haileycajp: Making Money on Internet

Next time you hear an economist or denizen of Wall Street talk about how the "American economy" is doing these days, watch your wallet.

There are two American economies. One is on the mend. The other is still coming apart.

The one that's mending is America's Big Money economy. It's comprised of Wall Street traders, big investors, and top professionals and corporate executives.

The Big Money economy is doing well these days. That's partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It's essentially free money to America's Big Money economy.

Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They're merging and acquiring other companies.

And they're going abroad in search of customers.

Thanks to fast-growing China, India, and Brazil, giant American corporations are racking up sales. They're selling Asian and Latin American consumers everything from cars and cell phones to fancy Internet software and iPads. Forty percent of the S&P 500 biggest corporations are now doing more than 60 percent of their business abroad. And America's biggest investors are also going abroad to get a nice return on their money.

So don't worry about America's Big Money economy. According to a Wall Street Journal survey released Thursday, overall compensation in financial services will rise 5 percent this year, and employees in some businesses like asset management will get increases of 15 percent.

The Dow Jones Industrial Average is back to where it was before the Lehman bankruptcy filing triggered the financial collapse. And profits at America's largest corporations are heading upward.

But there's another American economy, and it's not on the mend. Call it the Average Worker economy.

Last Friday's jobs report showed 159,000 new private-sector jobs in October. That's better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.

Yet the American economy has lost 15 million jobs since the start of the Great Recession. And if you add in the growth of the labor force -- including everyone too discouraged to look for a job -- we're down about 22 million.

Or to put it another way, we're still getting nowhere on jobs.

One out of eight breadwinners is still out of work. Most families in the Average Worker economy rely on two breadwinners. So if one out of eight isn't working, chances are high that family incomes are down compared to what they were three years ago.

And that means the bills aren't getting paid.

According to a recent Washington Post poll, more than half of all Americans -- 53 percent -- are worried about making their mortgage payments. This is many more than were worried two years ago, when the Great Recession hit bottom. Then, 37 percent expressed worry.

Delinquency rates on home loans are rising. Distressed sales are up as a percent of total sales.

Most people in the Average Worker economy own few shares of stock, if any. Their equity is in their homes. But with all the delinquencies and distressed sales, the housing market has a glut of homes for sale. As a result, home prices are still dropping. So the net worth of most Americans is still dropping.

And even though interest rates are falling, most people in the Average Worker economy can't refinance their homes. They can't get home equity loans. Banks don't want to lend to the Average Worker economy because people in it are considered bad credit risks. They still owe lots of money, their family incomes are down, and their net worth has fallen.

And according to the Reuters/University of Michigan survey of American consumers, expectations about personal finances are at an all time low.

Inhabitants of the Big Money economy are celebrating Republican wins last week. They figure financial regulations will be rolled back, environmental regulations will be canned, the Bush tax cut will be extended to the top 1 percent, and it will be harder for workers to form unions.

Inhabitants of the Average Worker economy aren't so sure. The economy has been so bad they're angry at politicians. They showed their anger at the ballot box. They took it out on incumbents.

But if nothing changes in the Average Worker economy, there will be hell to pay.

Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.

Due diligence should always be a two-way street. A while back, I published an article on “Understanding the Dreaded Investor Due Diligence,” describing what investors do to validate your startup before they invest. Here is the inverse, sometimes called reverse due diligence, describing what you should do to validate your investor before signing up for an equity partnership.

I’ve had startup founders tell me that it’s only about the color of the money, but I disagree. Particularly if you are desperate, keep in mind the person who finds a good-looking partner to take home from the bar at closing time, but then wakes up in the morning wondering “What did I just do?” Taking on an investor is like getting married – the relationship has to work at all levels.

Due diligence on an investor is where you validate the track record, operating style, and motivation of your new potential partner. Maybe more importantly, you need to confirm that the investor “chemistry” matches yours. Here are some techniques for making the assessment:

Talk to other investors. The investment community in any geographic area is not that large, and most investors have relationships or knowledge of most of the others. Of course, you need to listen for biases, but local angel group leaders can quickly tell you who the bad angels and good angels are, and what kind of terms they typically demand.

Network with other entrepreneurs. Contact peers you have met through networking, both ones who have used this investor, and ones who haven’t. Ask the investor for “references,” meaning contacts at companies where previous investments were made. Don’t just call, but personally visit these contacts.

Check track record on the Internet and social network. Do a simple Google search like you would on any company or individual before signing a contract. Look for positive or negative news articles, any controversial relationships, and involvement in community organizations. Check the profile of principals on LinkedIn and Facebook.

Spend time with investors in a non-work environment. As with any relationship, don’t just close the deal in a heated rush. Invite the investment principal to a sports event, or join them in helping at a non-profit cause. Here is where you will really learn if there is a chemistry match that will likely lead to a good mentoring and business relationship.

Validate business and financial status. Visit the firm’s website and read it carefully. Look for a background and experience in your industry, as well as quality and style. Conduct a routine credit and criminal check, using commercial services like HireRight. Be wary of individuals or funds sourced from offshore.

If you think all this sounds a bit sinister and unnecessary, go back and read again some of the articles about Bernie Madoff and recent investment scams. Remember, if it sounds too good to be true, it probably isn’t true. Entrepreneurs are optimists by nature, so I definitely recommend the involvement of your favorite attorney (usually the pessimist).

I recognize that it has been tough to raise capital these last couple of years, but don’t be tempted to take money from any source. This can be a big mistake, with common complaints running the gamut from unreasonable terms, constant pressure, to company takeovers. Be vigilant and ask questions.

A successful entrepreneur-investor agreement better be the beginning of a long-term relationship. If you don’t feel excited and energized by your first discussions with an investor, give it some time and do your homework. If the feeling doesn’t grow, it may be time to move on. It’s better to be alone than to wish you were alone.

Martin Zwilling is CEO & Founder of Startup Professionals, Inc.; he also serves as Board Member and Executive in Residence at Callaman Ventures and is an advisory board member for multiple startups.This post was originally published on his blog, and it is republished here with permission.

Monday, November 15, 2010

Making Money on Internet

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