A proposal for Indicators for Outside investors when are looking where to invest in emerging markets SMEs

A lot of time, without writing an article, i was busy analyzing the new team of President Obama and the Public policies made by George Bush, but now i want to focus in the Venture Capital Industry, and a proposal to the venture capitalist when they are willing to invest in Startups of emerging markets, so here is the Indicators Model:

The Indicators show the connection of 3 key issues for Venture Capitalist, they combine the TEAM, the CONCEPT, and the Market, and how are they connected. But most important how they apply to Emerging Markets and their local reality. Another component for the indicators is the economic and business framework provided by the GOVERNMENT. This gives to the Investors another point of view, not in terms of the forecast made by the entrepreneurs in their business plans or executive summaries, but in terms of their skills, knowledge, creativity and innovation.

Now, i will describe the indicators.

The explanation of each indicator is below the indicator.

A

• Level of Industry-Research collaboration for development of the concept:

– The Research & Development of the entrepreneurs, from the academia to the development of the startup , publication of academic papers and studies

• Study level of the entrepreneurs:

– The successful companies from 1990 have show that the success is related to the level of study of the entrepreneurs, so the Investors should analyze the equilibrium between the study level, undergraduate, graduate, Master & PHD.

• Level of concept delimitation:

– How the entrepreneurs visualize the vision, mission and goals of the company in 5 and 10 years, and how they delimited the MAIN product or service to offer, because a common problem of the entrepreneurs is to offer many products and services when they are starting

• Level of prototype development

– What percentage of the MAIN product is developed

• Level of Risk Management Processes

– The investors should analyze: If the entrepreneurs have a Risk Management Plan, If the entrepreneurs consider the Risk Management as a key success factor for business; If the entrepreneurs have a process to implement Risk management in all the projects.

• Cultural Awareness from entrepreneurs

– What percentage of the MAIN product is developed

B

• Level of Blue Ocean Market:

– Analyze if the product/service has a BIG MARKET (more than US $500 mn) or have an Unexplored market

• State of art of technology to be developed and commercialized:

– How is the technology at international level, and what is required for implement in new markets

• Human Resources availability

– A very important factor, because the Investors should analyze the Educational level of the country (in number of graduates, number of researchers and quality of education: Availability of people to work in the project)

• Cultural apprehension of product/service

– Because each country is different, the Investors should analyze how the customer receive the product in his own context

• Number of established competitors

– Look at the number and size of the competitors if there is BIG MARKET; and analyze other competitors if there is a BLUE OCEAN

• Market growth forecast

– The investors should review the Forecast of the Market size from international organizations as IDC, Gartner, Jupiter and similar

C

• Experience of the team:

– Experience in terms of Market knowledge, Technology knowledge, and capabilities of the Team for developing the STARTUP

• Diversification of the team

– Look the study/experience of each team member and how its complemented

• Foreign language knowledge of the team

– This is a globalized world, so as part of the preparation of the team, The investors should analyze the number of languages speak by the members of the team (this is important for exportation matters)

• Marital Status of the team

– Analyze if they are single, married, etc, Because if there is a combined team, were some members of the crew are young is preferable to be single, so they can focus the 100% of the time to the company

• Leadership skills of the team

– How the members of the team are recognized in communities, groups, by other companies, in the sector; and how they are capable of leader new process to convince “The Best in the place” to join the team

GOVERNMENT

• Legislation:

– Analyze the laws protecting the business in the country

• Patent System:

– How is the patent system established

• Trademark System:

– A very important success factor is the Branding strategy, so the investors should analyze if the Country is in international Trademark agreements

• Tax Incentive for business:

– What are the advantages in economic terms for the company and for the investors

• Cost of life

– Review the cost of life in the country, and specially in the city, because this give a broader knowledge of the economy and the Venture Capital money required

• Cost of doing business

– Review the costs for machinery, human resources, taxes,

• Aligning of business with the Long term plan of the government

– Each government is different, and it have defined a 10,15 or 20 year plan, so the country can focus in some sectors of the economy; so the investors should have to review if the company they are going to fund aligns with this plan.

The importance of the Think Tanks in U.S Government policies

When Reagan won the U.S elections in 1980, with an overwhelming victory against the democrat candidate Jimmy Carter, it showed 2 important historic realities:

Economic Factor, when a president is considered guilty for recession or an economic depression, when is the cause for terrible foreign image abroad and is considered by the American people as ineptitude to lead the most powerful country of the world, not only generates low levels of popularity, instead of that, when a member of his party of himself run for presidency, it lose.

Think Tank consolidation, when Ronald Reagan was elected president, the HERITAGE FOUNDATION published the first Think Tank blueprint in 1981 entitled “Mandate for leadership”, containing the strategies employed by the past republican presidents, both in Public Policy & Public Management.

Okay, let’s analyze in detail the facts:

Economic Factor:

In 1932, after the “great depression”, the president Herbert Hoover (Republican) run for presidency and loose dramatically against Franklin D. Roosevelt (Democrat).

In 1980, Jimmy Carter, the first democrat to face a debt increasing, with 16% of inflation and a US $75 bn budget deficit.

In 1992, after the National Debt increasing from US $955 bn to US $4tn, the president George H W Bush (Republican) run for presidency and loose dramatically against Bill Clinton (Democrat).

