levels were relatively prudent
- For the most part, there is not widespread acceptance of the "new world" amongst sellers - deals getting done are when sellers are distressed
- Lack of transaction comps post Fall 2007, significantly deteriorating current trading and lack of visibility through 2009 make valuation incredibly difficult - greater emphasis on diligence
- To mitigate valuation concerns, recent transactions have seen a greater emphasis on earn outs and vendor take backs - trend will likely continue
- Most interesting opportunities have a restructuring angle - need to structure for the downside case.

CVCA Market Update

Fresh from the CVCA conference last week:
Market Update
PE deal activity has been crippled by significant expectation gaps between buyers and sellers and a lack of financing
- Current baseline LBO structure for a "middle of the fairway" business - EV: 5.0-6.0x EBITDA; Total debt: 2.0-2.5x EBITDA
- Shift towards smaller deals - Larger US sponsors are looking at equity tickets in the region of US$200m
- 2009 has seen positive inflows into leveraged loan and high yield funds marking a potential return to mainstream lending
- Increasing number of GP's are returning LP commitments and/or reworking terms - fundraising market is limited, although there is demand for distressed/turnaround funds
- Increasing number of mid market US sponsors looking North to Canadian carve outs and/or distressed situations
- 2007/2008 funds will make for some of the best vintages given unprecedented buying opportunities

The ongoing global, banking, financial and credit crisis

"What happens to our financial services industry is important to our city, to the Province of Ontario and to Canada," says Jacoline Loewen, author or Money Magnet.
At their latest fiscal year-end, our five major banks had total assets of $2.5 trillion of which almost one trillion was outside of Canada.
In terms of market capitalization the five Canadian banks headquartered in Toronto all rank within the top 35 in the world.
So Toronto is an important banking centre and, if we play our cards right, it’s going to become more so. While Canadian banks have received some shocks from this crisis, on a relative basis they have done well.
Last year total write-offs by financial institutions around the world were in excess of $1 trillion and Canadian banks accounted for less than 1.4% of this total. Canadian banks are in a stronger position than what we see south of the border or in Europe.

Blackstone cashed out at the right time

FT.com says that

the listing of the private equity group could be the turning point in
financial history; one that will shape the world that emerges
from the current crisis: the moment when China really began to question its deep
financial entanglement with the US.

An interesting dilemma for both China and the U.S.: read here.
Jacoline Loewen, author of Money Magnet, says, "Blackstone cashed out at just the right time."
This article gives a glimpse of the dilemma facing both US and China with regard to their currencies and the management of growing debt on the US side versus the growing surplus on the Chinese side. The essence of this growing dilemma is highlighted in the following quote:
"US Treasuries are the safe haven; it is the only option," said Mr Luo. "Once you start issuing $1-$2 trillion . . . we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do."
Chinese investors are now the biggest foreign holders of US Treasuries with nearly $700bn. In total, foreign investors own about $3,000bn or more than half of all US Treasuries publicly available. The fact that the US is still somewhat considered the only true safe haven would explain why the US Dollar still remains relatively strong against all other major currencies. However, it also shows the precarious situation the US may face in the very near future. In order to continue to be able to find buyers for the growing US debt mountain, something has got to give. If the US$ were to depreciate, foreign investors would need to be incentivized with significantly higher yields on US treasuries.
Inflation will be a debtor's best friend and a creditor's worst nightmare.

Causes of the Crisis

I don’t think even today that we truly comprehend the incredible magnitude of what has happened, and what is happening, to the global banking and financial business.
With so much government involvement and government ownership of big banks in both the U.S. and the U.K., we won’t know the full impact of all of this for a decade.
The stock market impact has been significant.
- the Standard & Poor’s diversified bank stock index is down 72%
- the financial index is down 76% and
- the insurance composite index is down 72%
The TSX Bank Stock Index is only down 50% - isn’t that wonderful – (we have outperformed).
I am not going to dwell on the causes of this crisis because they have been extensively and well covered in the press.
They include;
- Major public policy failure in the U.S. in the housing area.
- Far too low interest rates and easy credit under Alan Greenspan.
- Failed financial innovation on a massive scale.
- Almost complete regulatory failure in the U.S., U.K. and Europe – it was the age of deregulation.
- Total rating agency failure - - for the tenth time and
- Finally, too much leverage everywhere you look.
You could write a book on each of the above but I think Money Magnet - my latest book - will be one to help business owners understand how to access new money now that the banks are being restructured.

