While I admit that I’m not what one would call a “seasoned venture capitalist,” I am a keen observer of the human scene, and what I have noticed about venture capitalists is that they go with their gut way more than any bank would.  They bet on the people more than the businesses because they know that even a sound business can — and often will — fail in the wrong hands.

The ability to identify the right people and fund the right startups is what separates a good venture capitalist from a broke hobbyist.  This takes the kind of skillful analysis required of an investment portfolio manager and the kind of intuition required of a high-school baseball scout.  It’s touch and go, and even good VCs will tell you that they fully expect that vast majority of their gambles to end badly.

Every once in a while they find the diamond in the rough and a successful company is born.  The satisfaction (and ultimate payday) that comes from fostering such growth is what keeps most VCs in the game.  It also keeps the economy humming along quite nicely.  According to the US census bureau in 2004, businesses with fewer than 500 employees were responsible for creating 58,597,452 jobs in the US — more than the 56,477,472 created by the “big guys!”  It will be interesting to see if this dynamic still holds true when the 2012 Economic Census data is fully released.  I suspect it will.

I suppose that entrepreneurs and venture capitalists should be happy that local governments around the country are taking note of just how important startups and small businesses are to the American economy.  Hopefully this recognition will spur them to cut business taxes and make it less onerous to own a business, allowing more people to work for themselves and employ others.

But while certain states are looking to make their tax climate more business friendly, others are hoping to take a different path.  Maryland, for example, is hoping to create a $100 million “venture capital fund” to help startups get the funding that they need.  This begs the question: how will getting startup funding from the government be any different from obtaining it from a bank?  Will the government be relying on their keen investment instincts and famous ability to judge people swiftly and accurately?

Much as I will be watching the release of the 2012 Economic Census data, I will be paying attention to how this new level of government involvement in the creation of small businesses may affect the VC world.  I can’t decide if it’s the cynic or the realist in me that predicts a trivial change, at best.  Good businesses will begin as they always have — at the hands of a tireless entrepreneur who works hard for his money.

About the author: John J. Walters is a freelancer with WasabiVentures and research associate with the Maryland Public Policy Institute.

What makes this most interesting is that this comes in the wake of the U.S. government and its “economic stimulus” package.  President Obama went to a joint session of Congress last night, but he never really advocated that we find our way out of this mess through entrepreneurship.  Instead, government spending will lead the charge.  This is in such stark contrast to what Ms. Moyo preaches that it makes you scratch your head.

If entrepreneurship has made America great and is the key to helping developing African countries, why is our government not doing more things to get out of the way of America’s start-ups?

Instead of a bailout from Congress, here is what we should be offering:

• Eliminate all payroll taxes for 1 year
• Provide $100 billion to banks to provide loans, but the loans have to be given to businesses with less than 10 employees
• Offer a $5 billion dollar prize to the first company/group that can produce and sell 5,000 cars that get over 100 MPG

How many jobs could be created from that type of stimulus?

I was rereading a book TR wrote about his adventures in Africa, and I was struck by a line he wrote, “The darker the night the bolder the lion.” This seemed to be an amazingly fitting line for our current economic climate.   We are in the midst of one of the worst economic climates in any of our lifetimes.  And many are predicting that it only will get worse.  My sense is that it is time to be bold.  Strategies in this climate need to be grand, yet economical at the same time (the definition of bold in its purest business form).   They require decisive action and doing things more quickly and nimbly than others in the marketplace can.

So, as you gear up to attack 2009, ask yourself, “What kind of lion am I?”  Are you one that will roar out of a terrible economy and command a market segment, or are you a follower left to get scraps, barely able to survive?  The answer is completely up to you.

On Kauai, there is the Kauai Cigar Company, which was born out of the Blair Estate Coffee Farm.  According to the marketing brochure for the cigar company, the company is a place where “diversification and expansion are part of the intrinsic spirit.” You can read this to mean that they are an entrepreneurial group of people that run the company/farm.

But what really hit home was a message that you find later in the same brochure: “While it took nearly 6 months to obtain a federal permit to manufacture and sell cigars, the reporting, bi-monthly federal taxes, and whopping nearly 40% Hawaii wholesale tax made it financially impossible to hand make cigars in Hawaii.”  So what did these entrepreneurs do? They found a company in Nicaragua to roll and manufacture the cigars.  While a testament to the fact that the world is flat and that entrepreneurs will not be stopped by government silliness, it also demonstrates the backward thinking of many governments.  Instead of having jobs in the U.S./Hawaii for this work, the Kauai Cigar Company ships their cured tobacco from Hawaii to Nicaragua and then back to the U.S.  While we can congratulate them for their creativity and ability to make their business work, we have to shake our head at the stupidiy of the Hawaiian and U.S. governments.

And like the ice age that brought on the extinction of the dinosaurs and precipitated the rise of the mammal to the top of the food chain (note: this is the WV scientific take on dinosaur extinction), we believe the same thing will happen in this meltdown.  Small start-ups are going to be like the furry rodents that scurried around the jungles of the Jurassic Age.   As the large T-Rexs and other raptors (think large financial behemoths) fail to adopt and adapt to the change in climate, small, more agile creatures do find a way through.  The greatness of start-ups is that they can find holes in the cracks of an economy.  And like the early mammals, they also will evolve and grow into the dominant economic force.

So, as the bad news continues to grow and reverberate on Wall Street, think about the ways you can evolve and adapt.  Start-ups are just the small, furry, agile creatures of this ice age.

The County of Los Angeles has 14,000 mobile trucks that sell food in neighborhoods. They offer mostly Mexican-American dishes (e.g. tacos) that are inexpensive and simple. Well, recently, in its infinite wisdom, the county board of supervisors voted to make it a crime if a truck stayed in one place for more than an hour. This measure was supported by the local chamber of commerce, and it was passed unanimously by the 5 supervisors.

The logic was that the trucks, with their inexpensive menu and low overhead, were forcing brick and mortar restaurants to close. So, they imposed a fine of $1,000 and/or 6 months in jail if they didn’t move every hour. Armed robbery or drunk driving probably gets you 30 days, but sitting your truck in a place for an hour gets you 6 months!

The part of the story on which we want to concentrate is the economics of the situation. If government passes laws that make it harder for licensed, regulated, inspected food vendors to deliver their wares, the only loser is the consumer. Food the consumer wants would become more expensive artificially.

If a mobile vendor has determined a better and less expensive way to deliver his or her food, then let the market factors determine that. If traditional restaurants can’t adopt and adapt to market conditions, then they should go out of business. Let markets determine what consumers want, and the natural fluid conditions will make the correct adjustments.

people, and the company cited high labor costs and a slowdown in sales for their plant closure.

While I am sure the fashion world is rejoicing in the slowdown in sales of the mostly hideous footwear, what caught our eye was the quote from Raymond Bachand, the Quebecois minister of economic development, innovations and

exports: “This is a pure case of savage capitalism. They decided to flush away Quebec.”

Now I have no idea what savage capitalism is, but if our dear French-Canadian friend defines it as moving production to a lower labor cost venue, then I am all for it. The key to capitalism is three-fold:

• Easy entry and exit from a market
• Free flow of information
• Asset holders make independent economic decisions

Quebec may not be happy about losing the 669 jobs, but it should be more unhappy about creating a business environment where quality work can be done cheaper elsewhere.