Early in July I met Keith Raffel at Thrillerfest, which is a convention for thriller writers and their readers. Keith is a veteran of Silicon Valley and the author of Smasher and Dot Dead. He agreed to blog on Acrimoney, talk about his books and pull back the veil of venture capital. I think you'll enjoy Keith's insights, not to mention the anecdote that gives rise to the title of this post. BTW, after you read Keith's post, you will understand why Acrimoney is looking for $50 million in seed capital.

If you ask the man or woman in the street what public purpose an investment banker serves, chances are you’d be met with a blank stare.  If you ask a person striding down University Avenue in Palo Alto, Silicon Valley’s ground zero, what purpose a venture capitalist serves, he or she would patiently explain how they invest in new companies with hopes they become the next Facebook or Google.

In the wake of the Dot-Com Implosion of 2000-01 and the Great Recession of 2008-09, venture capitalists have lost much of their buccaneering spirit.  A friend of mine ran an online analytics company which hit all its targets, but when it came time for a cash infusion, the venture capitalists who’d been backing it lost their nerve.  I touch on this phenomenon in my novel, Smasher: A Silicon Valley Thriller.  Our hero, who’s out seeking another round of capital for a start-up with a breakthrough technology muses:

VCs, bah.  When you had no need for their money, investment offers would cascade over you like a tropical waterfall.  When you could use a capital infusion – like now – the money flowed like water in a wadi, a riverbed in the Sahara.  In other words, it didn’t.

The situation can be even worse for a company looking for its first round of financing.  Back in the late 1990s, I founded UpShot, the first Silicon Valley company based on a cloud computing model – in other words, users’ data resided on our servers, not on users’ desktops, and were accessed through a browser.  (Facebook is a good example of cloud computing.)    We raised $3M for the company with no more than a prototype and three employees. 

It’s a lot harder today.  Traditional venture funds are much bigger and are looking for blockbusters.  With funds of $200M and up, they need to put a lot of money to work to make a significant effect on their overall returns.  A seed investment of $3M isn’t worth their time.  As the quote above from the cynical hero of Smasherimplies, VCs want to invest in companies that are already successful, companies where VCs in other firms are also clamoring to invest, companies where they can put a lot of money to work.

Let’s face it.  Many venture capital firms aren’t really that venturesome anymore.  The founding partners of the firms who made early bets on Apple, Intel, Yahoo, Sun, and Google, are giving way to a second generation with less tolerance for risk and more focus on Excel spreadsheets.  Funny thing, though – a time when the market stinks is the best time to start a company.  Office space is cheap, used equipment can be had for a song, and employee stock options are worthless, which means it’s easy to tempt employees out of their current gigs.   

Even when VCs make an investment, they can have different objectives from the CEOs of the companies they’re financing.  Back before I became an  entrepreneur and a novelist, I worked as counsel to the Senate Intelligence Committee.  A CIA veteran asked me one day, “Who owns you?”  He wasn’t looking for a high-falutin speech about my dedication to the Republic.  What he wanted to know was whom I had to please to keep my job.  Although VCs sit on the boards of start-ups they’ve invested in and owe them a fiduciary duty, many are “owned” by the investors in their funds. 

In Smasher, VC Margo Fulbright is worried if she can’t deliver a company for purchase to the fictional behemoth Torii Networks, she’ll have a tougher time selling other companies in her portfolio to Torii.  Keeping on good terms with Torii is critical to the long run performance of her portfolio and pleasing her investors – far more important than getting the very best price for just a single one of her companies.  (We sold UpShot to Siebel Systems, which in turn was swallowed by Oracle, a company another notch up in the Silicon Valley food chain.) 

Now I don’t want to tar all venture capitalists with a lack of guts or furtive motives.  In fact I’ve been fortunate to work with VCs who were supportive, gutsy, and loyal.  Given what I’ve seen and experienced, Ian Michaels, the entrepreneur-hero of my books Dot Deadand Smasher, was not all that difficult to portray.  Maybe I should take on a bigger challenge and write a novel whose protagonist is a heroic venture capitalist.  If the Dexter books and TV show can feature a serial killer as a hero, why not?