Succession Planning Family Business is a Nightmare on Elm Street

Our guest blogger is Tom Deans author of Every Family's Business.

If so many jobs, so much wealth wasn't collateral damage when a family business is gifted, watching them pass to the next generation would continue for some to be the best theatre ticket in town.
But lenders and their shareholders aren't laughing as the single largest generational transfer of wealth begins in less than ideal economic circumstances.
If the questions that a family can ask themselves to protect their wealth weren't so simple, the impending destruction of so much wealth wouldn't be so sad.
On this point there is no debate -- at least not for me. Having watched three generations of my family start and sell their businesses instead of gifting them, the next generation has always been free to pursue their own great big idea.

Tom Deans, Author, Every Family's Business: 12 Common Sense Questions to Protect Your Wealth. www.ProtectingFamilyBusinessWealth.com

Does a Family Business Mess up the Next Generation?

Our guest blogger is Tom Deans, Author of Every Family's Business.

Founders who gaze upward and utter the phrase "(insert company name) will always be family owned" are either delusional, narcissistic, or neither and just really get a charge out of messing with the heads of their children who lust for stuff -- free stuff.
I think most founders know that the businesses they gift are anything but easy to receive --are anything but easy to operate and sell.
The founders who gift businesses may indeed dish out what junior really deserves.
The profile of the spendthrift child with no discernible work ethic is well documented in popular culture and usually on display in Toronto at the Four Seasons in Yorkville most afternoons.

Tom Deans, Author, Every Family's Business: 12 Common Sense Questions to Protect Your Wealth. www.ProtectingFamilyBusinessWealth.com

Sell Your Family Business, Don't Gift It

Our Guest Blogger is Tom Deans, author of Every Family's Business:

So if gifting is out selling is in.
But with more sellers than buyers the inclination of throngs of aging business owners will be to wait out this down cyle and sell the business later when they are really ready to retire --you know when they are in their 80's and junior is hitting his prime in his 60's.
Truth be known little in the way of succession planning has ever been done to transfer businesses intelligently.
The script usually unfolds with the business owner dying and the stock rolling to the surviving spouse. It's like a bad movie-- it's Friday the 13th but with more family drama and bloodletting --especially when you roll in some sibling rivalry, add a dash of liquidity crisis family business style when the taxman comes knocking to collect capital gains or estate taxes.To all the founders reading this --here's my message. Offer to sell your business to your kids. If they don't want to buy it, put in place a compensation package for them to help you sell it to someone else. I know that selling the family business can feel like selling family but nothing could be further than the truth when a founder aligns the economic interest of all family members. I have a sneaky feeling that when parents put in place these compensation plans for their children, the love of pursuing the longevity of their family firm will fizzle and fizzle fast (the bigger the comp package the faster the fizzle).

Tom Deans, Author, Every Family's Business: 12 Common Sense Questions to Protect Your Wealth. www.ProtectingFamilyBusinessWealth.com

The Next Crisis - Family Businesses

Our guest blogger this week is Tom Deans, author of Every Family's Business:

It occurred to me that the sub-prime and resulting liquidity crisis is nothing compared to the much bigger bomb ticking away in family businesses big and small.
My prediction is that if the banks don't begin to press harder for evidence of real succession plans, the $10 trillion sitting in the retained earning of North American family businesses will dissappear faster than you can say Lehmann Brothers sell Lollipops by the Sea Shore.
When I say "real succession plans" I mean evidence that gifting the family business to junior isn't the plan. Gifting an operating business to dis-interested, ill-prepared, incapable hands of family is not going to cut it with lenders, shareholders, customers or employees.

by Tom Deans, Author, Every Family's Business: 12 Common Sense Questions to Protect Your Wealth. www.ProtectingFamilyBusinessWealth.com

Creative capitalism means private equity

Bill Gates is frustrated. He spoke about world poverty publicly with Warren Buffet at the last Davos conference and the conversation is now to be found in a book, but with the addition of economists weighing in with their views on the subject which makes for interesting reading.

