BUSINESS BLOGS
BUSINESS BLOGS
category: business
05 Mar 2009

The housing bubble burst leaving would-be investors weakened financially.   The ensuing credit crunch is now weakening companies’ ability to stay afloat.

While US financial behemoths are becoming the punch line of jokes,

the central Bank of Canada is going all out to avert a carbon copy storyline north of the border, as well:

The Bank of Canada took its short-term interests rates nearly as low as they can go on Tuesday, but suggested that may not be enough to rescue an economy downturn that continues to defy projections.

The central bank sliced its the trend-setting overnight rate half a percentage point to an all-time low of 0.5 per cent.

You’d expect banks to follow suit, right?  Nope. Not happening.

Here’s a letter we got today from one of our many [Canadian] banks:

“The annual variable interest will increase by 1%, this is a result of global credit market conditions that have increased costs associated with lending products”.

Thankfully, we set up credit facilities before the Crash of 2008 and are relatively debt free (apart from a few financing deals for equipment and what not).  The reality though is that if you were a startup (or major company, as in the case of John Deere, who is paying 2-3x more for financing), you just don’t have the ability to operate in this environment.

A couple of weeks ago, economist Thomas Friedman urged the government to stimulate the economy by providing VCs with cash.  Truth is, VCs’ net value creation is negative.  Yesterday, Reid Hoffman, a successful investor and entrepreneur, echoed the importance of keeping startups solvent by providing capital.

Connecting the dots, however, when you the biggest US financial superpower trading for $1/share, you know that financial firms won’t be looking out for the wellbeing of startups.  This goes back to my #1 rule for success these days: a low burn rate.

This is also the MAIN problem with any stimulus the US government implements: the beneficiary banks will pocket the aid and let the small fish rot.  It’s human nature, you know the saying, “I don’t need to outrun the bear that is chasing us, I just need to outrun the other fella”.