Editor's Note: Rick Rodgers is a retirement specialist and the author of The New Three-legged Stool. He has been kind enough to post a few thoughts about Roth IRAs, which are timely given provisions in the tax code for 2010. Rick's post is technical. But if you're in a career transition and your income is way down this year, I encourage you to take a look, ask questions and get tax advice. You could save some money.

Everyone is now free to convert to convert an IRA to Roth. The $100,000 cap on adjusted gross income (AGI) has been lifted in 2010. The income ceiling for Roth contributions, however, remains in place.

A little background: Conversions are different than contributions. Conversions move money from a traditional IRA to a Roth IRA. Contributions take part of your earned income and put it into a Roth IRA. The income restrictions have been lifted on conversions but not on contributions.

Contributions begin phasing out for joint filers when their AGI reaches $167,000 and are eliminated at $177,000. For single filers the phase out begins at $105,000 and ends at $120,000.

If your AGI is above these levels you can still make a contribution to a Roth by first making a non-deductible contribution to a traditional IRA and then immediately converting it to a Roth. There are no income limitations to making non-deductible IRA contributions. However, there may be tax implications to doing this if you have other IRA accounts. 

Converting an IRA to a Roth generally makes sense if you expect to be in the same or a higher tax bracket in retirement. You should also be able to afford to pay the tax on the conversion from other sources so the entire amount of the conversion remains in the Roth.

A significant advantage to converting this year is the ability to defer taxes on your conversion. Taxpayers that make Roth conversions in 2010 can elect to defer 50% of the income to 2011 and 50% to 2012. The question is – should you convert and if so how much of your IRA should be converted?

WHEN IN DOUBT – CONVERT! AND DO IT NOW

Many people have asked me how I can be so sure that converting to a Roth is the right thing when tax law is so uncertain. We know that the Bush tax cuts are expiring at the end of 2010 but many people believe they will be extended for some taxpayers. The uncertainty of the health care legislation and how it will be paid for could be another tax trap for upper income people. Wouldn’t it be better to wait until the tax law changes have been passed?

You don’t need to wait because you can always undo your Roth conversion until your filing deadline. That deadline is April 15, 2011 and could be as late as October 15, 2011 if you file for extension. Up until the deadline you could undo all or part of your conversion and it would be like you never converted in the first place.

My advice is to convert the maximum amount you can afford to pay for with funds outside of the IRA. Let the financial markets work for you from now until April 2011. Rising financial markets and favorable tax laws may signal that you want to keep everything in the Roth and pay the tax.

If not, undo some or the conversion until the tax bill is where you want it to be. Next April will be too late to make a conversion for 2010. It is always better to convert too much and then undo part of it later than to convert too little and not be able to do anything about it after the year has ended.

There is no better time to do tax planning if you want to make sure you are in a lower tax bracket when you retire. The last few months of 2010 may very well be the lowest income tax rates we see for some time, especially for higher income taxpayers. Act now while tax rates are still low.

Yesterday, Goldman Sachs settled fraud charges associated with Abacus CDOs for $550 million. Not surprisingly, the settlement excluded Fabrice P. Tourre, who will no doubt be hung out to dry as the Tourre de Toxic winds to a close.

Personally, I think the government just got pimp-slapped. Here's why:

1. The $550 million settlement equals 4% of Goldman's 2009 profits.
2. Last year's bonus pool at Goldman was 29 times the settlement.
3. The two banks that lost about $1 billion in Abacus received an average of twenty-five cents on the dollar.
4. Meanwhile, John Paulson's hedge fund is keeping everything from its casino bet.
5. After hours, Goldman's shares traded up 5 percent. That's roughly $3.7 billion in additional market capitalization, or 6.7 times the penalty. I'd take that trade all day long.

Robert Khuzami, director of the SEC's enforcement division, heralded the settlement as a big win. So did Senator Carl Levin. That's the thing about a $550 million fine. If you're on the receiving end of the payment, there's always somebody to take credit and claim responsibility. Here's what the New York Times reported.

“Goldman played fast and loose in the Abacus deal, misled its clients, and got called on it today,” said Senator Carl M. Levin, a Michigan Democrat who led a separate Congressional investigation that examined the Abacus deal.

I don't think so. Everybody's moving on, and Goldman Sachs is still the biggest winner. The company just won a little less. What do you think?

Norb Vonnegut