The book has a cumbersome title: Creative Capitalism: a conversation with Bill Gates, Warren Buffet and other economic leaders.
Gates and Buffet both spoke about creative capitalism which means companies that are not just working for their own dime but think far wider than that. For example, I did a project in South Africa for the largest mining company creating a data base of one person “businesses” near to the mines. The mine then hired these people on contract basis for cleaning, typing or temping services in order to support the community through work, not a hand out. People had purpose and money for work. The mine did not need to work in this more fragmented and unpredictable way, but they wanted to help the community.
One if the contributors, Larry Summers, is now an advisor to Obama who cautions this concept of creative capitalism and prefers to let companies pursue their own purpose. Summers cites Fannie Mae and Fannie Mac as a “really good creative capitalism idea” that did not work.
Perhaps Gates and Buffet are onto something says Economist Paul Ormerod who sees creative capitalism as buttressing the legitimacy of democratic capitalism against authoritarianism in China. Private equity is trying to improve its image and are early up-takers of this concept.
Creative is the second name for most Americans. Already, there have been thousands of get-togethers held across America to discuss the health care situation. Obama’s website gave a few starter discussion sheets and suggestions on how to organize each party. The answers to questions were sent back to the White House. There are naysayers, likening this movement to Tupperware parties, but people could add their own material and speakers.

Anyway, what's wrong with Tupperware parties? I see citizens getting involved with their country.
Discussion educates and encourages people to see more than one side. Creative capitalism certainly creates integrity and Bill Gates and Warren Buffet have started this interesting conversation.

Does gifting a family business destroy it?

Does gifting a family business destroy it?
With a large number of family businesses operating in North America, the idea that gifting a business to the next generation is mainstream thinking.
At a debate held by the Family Firm Institute in Toronto, Tom Deans was brave enough to contradict the wisdom of the masses. As the son in a second generation business, Tom went through the experience of joining a family firm and working hard to achieve a dream. Tom details the difficulties of conversations not had and questions not asked by family members destroys the family in the long run. In his best selling book, Every Family’s Business, Tom advices that every business should have a plan to sell.
During the debate, Tom explained that if both generations know there is a sale time and what the economic benefit will be for them, the trust will be high.
Trusted advisors need to understand that families shy away from these difficult conversations but that they could help. Using Tom’s 12 questions listed at the back of his book, every trusted advisor could be helping family businesses create the wealth that both generations deserve.

Can companies pursuing their own purpose achieve more?

During these tough economic times it is too easy to get swept away by the general mood. I spent my Friday evening with people who had faced down cruel adversity and created something extraordinary.
I was at the Liberty Grand (with a thousand other people) as guest speaker. I was to talk about Meaghan’s Walk, which has raised nearly $1 million dollars for brain research at Sick Kids’ Hospital, Toronto, including $50,000 by TD Waterhouse. CTV was there to film the event and I was worried I would be caught on TV, struggling to finish my speech, caught up in the emotion of how the fund raiser began.
Meaghan’s Walk was created by Dennis Bebenek, who lost her five year old daughter to brain cancer but wanted to make this tragedy into something positive, and so she created a walk and fundraiser for Sick Kids' Hospital.
As Dr. Eric Bouffet spoke about how, as he phrased it, seed money from Bebenek’s efforts had been used for research that would not have happened otherwise, it became clear that medicine also needs its private equity, higher risk money. Dr. Bouffet emphasized that the money raised meant ideas that were not as main stream were researched and with good results. Bebenek’s drive to pursue her purpose for her daughter’s memory has achieved far more than government funding alone.

