Leverage your Private Equity

I periodically have companies seeking private equity or venture capital funding that need LOTS of funding. Such companies are quite often in the industrial services or products realm, but can come in almost any industry.

Companies that have viable business models, but capital requirements that exceed what typical PE or VC funding will provide have additional and sometimes prohibitive hurdles to overcome in order to make their visions a reality.

If a company is to make the leap from great idea to business reality, then the management team is going to have to strategize a way to leverage the PE or VC funding in order to reach even greater sources of capital. Those other sources of capital could be a public-private partnership, public debt or even a private-private partnership, but in any case there will need to be substantial thought given to the source of that second round of financing because the quality of the plan for realizing the second round will likely play a large role in whether or not the company gets the first round of financing.

Don't forget Uncle Sam

After reading Jeff McIntire-Strasburg's recent post titled: "Ecopreneurist: How to Approach a Venture Capital Firm with a Cleantech Business Idea" I was struck by the thought of a company I am working with at the moment in the Green Technology world.

One of our early conversations centered around their financial projections and pro-forma statements in which the company president proudly said "our figures don't include any tax based income or incentives, these are straight numbers." Of course, I wanted to see the non-tax based numbers in an overall evaluation of the business, but one of the things that really makes the green industry potentially above average regarding investment returns is the proliferation of numerous tax and government incentives and our management team was really missing the boat on potential tax strategies that could have a dramatic effect on both capital requirements and overall returns of the business.

Thankfully, we have now begun an analysis of the available tax strategies and we have already uncovered federal benefits that will significantly add to our bottom line.

So the moral of the story is...don't forget Uncle Sam.

John McCain, Republican for President, on the Estate Tax

Although U.S. Senator (Republican - Arizona) John McCain's has been criticized by conservatives in his party for his inconsistent support of President Bush's tax cuts, his recent no-new-taxes pledge and his prior Senate votes on the estate tax seem to indicate that as president he would be likely to preserve the status quo on the estate tax: in 2007, McCain voted to increase the estate tax exemption to $5 million and to reduce the maximum estate tax rate to 35%; and in 2006, McCain voted to permanently repeal the death tax and to make the Bush estate (and income) tax cuts permanent.

Source: OnTheIssues.Org: John McCain on Tax Reform

The conservative Club for Growth, which favor repeal of the estate tax, rated McCain's voting record 76 out of 100 for 2006 for pro-growth economic policies.

See also:

Barack Obama, Democrat for President, on the Estate Tax
Hillary Clinton, Democrat for President, on the Estate Tax
John McCain Official Site: McCain Tax Cut Plan

October 2008 update: McCain has clarified that he supports raising the estate tax exemption amount to $10 million for a husband and wife and cutting the tax rate on larger estate to 15 percent. He also supports lowering the federal corpoarte tax rate from 35 to 25 percent.

Barack Obama, Democrat for President, on the Estate Tax

U.S. Senator (Democrat - Illinois) and presidential candidate Barack Obama's view on the estate tax:

We have to stop pretending that all cuts are equivalent or that all tax increases are the same. Ending corporate subsidies is one thing; reducing health-care benefits to poor children is something else. At a time when ordinary families are feeling hit from all sides, the impulse to keep their taxes as low as possible is honorable. What is less honorable is the willingness of the rich to ride this anti-tax sentiment for their own purposes.

Nowhere has this confusion been more evident than in the debate surrounding the proposed repeal of the estate tax. As currently structured, a husband and wife can pass on $4 million without paying any estate tax. In 2009, this figure goes up to $7 million. The tax thus affects only the wealthiest one-third of 1% in 2009. Repealing the estate tax would cost $1 trillion, and it would be hard to find a tax cut that was less responsive to the needs of ordinary Americans or the long-term interests of the country.

From Obama's book, The Audacity of Hope, 2006, pp. 191-2.

In the Senate, Barack Obama has consistently voted against repealing or reducing most taxes, including the estate tax, and in favor of increasing most taxes, including the estate tax. Senator Obama, for example, voted no on increasing the estate tax exemption to $5 million and reducing the maximum estate tax rate to 35%, voted no on extending the sunset of the Bush estate tax and GST tax exemption increases (which lower the number of families affected by the estate tax), and voted no on permanently repealing what those who oppose it usually refer to as the death tax.

Source: OnTheIssues.Org: Barack Obama on Tax Reform

The conservative Club for Growth, which favors repeal of the estate tax, rated Obama's voting record 7 out of 100 for 2006 for pro-growth economic policies, and most liberal Senator overall for 2007 by the National Journal.

