Tag: Small Business

Angel Investors Continue to Shy Away from Startups

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Many startups, especially ones with high-growth potential, depend on receiving at least some of their funding from angel investors. Now, a new report sheds light on what type of entrepreneurial ventures got angel money last year.

Specifically, the report from the Center for Venture Research at the University of New Hampshire found that financing for really early-stage companies declined and a larger percentage went to more-established ventures. That is, 35 percent of investments in 2009 were in seed stage companies, a decrease of 10 percent from 2008. And new, or so-called first sequence investments, were 47 percent of all angel activity, a significant decline over the last two years.


What this means, of course, is that angels are favoring proven quantities that are less risky than newer ventures. That’s been a trend for several years now and it’s worrisome. You might not know it from press coverage, but angel funding is considerably more prevalent than venture capital financing: Many more startups receive angel money than VC dollars. So, if angels shy away from early ventures, that means the loss of a significant historical source of funding for these companies.

Then, there’s the matter of what these companies mean to the economy, which I’ve written about before. The startups that receive angel money tend to be ones with high-growth potential, the kind with at least a fighting chance of becoming a lot bigger and employing a lot of people. Thus, it’s not a positive development over the long haul if angels choose to play it safe and avoid very early-stage ventures.

On the modestly good side, the report showed a decrease in investment dollars but little change in the number of investments. Total investments in 2009 were $17.6 billion, down 8.3 percent from 2008. But a total of 57,225 ventures received funding, a 3.1 percent increase from 2008. In other words, more startups got money, although deal size was smaller.

It would be more reassuring if a larger share of the $17.6 billion had gone to a different type of venture.

Three Key Reasons Why CPA Firms Are the #1 Profitable Small Business

This morning we kicked off our certification series that may or may not get you motivated to find some additional letters for your business card. However, if you’re more interested in your getting your name (with letters behind it, natch) getting on the sign/in the window sooner rather than later, there’s good news as well. Forbes 20 Most Profitable Small Businesses list came out last week (on April 15th no less) and accounting related services took three of the top five spots.


Offices of CPAs #1 – Average pre-tax margin of 17.1% and; the trifecta of “pricing power…low overhead and marketing scale,” gave CPA firms the top spot in Forbes list.

Other Accounting Services #3 – Average pre-tax margin of 15.5%; The list states that this includes, “accounting, bookkeeping, billing and tax preparation services in any form, handled not necessarily by a Certified Public Accountant.” Of course many CPA shops do offer these services so it’s not something you should dismiss outright.

Tax Prep. Services #5 – Average pre-tax margin of 15.1%; Forbes took a page out of John “I hate my old accountant” Stossel and asks “Who likes doing their taxes?”

Yeah, being the boss is tough but for accountants its a path that many take, as FINS reported last week, citing the AICPA “Roughly three-quarters of the country’s 44,000 tax businesses are one-person shops, according to the American Institute of Certified Public Accountants (AICPA).” And it’s not like everyone is going at it alone. If you’ve got one or more colleagues that you trust (and can stand to be around for hours and weeks on end) a partnership is always a solution.

And while this is great news for you entrepreneurial types, you can’t forget what you’re getting yourself into – you will be responsible for the outcome of the business, succeed or fail. As much as you hate the bureaucracy, politics and all around song and dance of the larger accounting firms, the failure of those firms are completely out of your control. But then again, maybe that’s why you took the risk in the first place – so you can be in control.

The Most Profitable Small Businesses [Forbes]
Hanging Your Own Shingle: Starting a CPA Business [FINS]

More Small Businesses Ditching Big Banks for Community Lenders

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

Community banks are gaining ground in the banking sector, scooping up small business customers that are feeling underserved by bigger institutions.

The four largest US banks – Bank of America, Citibank, JP Morgan Chase and Wells Fargo/Wachovia – currently hold the greatest share of small-business customers, according to a report from Aite Group released Thursday. But community banks are growing their share at the fastest rate, often at the expense of large banks.

Roughly 35 percent of US small businesses consider a community bank to be their primary financial institution, up from 24 percent in 2006.


The report revealed that large banks are failing to connect with small businesses. One of the reasons is that they struggle to understand their needs.

“Large banks are missing the boat when it comes to effectively serving and cross-selling to small-business customers,” said Christine Barry, research director with Aite Group, in a press release. “This is evidenced by the declining satisfaction rates of their customers and their failure to meet cross-selling needs.”