Cash for Happiness

Ari Gold, of HBO's Entourage, once said, "Nobody is happy [...] except for the losers. Look at me, I'm miserable, that's why I'm rich". Though I tend to agree with Ari, a new study by the University of Pennsylvania's Wharton School of Business and published by Economist.com disputes Ari's quip on success.

According to the study, companies that were labelled "Best Company to Work For", by Fortune Magazine, provide better returns than the broader market. Alex Edmans, who conducted the study, says that Fortune's portfolio comprising of its 'best to work for' companies, has generated returns 4.1% higher than the CRSP Index, which includes all shares traded by the NASDAQ, the NYSE, and the AMEX.

In times of turmoil it is impossible to suggest that layoffs can be avoided. However, layoffs may be the catalyst to better things. An engineering friend with 12 years of experience at the same firm was let go recently, and he had some interesting insight into his predicament. He said, "I almost expected it, I don't really fit the culture anymore." Though competent and in demand (he would pick up a new job in less than a week), a new ownership team had come in last year that created friction with some employees. A wave of young, flexible, and eager graduates had been hired and slowly the 'old guard' was being removed. The young graduates were cheaper, more willing to take on new responsibilities, and more likely to act without much 'push-back'.  The new ownership was essentially reinventing the identity of the company from the ground up, and for those who proved obstacles to the makeover, they were being removed. 

Though it seems unfair, being laid off was the best thing that happened to my friend, "I noticed that I was getting lazy and bored,' he said '...complacent really" He was forced to leave a situation that made him frustrated for a new and challenging one that, more significantly, made him more productive.

Though qualitative and intangible, according to this study by Mr. Edmund there is a return on happiness. It may simply be the result of a proactive and energetic team, rather than a complacent and demoralized group, but a company that attracts and cultivates a happy group may be proving Ari wrong.

Private investment in Sports continues to thrive

Although Mr. Petty, CEO of Toronto's Maple Leaf Sports & Entertainment private company, did not know how the Fall 2009 ticket sales would go, seems as if sports is one place that still has profits.

Spanish soccer fans are spending their pocket money on uplifting events. You can see Real Madrid and FC Barcelona came in 1st and 3rd place in terms of revenues.

As an aside, George Bush invested $850,000 into a baseball team and reaped $15M from the investment when he exited. Now if only he had done that sort of turnaround private equity investing magic for the USA.

Does privacy pay off for private equity?

One of the criticisms of private equity is its secrecy or as the fund managers may prefer to say, "Their below the radar approach." Privacy is why some owners choose to raise capital from private investors rather than expose themselves to the scrutiny and criticism of the public market. This approach certainly works for Maple Leaf Sports & Entertainment Ltd. (MLSE).

Maple Leaf Sports (MLSE) is the owner and operator of the Toronto Maple Leafs National Hockey League team, Toronto Raptors National Basketball Association team, Toronto FC Major League Soccer team, and Toronto Marlies American Hockey League team—all based in Toronto, Ontario, Canada. In addition to owning these franchises as well as Leafs TV and Raptors NBA TV (the official television stations of the Maple Leafs and Raptors respectively), MLSE is also involved in property management, including ownership of the Air Canada Centre, the home arena of the Maple Leafs and Raptors.

Quite a private company.

The owners are top private equity companies and others:

- 58% – Ontario Teachers' Pension Plan
- 20.5% – Kilmer Sports Inc. owned by Larry Tanenbaum. (Their boardroom boasts the biggest collection of basketball sneakers in the biggest sizes I have ever seen.)

- 14% – TD Bank Financial Group, through TD Capital Group

- 7.5% - CTVglobemedia

As I listened to Richard Peddie, the CEO, speak recently, I admired his pluck at addressing a crowd of Toronto sports fans who wanted to know how MLSE can keep selling seats to losing teams.

Who is buying those seats priced at $200 plus? How much does MLSE make per year, despite losing teams? Could they pay more for players?

