I guess I am not the only one who is frustrated over the state of our financial system and perhaps even more so over what caused its near collapse.

Whoever followed yesterday’s senate hearing is probably equally concerned over how Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson were grasping for straws in their quest to convince senators to support a $700 billion bailout plan based on what appears to be a 2 ½ page proposal.  

I guess most of us here on StartUp Nation would agree that if we could muster the audacity to show up for a meeting with a loan officer or potential investor equally ill-prepared, we could expect nothing less than a severe beating. Maybe someone over at the Federal Reserve, Department of Treasury or the White House should point them to StartUpNation.com and make them take a few lessons in pitching their ideas to investors or, well, taxpayers for that matter.

And let’s take a look at who would be bailed out. Commercial & investment banks – well, I’ll take that back because from now on they are all going to be commercial banks so they are able to take your money; financial institutions, mega funds, yes, even insurance companies because they simply got too big to let them fail, and god knows who else. How about the airline industry and car manufacturers in Detroit?

And how about small businesses?
According to the U.S. Census Bureau, small businesses in the United States (i) represent 99.7% of all employers, (ii) employ more than half of the private sector work force, (iii) create 60%-80% of all new jobs, and (iv) create more than 50% of non-farm GDP. Yet, we still can’t get a loan from these bailout candidates because we are perceived as too much of a risk!

To add insult to injury recent reports indicate that the IRS has dedicated $30 million to step up collection efforts of back taxes. I guess they figured out how has to pay for this!

But what’s most bothersome is the fact that the public is obviously being misled about the true beneficiaries of the bailout. For example, AIG’s bailout was obviously a must because its demise would have jeopardized millions of insurance policies and massive amounts of debt they insured. Well, that’s not exactly true.

For starters, most states maintain insurance commissions that oversee insurance companies doing business in their states and make sure they maintain adequate assets and financial reserves to backup the policies they write.

As far as insuring debt is concerned, has anybody heard of reinsurance? Well, yes, some of you may not know that most insurance companies take out insurance policies to insure themselves against potential liabilities they face from their policyholders. Some of these reinsurance companies are multi-billion dollar conglomerates that literally own everything from vast real-estate holdings to banks and vast portfolios of other business interests. For instance, the world’s largest, Munich Re, has annual revenues in excess of EUR 37.4 billion and investments totaling more than EUR 178 billion. So, what’s wrong with holding some of these financial heavyweights accountable for the risks they were willing to assume when doing so meant huge profits?

After all, that’s what’s expected from you and me. Being accountable and possessing the integrity to make good on the promises we made – even though if doing so means having to dispose of some our assets, taking pay cuts, and falling on some hard times.

So why is Wall Street being held to a lesser standard? And why are we expected to foot the bill for this? Anybody?

To me it seems that the main benefit of this government bailout is not so much about restoring confidence in our financial system but to provide Wall Street with a golden parachute so they can continue to operate the way they did over the last 60 years.

I guess it’s not so much about the values of assets that have been wiped out due to greed, questionable business practices and a lack of professional integrity, it’s more about the widespread fear that Wall Street won’t be able to make as much money as they used to make.

Our firm will be introducing a brand new venture capital product over the next couple of months.

Under our Small Business Opportunities Fund, we have established a new program, which is called the Head Start Program™, where we plan to work with talented entrepreneurs based on streamlined screening and due diligence procedures.

Knowing that most entrepreneurs and small businesses don’t require millions of dollars in funding to take their businesses to the next level, we are prepared to invest smaller amounts of up to $250,000. We are also in a position to initially provide loans from $25,000-$150,000, which will have the characteristics of traditional term loans.

Where the program differs and where I would appreciate your feedback is that we plan to tie the repayment of the loan to the first round of outside financing, typically a Series A round, the business successfully undergoes. In return for assuming the risk of providing the first formal financing, the loan will also include a provision where we can either (i) demand repayment of the loan, (ii) convert the loan into equity based on a discount of the terms of the Series A offering, and/or (iii) invest alongside of other investors in the Series A round.

I read the information on your Fast Ventures website.  Of the three pay back methods mentioned, is this defined up front?   Is the Head Start program essentially angel or early stage funding - seed capital?  Does the program just provide funding or does it couple with your business planning or go-to-market strategy in taking the startup from seed to Series A?  

RobertJ,

We know that our program is similar to that of Charles River Ventures. However, we also believe that our exit scenarios are more flexible and more customizable than those of CRV. We also don’t think that CRV is overly engaged in facilitating deals under this program.

I’m also interested to see how fellow entrepreneurs feel about this program.


Jcepeda,

You are right, our Head Start Program™ is primarily geared towards emerging growth companies. I said primarily, because even if you’re just a small business owner looking to finance inventory, tooling, or a marketing campaign, we can probably still work with you if the numbers make sense. The equity conversion or equity participation is something we’d like to see in a deal, but it’s not a rigid requirement.


Knowonder,

Technically, funds provided under any of our funding initiatives fall into the venture capital investment category, simply because we are investing on behalf of a fund.

Depending on the actual deal structure, we can certainly fuse our role as an investor with that of a strategic advisor in order to provide smart capital. This is not too different from traditional venture capital investments as most firms see this as a material aspect of nurturing a portfolio company, minimizing overall risks, and creating synergies.


Thank you for your participation in this forum.



Mark  

Thanks everybody for participating.

Due to current economic uncertainties and ongoing jitters in the financial markets, we have decided to postpone the launch of our Small Business Opportunities Fund until further notice.

Again, thanks for your insights.


Mark

Every since I started responding to some of the questions posted here on StartupNation.com, I noticed that one of the most discussed subjects is how to identify and connect with investors. Unfortunately, it is hard to ignore that this subject is also surrounded by many myths, misconceptions, and ill-conceived offerings from professionals willing to “help”.

The private equity arm of our firm will start raising about $10 million for two new funds as of next month and we thought about chronicling our foray into the capital markets in a detailed and frequently updated blog. The idea is a workshop-type set up where we make the entire process completely transparent, share our strategies, feedback, and experiences in order to dispel some of the myths and misconceptions that exist in this field.

We are thinking about a subscription based format where subscribers pay a nominal monthly subscription fee to help us cover the cost for the project. In return, we would provide:

·     transparent accounts of the entire process, which will be updated daily,

·     share our strategies, resources, and experiences,

·     discuss what works and what doesn’t and why,

·     open up our conference room and internal meetings via video feeds; and

·     interact with subscribers in a designated forum.

Think of it as riding shotgun during the entire process.

We haven’t decided to pull the trigger on this, so your comments, ideas, and feedback would be greatly appreciated. Also, please feel free to let us know what you would expect to see in a blog like this and we could make this worth your while.

Many thanks.

Mark