Carried Interest War

A very smart Venture Capital guy posted the above article this morning.  He brings up the dreaded fear for those of us managing funds whether they be Private Equity or Venture Capital.

I can relate to many of the points he makes about venture capitalists creating jobs, and the economic impact in areas where portfolio companies reside.  In the turnaround business, we see similar characteristics.  We save jobs.  Thousands of them, every year.  In some cases where our client companies have been located in very rural areas, the local economy would have been devastated were in not for our efforts.

The Carried Interest taxation debate carries on.  The fact that people who've rarely held real jobs (politicians) are considering raising the tax burden on those firms who drive a good deal of our economic engine here in the U.S. is ludicrous.  This is a great example of the unproductive sapping the life out of those who are productive in our society.  Taking from those who produce economic activity to support those who don't, is a great way to watch a country slip into a state of economic and social disaster.

The point is, that if the taxes on carried interest are increased, those Private Equity and Venture Capital fund managers will have even less incentive to take on the risk required to do what they do.  Many will just keep on plugging away at their current fund until it is completely deployed.  Then, they'll find something else to do that doesn't penalize them for what they do to earn a living.

Private Equity and Venture Capital funds are the pinnacle of a capitalist society.  Capitalism works time and time again.  If you take away the incentives of a capitalist society, no one is working for their own benefit anymore, but for others.  When this happens, the economic wheel will stop turning slowly, until it has stopped all together.  This is the effect by raising the tax burden on our nation's risk takers.  It appears that the out of touch politicians in Washington, would rather all of us be dependent on a government that doesn't produce any good or service.  No, they want to suck the life out of our independence, little by little, until we are dead to achievement.

I'm calling my congressional representatives.  Join me.

Last Leg

Even though the economy is showing signs of improving, those businesses that have been waiting for the economic turn to happen may be on their last wind.  Some signs of this:



1. You've stretched your payables, and are now under pressure from your vendors to do something for them for a change.

2. Your banker has been patient, but lately he seems more anxious and is frequently calling you out of the blue looking for information.

3. Your payroll seems to be harder to meet every couple of weeks than it has in the past.

4. Your customers are taking longer to pay you than usual.  Thus, turning you into the vendor mentioned in point number one above for some of your customers.

5. Ordinary recurring expenses like property taxes, license renewals, and professional service fees that caused you little concern in the past are starting to pop up everywhere, and they're stressing you out.

6. Your revolving line of credit is coming up for renewal at the bank, you're not sure if your banker's "increased interest" in your business is better or worse for your chances.

7. You have no idea what kind of cash position your business has right now, much less in the future.

If any of these points sound like you, you might consider looking for help in some of your business reporting.  Calculating a breakeven for your company and a 13 week cash flow projection will help ease your fears, and give you a strong set of metrics to measure your week-to-week progress in turning the corner.  Future posts will contain some basics on these two reports, but for now, if you have questions, don't hesitate to contact someone who has experience in this area.

Don't Panic!

More often than we'd like to see, a client won't approach us for help until it's too late.  Critical transitions are usually prefaced by telling signs of trouble, although many entrepreneurs fail to take corrective action or even recognize the signs for what they are until they're parched for thirst and sinking in the quick sand.

Here are some simple questions that should help you determine if it's time to call in the calvary:

1. Are the company's sales dropping off or falling below historical averages?

2. Is the company consistently trying to add more sales engineers or sales reps?

3. Does the company find itself re-assigning engineers or production personnel off of projects to help the sales efforts?

4. Are projects taking longer to finish?

5. Are customer relationships strained or beginning to strain?

6. Are you experiencing loss of current customers and putting more pressure on your company to land new customers to replace them?

7. Is your company becoming more reactionary and less strategic?

If you've answered "Yes" to any of these questions, you might consider bringing in an outside resource to help you put together a battle plan to stop the bleeding here.  Other quick questions to ask if your company is battling cash strain will be addressed in a future post.  In the meantime, if you have questions, feel free to contact this blogger with any questions you may have.  Conversations are always welcome, and even better yet, they're free.