Since this increased tax rate would apply to some Wall Street profits—who wouldn’t want to stick it to Wall Street? Unfortunately, this bill also includes Venture Capitalists in the mix. This means that “carried interest” (a portion of the profits taken from an IPO or merger) would be taxed at the higher rate, instead of at the capital gains rate.

If the bill becomes law, every Venture Capitalist will be taking a harder look at every potential investment, and will likely only invest in the most promising “cream-of-the-crop” deals. When factoring in additional expenses from higher taxes, VCs are not going to make any deals other than sure things.

Why should they? There are other places VCs can invest their fund money, e.g., hedge funds. Yes, hedge funds would also be taxed at the higher rate, but they also promise faster returns with less risk than founding businesses. Of course, hedge funds do not create new businesses or jobs.

I don’t know, maybe higher taxes on “carried interest” would be a fair and equitable thing—it has been discussed for many years in Washington. But could it be implemented at a worse possible time than right now?

The very politicians who proclaim that small business is the primary avenue to economic recovery for the U.S., turn right around and pass a bill that makes it harder for new businesses to start up and create new jobs. Venture-backed startups added over 13,000 new jobs in the first quarter of this year—why damage that kind of progress now?

VCs have lobbied to have their industry exempted from the bill, but of course the House members turned a deaf ear…and we’ll have to wait and see what the Senate does.

So, if anyone out there is working on an upcoming new business that will require venture capital funding—you had better get busy and let your Senator know that this new bill could make it much more difficult for you to start your new business. You may also want to let your Congressman know that they have likely jeopardized your chances at venture capital.

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Here are some highlights from the article:

• Women own 40 percent of private businesses in the U.S., but create only 8 percent of venture-backed tech startups.
• Just 14 percent of Venture Capitalists are women.
• Women outnumber men at elite colleges, law schools, medical schools, and the overall workforce, but are noticeably scarce in the high-tech world.
• Only 18 percent of college students graduating with computer science degrees in 2008 were women—down from 37 percent in 1985.
• Only 1 percent of girls taking the SAT in 2009 said they wanted to major in computer or information sciences.
• Mixed-gender teams have produced technology patents that are cited 26 percent to 42 percent more often than the norm.

• Women have few role models in high-tech.

These are just a few of the key points presented in this illuminating article. I highly recommend the article, because it speaks directly to our country’s decline in innovation and loss of high-tech leadership.

The title of the article is Out of the Loop in Silicon Valley, by Claire Cain Miller. I included a link here.

If any of you developers need investment money to further your app development efforts, check out this post I made back in February. The venture capital firm, Kleiner, Perkins, Caulfield and Byers is looking to invest in iPhone app developers.

On the other hand, CNN had an interesting poll on their news site today, where they asked the question, “Does your cell phone have the features you want?”

• 30% said, “Yes, it’s perfect.”
• 21% said, “No, I wish it had more stuff.”
• 49% said, “I just want it to ring.”

Has anyone tried to buy a mobile phone lately that just makes phone calls? I have, and there is practically nothing to chose from. With about half of all mobile phone users wanting a device that only makes phone calls, this is a very large—unserved—market. The folks who came up with the Jitterbug mobile phone apparently have this niche market all to themselves. It is too bad they do not yet have broad enough distribution.

Innovation does not demand making things more complicated—it takes real innovation to make things more simple.

Then again, maybe the innovators should check with customers first.

Venture capital peaked in 2000 and total VC investment today is below 1998 levels. It has been 11 years since the industry has paid out more cash to investors than it has invested. Many VCs annual rate of return to their investors over this period was lower than the S&P 500 Index.

On the other hand, the Super Angel is smaller, quicker, and more interested in more things than their bigger, older VC brethren. They manage smaller funds and cater to the startup, with smaller investments. They have returned to the grass roots of the VC industry, with informal gatherings at the local pubs and eateries where new entrepreneurs gather to make short pitches to a Super Angel.

However, don’t forget: An entrepreneur needs to do their homework—and well! A short pitch (sans Power Point) requires a person to really know what they are talking about. They must be able to present an entirely new business idea succinctly and completely—in a matter of a few minutes.

Most of the Super Angels are also supplying more than money. One of these is Paul Graham and his new-concept VC firm, “Y Combinator.” Graham launched his firm in 2005 and has funded 145 startups to date.

Y Combinator is a hybrid venture capital firm and business training camp. Although Graham makes small investments (usually less than $25,000), he also provides advice, mentoring, technical help, and introductions to later-stage investors. He also periodically feeds his band of fledgling startup entrepreneurs.

So, the time for you to start a new business could be now…if you are properly prepared. Check out Super Angels on Google—then get yourself ready to pitch your new business. Today might be the day you have been waiting for.

Obviously, there are fewer IPOs during the present turmoil and condition of the stock market, but this simply means that Later Stage companies will have to wait a while longer before cashing in on their big “payday.”

The good news is for startups. Investment in Seed Stage companies increased substantially in 2008, with a 19 percent jump from the prior year. There was also about the same investment in Early Stage companies during 2008 as there was in 2007.

Money invested in Clean Technology grew more than 50 percent in 2008, and investments in Internet-specific companies remained at about the same level as 2007. VC investments in the categories of Energy, Media and Entertainment, and IT Services grew during 2008, while several other categories remained about the same level as 2007.

It is true that; overall, the total amount of VC money invested was down about 8% in 2008–due largely to a decline in Later Stage and Expansion investments. This is likely due to everyone waiting out the stock market before they crank up the IPO machine again. Total number of deals in 2008 was only down about 4%.

So, with the President arranging for more capital to become available to loan to small businesses, Congress pumping up the economy, and Venture Capitalists continuing to invest at close to their normal rate, there should be no reason for entrepreneurs to put off starting a business, or growing a business. Put aside the fear and get on with it!

No longer. There is a source of VC funding for small businesses in areas the U.S. Census Bureau defines as rural. These VCs are called Community Development Venture Capitalists (CDVC) and most of them are looking for a “double bottom line”–financial and social returns. Many of the CDVCs also provide money for operations assistance and to guarantee debt.

Although the concept of investing in “rural” companies began in the late 90’s, it has only become popular more recently. There are now about 80 CDVCs actively investing. There is a large untapped pool of talented entrepreneurs in small-town America, and even the traditional VCs are starting to realize that becoming successful does not require a big-city address. Ideas hatched in a small town diner are just as viable as those hatched in fancy high-rise buildings.

At the same time, don’t forget that these are still Venture Capitalists, and they don’t just hand out money without expecting a high rate of return. You still have to do your homework, and present a “knock their socks off” business plan–that is believable. There are thousands of people constantly seeking VC money across the country, and very few of them get funded. You must have a great concept, great team, and a great presentation, or your idea will never even get looked at. Do your homework…get help if you need it.

If you are starting a business in “rural” America, or trying to expand your existing business, you may be interested in what CDVCs have to offer. For more specific information on CDVCs, check them out at the Association of CDVCS.