January Video Newsletter

Posted on January 26, 2012

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Inequality Debate Based on Bad Data

Posted on December 19, 2011

America is stumbling toward one of the most important decisions it has made in decades: how to bring our financial accounts back to a sustainable balance.  Due to a lack of perspective on tax policy over time, the political decision makers and the media have accepted misleading data with regard to an assumed increase in inequality of income as the primary framework for the debate.

With tax receipts at historic lows and expenditures heading for the stratosphere, no rational observer doubts that this decision will entail a combination of both spending cuts and tax hikes.  Republican rhetoric aside, the real question on the tax side of the debate is how these tax increases will be structured.  I am increasingly concerned that Congress will make a huge mistake that will penalize the mid-sized businesses, i.e. growing companies with 50 to 500 employees, that serve as the backbone of American productivity and that are the only hope for domestic jobs growth.

Let’s start with a bit of history from my personal experience, first as a business and tax lawyer and for twenty-eight years as an investment banker serving entrepreneurial businesses in M&A and arranging business financings.  When I started in practice, essentially all substantial businesses with which we worked were structured as C Corporations.  A typical client might be a manufacturer with 100 plus employees, revenue of $10 million plus and pre-tax profits of $1-2 million.  The owner often took a surprisingly small salary, say $100-125,000, paid a small amount of personal expenses from the business and retained the rest of the company’s profits in the corporation.

As a result of changes in federal tax law and the parallel development of Limited Liability Corporations (LLCs), a major shift from C-Corporations to pass-through entities began in the middle 1980s.  To demonstrate how dramatic this shift has been, … read the rest

Categories: Banks, Economics, Inequality, Innovation, Taxes

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James Mawson – Publisher of Global Corporate Venturing

Posted on February 8, 2011


It has become increasingly clear that many large  enterprises are not very good at innovation.  The chart below, courtesy of Robert Ackerman, Founder of Allegis Capital, in the February 2011 issue of Global Corporate Venturing, shows that the share of U. S. Industrial R&D investment of corporations with 25,000 or more employees declined from 70.7% in 1981 to 37.6% in 2005.  During the same period the R&D share of companies with 1000 or fewer employees increased from 4.4% to 24.1%.


This clearly supports the primary Capital Matters theme that future jobs growth will come from small and medium sized privately held businesses.  But where will the capital come from to fund these businesses?

James Mawson has created an innovative new publication called Global Corporate Venturing which is built on two theses which may help answer this question.  Mawson believes that global corporations have learned that smaller companies have advantages in innovation.  He sees this knowledge playing out in two related trends:

  1. Even with today’s resurgence, IPO markets are a dim reflection of past glories.  As a result both venture capitalists and private equity firms increasingly recognize that they must depend on acquisitions of portfolio companies by larger strategic firms as the only realistic exit for most investments.  Increasingly strategic investment/acquisition has become a critical element in such firms’ growth paths as these larger entities control customer bases critical to the smaller firms’ success.
  2. The larger strategic entities are increasingly investing in early stage entities, often through formal internal venture capital organizations, to provide a window into new technologies and access to entrepreneurial talent.

Mawson estimates that there are now over 500 corporate venture capital organizations around the world.  The largest of these, Intel Corporations venture capital arm, invests $1 billion per year in smaller firms.  And the pace appears to be accelerating; … read the rest

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