Richard Peddie is under no obligation to reveal anything but he did let slip that MLSE is very profitable this year. Private equity gives the business financial support but keeps the cards close to the chest and by the glowing speech by Mr. Peddie, this secrecy strategy is working very well. The fans keep buying and the money keeps flowing.

Tax spending will create more jobs

CARPE DIEM: Cartoon of the Day

Multiple Mayhem

Valuation multiples have fallen.  Everyone knows it.  The industries hit the hardest are healthcare and IT according to data collected from Standard & Poors (see below).  

Last year, multiples sky rocketed, a response to so much credit floating in the market, which allowed many fund managers to aggressively pursue deals.  This led to very high bussiness valuations as so much money was chasing each deal.  In 2008, the flurry of activity led to the most private equity deals done in one year and the greatest amount of capital invested in private companies.  Not news.  But what is interesting these days, is that the $1 Trillion of uninvested capital in the private equity market is poised to gush into the market soon enough.   

However, maybe not soon enough for some.  To get a better sense of the loss in value, the chart below shows the average market valuation multiple.  Obviously, we're wading through an aberration, but for business owners looking to raise equity capital, seeing the value their business cut by half, in some cases, simply because of seemingly external forces, is a difficult pill to swallow.

There are, however, financial structuring alternatives that can preserve the value that has been painstakingly established over time.  The reason for this is the flexibility offered in the private market.  In public deals there are regulatory issues, such as the 10% insider rule (requiring shareholder approvals) or warrant prices which must be fixed, which confine the possibilities of how to preserve and realize shareholder value.  In private deals, there is far more flexibility, which can likely overcome the majority of losses seen in the markets today.

Oh, Canada

At school, American friends made a hobby of slagging Canada.  Pretty standard.  "Canadians are too polite", "Canadians are boring".  Luckily, "The Man Everyone Loved to Hate" was President of the U.S. at the time and the conversations were short.  We've all heard the swipes, some in Canada would agree with them, very politely and boring-ly, though despite our unflappable humility, we do love to have our skirts fanned from time to time.  

Fareed Zakaria, editor of Newsweek International is apparently taking a serious run at a Governor General's Award this year, despite the fact he's American.  Last week he published a column in Newsweek applauding Canada's virtues.  Mr. Zakaria writes in his article "Worthwhile Canadian Initiative", Canadians should be proud of the "common sense" and the capitalization rates of our banking system, which is getting recognition the world over.  Not exactly riveting stuff, but Switzerland must be hating us.

Canada is the only country in the industrialized world that has not faced a bank failure or calls for bailouts and government intervention.  The reason for this is our conservative, staid, risk-averse attitudes, the fodder of a-many jabs.  Our banks have been regulated to have far higher capitalization rates than the rest of the world.  Typically, our banks are leveraged 18 to 1 ($18 of debt for every $1 in the savings account), whereas the Americans are generally 26 to 1 and the European banks are a staggering 61 to 1.  Ooh la la.  Needless to say, this functions as a lot of profit in boom times, and, when the boom turns to bust the bank goes bursting and a Frenchman has one less half-caf, triple, Grande, three pumps sugar-free-vanilla, soy, no foam, 180 degree cappucino. 

Apparently, TD is brimming with pride these days.  They have gone from the backbenches of North American corporate obscurity, having been the 15th largest bank in N.A., to a major player, becoming North Americas 5th largest bank.

Mr. Zakari goes on to sing the praises of our 'responsible' natures when it comes to our fiscal policy.  We have been very good beavers and have stored up a lot of nuts through fiscal surpluses over the past decade to deal with the current financial crisis with a stable and sober approach. The Harvard PhD also likes our immigration program, our accountable mortgage policies, and our healthy life-expectancies.  Stop it, I'm blushing.

After having read this, I looked again at the the first line of the article.  It reads, "The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative".  This, for me, encapsulated much of the torn pride I felt throughout the article.  Though disguised as complements, we Canadians, can never escape the love affair foreigners have with taking a few jabs at our responsible, risk averse, common sensical, conservative selves.  Characteristics of good bankers it seems.