See also:

John McCain, Republican for President, on the Estate Tax
Hillary Clinton, Democrat for President, on the Estate Tax
Barack Obama Offical Site: Fiscal Issues

October 2008 update: Obama opposes repeal of the estate tax and supports repeal of, or allowing the expiration of in 2010, the Bush (estate and income) tax cuts. He supports one-time or short-term tax rebates for most individual taxpayers (and many filers who don't earn enough to pay federal income tax and pay only payroll taxes) and overall higher estate, payroll, income, and corporate taxes over the longer term.

In response to a question about raising taxes, Obama said that he intends to "spread the wealth around."

January 2009 post-election update: President-Elect Obama's Big Tax Plan by Bill Bischoff, SmartMoney's "Tax Guy":

$300 billion in tax cuts are probably on the way -- and soon.

Right after the election, I was virtually certain that upper-income individuals would face higher federal income tax bills as early as this year. And I didn’t see anything very good on the business tax horizon, either. But after two more months of horrifying economic data, it’s a whole new ball game.

Now, President-elect Obama is proposing a $775 billion economic stimulus package that does not appear to impose higher taxes on anybody or anything for 2009. Instead, it looks like we will immediately see some of the "middle-class tax cuts" Obama promised, plus some unanticipated business breaks too. All in all, these tax cuts could add up to $300 billion (or more) over the next two years....

February 2009 post-election update: Obama's Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011:

President Obama's budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.

ABC News, February 26, 2009.

Angel Soft - Open Deal

Large Angel Network software provider AngelSoft has now developed a new service designed to allow companies and entrepreneurs to mass submit offering to hundreds of angel groups at one time.

http://www.angelsoft.net/entrepreneurs/index.html

Could be a nice resource for overworked entrepreneurs searching for capital.

Angel Investors and the ACA

In addition to later stage VCs, startups have an old option that is getting fresh legs by being easier to navigate than before, in angel investor networks. The Angel Capital Association is a peer organization of angel investing groups in North America that includes over 250 angel groups.

The presence of such groups makes it much easier for startup companies and their entrepreneur leaders to find much needed seed capital in order to get good companies off the ground. In the past, active networking and luck might net someone that was interested in investing in a startup, but through angel networks entrepreneurs have access to literally thousands of potential accredited investors.

Some of the southeastern ACA members include:

Southeast
Angel Network of Sumner County/ Angel Capital Group - Hendersonville, TN
Ariel Savannah Angel Partners - Savannah, GA
Atlanta Technology Angels - Atlanta, GA
Charleston Angel Partners - Charleston, SC
Eastern NC - Investor Network - Greenville, NC
Emergent Growth Fund - Gainesville, FL
Fund for Arkansas' Future - Little Rock, AR
Huntsville Angel Network - Huntsville, AL
Inception Micro Angel Fund - Greensboro, NC
Mississippi Angel Network - Ridgeland, MS
Nashville Capital Network - Nashville, TN
New World Angels - Boca Raton, FL
Piedmont Angel Network - Greensboro, NC
Seraph Group - Atlanta, GA
Springboard Capital - Jacksonville, FL
Triangle Accredited Capital Forum - Wake Forest, NC
Wilmington Investor Network - Wilmington, NC
Winter Park Angels - Winter Park, FL

VC Symposium

Just a quick update on the Birmingham Venture Club Symposium yesterday.

We had a good crowd of 40-50 attendees at the symposium graciously hosted by Burr & Foreman in their beautiful conference room.

The panel covered a broad range of topics from the state of the economy, aka "Are we in a recession?" (which most felt we are or at least pockets of the economy are) to the current environment in the State of Alabama (which most seemed to see as under served). Overall, it was a very good event and one which I hope continues in the future.

The most interesting thing to me probably related to the realization that although the economy is slowing, deals are still getting done; however the interplay between a lot of VC dollars chasing fewer deals driving prices up and an accross the board increase in due diligence and the proliferation of good secondary market opportunities driving prices down seem to be largely cancelling each other out at the moment, but it is unclear if that balance will maintain.

Private Equity Symposium

Just an FYI, the Birmingham Venture Club - CFA MidSouth Chapter's Private Equity Symposium is today at 4:30pm in Downtown Birmingham at the Wachovia Tower, 3rd Floor.

*Members and Non-members may attend