And in 2008, with President George W Bush, the economic situation could not be worse, the National debt increased from US $ 5.6 tn to US $10.5 tn , the budget deficit reach US$ 500 bn, and a GDP for the third quarter of the reach reaching -0,3%, all these combined with the foreclosure problems of 3 million Americans. George Bush supported the Republican candidate John McCain (republican) who is going to lose dramatically against Barack Obama (democrat).

I attach a graph, taken from http://www.lafn.org/gvdc/Natl_Debt_Chart.html :

Think Tank Consolidation:

The Oxford English Dictionary defines a think tank as "a research institute or other organization providing advice and ideas on national or commercial problems"

These institutes, foundations and societies are the evolution of Plato´s academy for thinking how to impact the leaders with ideas to solve the society problems.

In U.S, The Heritage Foundation began in 1973, and is a Republican Think Tank; it supports 2 basic principles (employed by the past Republican Governments, including George Bush):

A) The direct attack of the communism and socialism, by establishing foreign policies focused in attacking other countries with the excuse of “National defense”. That’s the reason; Bush policies have increased the bad perception of America at international level. And counting the “Cold war”, the “Gulf War” and the “Iraq War”

B) Employ of Supply side economics theory, meaning the reduction of income taxes, and in theory causing an increasing of the revenues in the country. The reality has showed how the public policies implementing this theory have failed; let’s see 3 cases:

In Reagan government (1981-1988), the marginal tax rate for wealthiest Americans was cut from 70% to 38%, it produce an increasing of the top brackets wealth and a lost of the government incomes in 3% of the GDP.

In George H. W Bush government (1989-1992), he began with his phrase: “Read my lips: No new taxes”, but he raised taxes and the Washington Post entitled: “Read my lips: I lied”. He continue with the Reagan policies, and the result besides the debt increase was the highest unemployment rate reaching 7,8% and that 14,2% of all Americans lived in poverty by 1992.

In George W Bush government (2001-2008), he made US $630 bn tax cuts to the 1% of the Americans, the salary of the CEOs increased from 254 times the average worker to 400 times, Corporate profits increase from 17,7% in 2000 to 20,9% in 2005.

All these economic policies were considered by 2008 Economic prize laureate Paul Krugman as “Peddling poverty”.

So, all these governments, even if they have not reached their positive goals, they have been influenced by the THINK TANKS (including CATO & AEI, other republican Think Tanks).

So, in 2003, After a meeting between John Podesta (White House chief of staff under Clinton) and Senate Minority Leader Tom Daschle (D-S.D.) decided to create what Infoseek founder Steve Kirsch defined as : “‘a Heritage Foundation for the left”.

So, they began the “Majority American Institute” and then it transform to “The Centre for American Progress”, with an initial budget of US $10 mn and 75 staffers, in 2008, the budget reach the US $25mn with 150 staffers.

As is defined in their site www.americanprogress.com

"As progressives, we believe America is a land of boundless opportunity, where people can better themselves, their children, their families, and their communities through education, hard work, and the freedom to climb the ladder of economic mobility. We believe an open and effective government can champion the common good over narrow self-interest, harness the strength of our diversity, and secure the rights and safety of its people. And we believe our nation must always be a beacon of hope and strength to the rest of the world. Progressives are often described as idealistic enough to believe change is possible and practical enough to make it happen"

Barack Obama advisors include members of “American Progress”, and when he wins the presidency in November 4 of 2008, he will include in his gabinet some members of the Think Tank.

“American Progress” developed an ECONOMIC PLAN FOR THE ADMINISTRATION, call: “Progressive Growth, Transforming America´s Economy through Clean Energy, Innovation & Opportunity.

This plan contains the policies for reach the economic stability and recover the trust of Americans in United States government.

Some of the people, who worked in this plan, are going to be chosen by Barack Obama for his government, some names we are going to speak about in the future are:

Senator Dom Dachsle

Tom Kalil

Richard Samans

Gene Sperling

Todd Stern

Laura Tyson

Daniel Weiss

John Podesta

Sarah Rosen Wartell

Dan Restrepo

Cynthia Brown

We will see how the THINK TANK will impact in OBAMAs government.

Some final thoughts about our next president Barack OBAMA.

He has been supported by 68 Nobel laureates:

6 from Economy (Including Krugman and Stiglitz), 15 from Chemistry, 26 from Medicine & 22 from Physics .

Also he has been supported by 4 Pulitzer award winners.

And part of his economic advisers are: Erich Smidth( GOOGLE CEO), Indra Nooyi ( Pepsico Chairwoman) and Warren Buffet (the wealthiest man of earth in 2008).

Warren Buffet in an interview held in February 15 of 2008 spoke about corporate taxes and the policies for stimulate the economy:

“Relative to GDP, government taxation is 18.5% and spending is 20%, so we borrow the balance. The national debt should not be a scary topic and the fact that it’s gone up is fine as long as it’s proportional to GDP. Where do we get that 18.5%? There’s 2.7 trillion in government revenues. 2.2 trillion comes from individuals, and less than 1% of that comes from the estate tax. 1.1 trillion comes from income taxes, with payroll taxes consisting of 900 billion, but it’s capped at the first $100,000 of salary. We want a tax system that encourages greater prosperity, but it needs to take care of the family.

I think the best way to stimulate the economy is to give money to the poor. They will spend it. Don’t give it to guys like me. Infrastructure investment makes sense, but we haven’t done it in a while and it won’t do anything for the next 6-12 months. Infrastructure is not big relative to GDP. We are a consumer-driven society, spending 106% of production.”