Duncan Black:
So What Are We Going To Do About These Problems Then?: answers to housing question were quite disappointing. I don't like the "deserving versus undeserving" rhetoric, especially in the context of the bankster bailout.... Obama:
The biggest challenge is how do you make sure that you are helping those who really deserve help and if they get some temporary help can get back on their feet, make their payments and move forward and stay in their home, versus either people who are speculators, own second homes that they really couldn’t afford because they’d gotten a subprime loan, and people who through no fault of their own just can’t afford their house anymore because of the change in housing values or their incomes don’t support it. And we’re always trying to find that sweet spot to use as much of the money that we have available to us to help those who can be helped, without wasting that money on folks who don’t deserve help. And that’s a tough balance to strike.
The problem is that "foreclose" is the new "issue as many crappy loans as you can for securitization." Foreclosures are how the servicers are making money, and itdoesn't even matter if investors in those mortgages are getting the shaft, at least until there are more lawsuits.... ervicers prefer foreclosures to short sales or sensible principal modifications....
nitially a lot of the problems on the foreclosure front had to do with balloon payments people didn’t see coming, adjustable rate mortgages that people didn’t clearly understand, predatory lending scams that were taking place -- now the biggest driver of foreclosure is unemployment. And so the single most important thing I can do for the housing market is actually improve economic growth.... Yes, turning around the economy faster allow more people to stay in their homes. But we haven't turned around the economy, and it's unclear if Congress will pass any additional legislation, including unemployment extensions. In theory there's a lot that the executive branch can do without Congressional approval. There is still a lot of HAMP money sitting there. We own Fannie and Freddie. I just can't believe there's no way, with improved carrots and sticks, to encourage more widespread principal modifications which would both help more people keep their homes and, you know, help the economy because they'd have additional money to spend on things other than their underwater mortgages.
All of that is even without the fraudclosure mess.
Principal modification, one way or another, was always going to be the only way through this. It still is.
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.
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