Business owners like the long view

"One of the reasons business owners are preferring private equity," says Jacoline Loewen, author of Money Magnet, "Is they appreciate that the investors go in for five years. It sure feels better than the short term view of shareholders in the public market who bale as soon as they see anything slightly off."
Long term trends are difficult to remember for investors in public markets.
This is an interesting chart as you can see we are still 5% above the trend line. Yet the public market ignored job loss information that came out last week, and ended up higher by Friday probably due to wishful thinking.
Private equity is in stark contrast to this short term thinking demonstrated in the public markets. Five years with a company before taking back the money is the shared goal. Think how this long term approach by shareholders helps business owners during these times.
One of the top fund managers at my secret handshake club said that these are historic times and our children will read about them. Now that is long term thinking.

Mining likes investing in Africa

Africa ain't for the faint hearted. Despite the harsh environment, and clash of cultures, Canadian mining companies are making huge advances.
The time when Canada's presence on the African continent was primarily characterised by numerous missionaries and food donations is well and truly over! In countries such as Congo, Mali and Tanzania, when it is learned that you are from Canada, Denis Tougas says you are immediately asked if you work for the ‘mining’, a perception entirely consistent with reality.
Canada is now dominant - in fact, some say superpower - in the African mining sector, a position the country intends to maintain and develop using all means at its disposal.The salient presence of Canadian mining is relatively new in Africa and is rooted principally in the programmes of liberalisation of the sector from the early 1990s. These programmes have been driven by the World Bank, which from 1992
(1) had begun defining the extractive sector as the main engine of development for many countries.
(2) The privatisation of state enterprise – promoted as a means of encouraging the entry of foreign investment – has opened the door to foreign companies. At the head of this development, especially with regard to the smaller exploration companies known as ‘juniors’, are Canadian companies. These companies have an immense commercial presence in Canada: of the 1,223 mining companies listed on the Toronto Stock Exchange, the largest in the country, more than 1,000 are juniors!
(3)A HUGE EXPANSION
Currently, according to the Ministry of Natural Resources Canada (NRC), only the Republic of South Africa, with over 35% of assets and investments, is just ahead of Canada in the African mining industry. But with South Africa’s assets concentrated on its own territory, Canada dominates the rest of the continent.The data compiled by the NRC demonstrates the speed with which the value of Canadian mining assets in Africa has grown over the last twenty years: at US$ 233 million in 1989, this figure grew to $635 million in 1995, and $2.8 billion in 2001, growing further to $6.08 billion in 2005, and $14.7 billion in 2007.(4) This total value is estimated to reach $21 billion by 2010.
Read more...
Thank you to Michael Power for the referral to this article.

Does mean marketing grab market share?

German Engineering, Swiss Innovation, American Nothing.

Ouchy!

This is an advertisement used by Daimler and is it mean? It's good business. Competitive companies get on with growing their business. Brand America is tarnished and Mercedes is using the anti-American sentiment to grow their market share.

Does an experienced partner win private equity more?

The quality of your partner counts big time. In the case of entrepreneurs seeking capital from Venture Capitalists, nothing helps more than having a partner with past success.

Venture-backed firms tend to cluster in industries. Those that are most common for venture capitalists to fund are Internet and software, biotechnology, and telecommunications. SJ Gibson of Harvard Business School recently completed a study on these industries to measure who gets financing and who tends to be those who have had a successful start-up.

Here's an excerpt:
Q: Was there anything in your findings that surprised you?
A: The size of the effect of past success was surprising. We know that there was likely to be some degree of performance persistence, but the magnitude was quite striking.
Q: Given the current economic conditions, do you have any advice for entrepreneurs who are considering launching a new venture at this time?
A: Certainly one lesson that emerges from our analysis is to find an experienced (and successful) partner! Given the very difficult investment conditions, venture investors are paring back their portfolios and are hesitant to make new commitments. To get serious consideration, the more that you can do to seem like a "sure thing," the better off you are.
More generally, being as careful as you can be with resources, and flexible.

Read more here...