The good with the bad | Finding opportunities in the stimulus package and capital markets
In this unprecedented hour, it’s easy to feel overwhelmed by all of the challenges — tight credit and public and private equity markets, low consumer confidence, major players like banks and industrial outfits collapsing, concerns about job security… the list goes on. And while I won’t try to sugar-coat the situation, there are real opportunities for small businesses to make the best of this environment.
Get a piece of the stimulus
The $787 billion federal stimulus package includes perks for small businesses, including:
Small business support: 2% of the federal stimulus funds, or about $13 billion, is explicitly set aside for small business support in the form of loans, grants, additional funding and tax credits.
Clean technology: 9% of the stimulus, or $68 billion, boosts a range of environmental initiatives in the form of research, tax breaks, remediation, grants, loans and other funding.
Information technology: 4% of the stimulus, or $29 billion, targets research, broadband expansion, homeland security technology and the much-touted conversion of paper health records to electronic form.
Urban and rural development: 1% of the stimulus (or $8 billion, excluding specific infrastructure investments) could influence urban small-business markets such as Lewiston-Auburn, Bangor and Portland; and rural funding could help expand broadband here, which will not only benefit rural businesses that have not had such access but also will grease the wheels for development of rural Web startups and distance workers who require broadband to flourish in rural markets.
Up when you’re down
It may be cheaper to start a new business in a down economy than it would be during a growing economy. That’s because suppliers (whether of products, services or real estate) can often be coaxed into giving you better deals than you might find in a busier market. And as large competitors struggle because of their larger operating costs, small business can gain access to customers that might have been harder to secure in an up market. Layoffs for other companies can translate to higher quality and even lower cost labor than might be available in a better economic environment.
Of course, the one thing — perhaps the most important thing — that you probably won’t find attractive about the current economy is capital access. Trying to find lenders in the worst credit market in a half century isn’t helped by the fact that the small business market has never been the pick of the litter among the banking community.
Equity is even worse. Demand for early stage venture capital (or equity) funding has always exceeded supply. It’s the so-called “capital gap,” and it’s widened considerably. As the economy has worsened, the vast majority of venture capital funds have retrenched, focusing their efforts and reserves on their existing portfolio rather than investing in new companies. Individual investors known as angel investors have not only seen their personal wealth drop by 30-40% due to the stock market downdraft, but like their venture-capital brethren they have existing small company investments that may be struggling with declining sales and limited access to funding from other individuals or from the venture capital community. So angel investors with portfolios containing young companies are reserving what little “risk capital” they may have left to support those investments. While there is stimulus money — mostly in the form of loans — that might end up supporting your small business, the capital problem is perhaps the most concerning for the growth-oriented small business market.
Should new early-stage funds form, they will find abundant opportunities for quality deals as the best teams and opportunities find their appeals to their first-choice VCs in the Boston market fall on deaf ears. Although conventional wisdom would say that this is the worst market to raise a new fund, the contrarian view would argue that the inequity between supply and demand ought to make the next 24 months “vintage” — like wine, investors with capital in this market may see better returns over the next several years than they might in other economic circumstances. Clear Venture Partners plans to be one such fund.
For more on how your business can benefit from the stimulus package, email me and I’ll send you an Excel spreadsheet that I put together based on what I found on the Web, organized by agency, activity and dollar allocation. You can then try to track the relevant agency’s activities more closely to watch for requests for proposals or other means of accessing these funds.
There’s a Chinese expression that goes something like “may you live an interesting life.” Well, folks, here’s your chance.
Michael Gurau, managing general partner of Clear Venture Partners in Portland, can be reached at mg@clearvcs.com.
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