Such a customer base is crucial, even for large banks, at a time when deposits are precious commodities.

Small banks have been able to make headway by purchasing failed community banks, as reported by The Big Money this week.

“As the continuing real-estate crisis pushes more tiny banks into failure, the most common saviors have been other small banks, community banks, small thrifts, and modestly sized lenders,” Heidi Moore wrote.

But small banks aren’t necessarily a safe haven from troubles ailing their bigger competitors.

Although banks with over $10 billion in assets hold over half of commercial banks’ total commercial real estate whole loans, smaller banks have an overall greater exposure to commercial real estate, according to a report from the Congressional Oversight Panel.

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, recently voiced concerns about the risk that commercial real estate poses to community banks, noting that commercial real estate comprised more than 43 percent of the portfolios of community banks.

Those concerns are well founded, as commercial real estate has played an increasingly large role in bank failures. For the 205 banks that have failed since 2007, a third of their loan portfolio has been made up of commercial real estate loans, compared to an industry average of 26.9 percent, according to investment bank KBW. The seven banks seized by the Federal Deposit Insurance Corporation last Friday had an even higher concentration with almost 40 percent of their loans tied up in commercial real estate.

If write downs increase as expected, it could ultimately create capital problems for community banks, which could in turn curb lending to small businesses.

“The current distribution of commercial real estate loans may be particularly problematic for the small business community because smaller regional and community banks with substantial commercial real estate exposure account for almost half of small business loans,” the COP report published in February said. For example, smaller banks with the highest exposure to commercial real estate provide around 40 percent of all small business loans.

Venture Capitalists Pushing Bill That Would Help Small Businesses Create New Jobs

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

With all the talk lately about how small businesses are vital to job creation, turns out it’s a relatively small number of high-growth entrepreneurial firms creating much of that employment. And, now, there’s pending legislation, pushed heavily by venture capitalists, that could encourage the growth of such companies.

First, about those high-flying startups. According to recent research from the Ewing Marion Kauffman Foundation, fast-growing relatively young firms generate about 10 percent of all new jobs in any given year. That includes what the study calls “gazelle” firms–enterprises three to five years old. And, these ventures create all those jobs even though they’re less than 1 percent of all companies. The average firm in the top 1 percent contributes 88 jobs per year; most end up producing between 20 and 249 employees. The average firm in the economy as a whole adds two or three net new jobs each year.


Of course, these findings have important implications for government policy and what types of small business it should focus on. Among other recommendations, the study urges the passage of legislation just introduced in the Senate, informally known as the “Startup Visa Act.” Sponsored by Senators John Kerry and Richard Lugar, the bill would address the problem facing many foreign entrepreneurial wannabes who can’t get a visa to come here and start a company.

To that end, it would create a new visa for such entrepreneurs who are sponsored by a US venture capital firm or angel making an investment of at least $100,000 in an equity financing of no less than $250,000. The legislation would modify the EB-5 visa program; that requires recipients to invest at least $500,000 in a US company and create no fewer than 10 jobs.

The bill is the product of heavy lobbying by such investors as Brad Feld, who is with the venture capital firm the Foundry Group. Of course, they have their own business reasons to push this legislation but there seems to be sound research to back it up.

Brightbook Gets a Groovy Review But Questions Remain

GC reader Geoff Devereaux pointed us to something that we were honestly surprised to see, a “glowing review” for the psychedelic-inspired online accounting application, Brightbook.

Accounting Web UK interviewed the two designers, James Henderson and “his colleague Warwick.” If Warwick isn’t a acid-dropping Dead Head name, we don’t know what is.


Anyhoo, the AWUK asks the question that you would expect from an accounting pub, “how will Brightbooks make its money?” To which, Hedernson responds, “this isn’t about the money man, it’s about sharing the love of accounting software for free.”

More or less, that’s what he said. Free software that does what small business owners need it to do. What WE still want to know is WTF is up with the T-Rex in the party hat? What is he celebrating? Or is it something that the partygoers are seeing?? Speaking of the rager, why isn’t the egghead guy partying with the hula-hoop girl or topless chick (or the dudes, whatever his preference)? Has he not dropped yet? All important questions.

Brightbook: Free web accounting software [AccountingWEB UK]

Earlier:
Brightbook Knows That Dead Heads Need Accounting Applications Too