As recently as Oct 2008 the worry was for inflation and now the call is for deflation.

We got these stats from the Bank of Canada inflation calculator site.

$100 in 2003  = $111.38 in 2008 | 2.2% inflation
$100 in 2007  = $102.60 in 2008 | 2.6% inflation

Statistics Canada – Consumer Price Index Nov 2008

Inflation was approach 4% on an annualized monthly basis solely because of energy prices.  Deflation is defined as dropping prices, but is it just because of dropping energy prices, and is that a bad thing?  Should we bail out the oil companies now?

Thoughts from any armchair economists welcome.

We caught a brief talk from Jackie Flannery, CMO and Founder of Kiva.org last night at UofT.  She was in town to speak at the Ontario Association of Food Banks annual fund raising gala, and Rotman School were able to get an hour of her time earlier in the evening.

With small deeds comes big change | The Toronto Star

The global credit crisis may be rocking the mainstream economy, but thousands of individuals are still logging on to Kiva.org to lend as little as $25 to entrepreneurs in impoverished countries.

Founded in 2005 by American Jessica Jackie Flannery and her husband, Matt, the world’s first online micro-loan organization has built a network of more than 350,000 lenders from 78 countries who are helping to lift thousands out of poverty in the developing world. To date, Kiva has lent almost $50 million.

Kiva has lent $50 million through 70,000 loans to borrowers all around the world.  Their current pace runs at $1 million per week, and interestingly 78% of their borrowers are female.  The model works like this:

FUNDS FLOW:  Lenders ==> Kiva.org ==> MFI ==> borrowers

<MFI = Micro Finance Institution – eg Grameen Bank>

There are 360,000 lenders in the system, and they have made 70,000 loans. 

With a mission statement of “To connect people through lending for poverty alleviation” Kiva is very focussed and is clearly finding success.  She also mentioned their funding rounds, and their next one if I heard it right it is big, I will await confirmation before I mention that.

Some notes from the first two keynotes are Startupempire in Toronto.

Don Dodge – nice reality check – down turn does not mean lack of opportunity – just means adjustment

- great time to start up a new company

- vitamin vs pain killer

- vitamins are nice to have

- pain killers are things that are needed

- "me too" start ups will not get funded

- ad based companies won’t get funded any more;  VC’s will do the math

- what does it take to generate $1M per month in advertising revenue

- its a large number

- angels vs VC

- angels are easier to convince if they know you, or know people who know you, or have been in the business themselves

- if they don’t know you, they are more difficult

- If Angels don’t know you VC’s are better because they are willing to take a risk

- do homework - where have they invested before

Austin Hill – successful entrepreneur – great talk.  Some great tools referenced here.

- Advertising is not a business model

- getting customers is a business model

- the VC model is broken

- if you add up all the value in Skype/ youtube etc, it still does not equate to enough market cap to justify the IRR required by the VC model

- Canadian market is different

- Canadian VC are well sized - they can be profitable with one good deal

- Walmart - big and broad or Apple strategy - niched and focus

- understand metrics

- pirate metrics on slideshare http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version

- productplanner.com - mapping user flows

- http://www.balsamiq.com/ - wireframing tool

- don’t try to build demand - develop partnerships with others who are being troubled by the current environment

- partnering strategies are one way to take advantage of the downturn - help them with their downturn problems

- topgrade:  no time to compromise on inefficient people

- make real world meaning - there are enough tools already built for sharing video, tagging etc - focus on real meaning for customers and business value

- point to big shifts and here is how my company can use that opportunity (eg cloud computing, demographic shifts)

- hearts - minds - wallets | core to pitching

- do not talk about features

Niall Ferguson [Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.] offers analysis and conclusions on the world of financial services, and the historic lead up to the current financial crisis. 

Wall Street Lays Another Egg | Vanity Fair

The author charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning.

Its a long piece and worth the read for those interested.  He speaks of systemic issues and highlights one in particular – the obscure world of derivatives, which amount to over $400 trillion around the world.  This amount is significant, when compared to world GDP of $49 trillion, or the combined stock markets’ value of $51 trillion. [note:  1 trillion = 1,000 billion]

All this to display the runaway value in a financial market that surprisingly few understand, and which is hidden behind a complex mathematical formula developed in the late 90’s.  The results of this formula drove the derivatives market. 

The result of the belief in this formula, developed by Nobel prize winners, was as Ferguson goes on, that normal lending practices and risk assessment were replaced by computer models based on the formula.  Thus we saw securitized sub-prime mortgages magically transitioned into AA commercial paper, and sold off around the world.

If ever there was a time to bring back transparency of information between borrowers and lenders, that time has come.  While mathematics will always play a part, the relationship between lenders and borrowers is more than mathematics.

For borrowers transparency allows them to be assessed on their merits, and the right balance of information about them.  For lenders transparency offers the insight and information to get back to basic risk assessment, and to provide appropriate to the right borrowers.

In fact, I've posted a new entry there today, discussing the status of Prosper's lawsuits against delinquent borrowrs.

Here is a link to a recent thought-provoking article from VentureBeat journalist, Chris Morrison, entitled "Will "social capital" be the next big industry to emerge?"

His central example in the piece is the emerging field of "Microcredit" and specifically the work of Nobel Prize winning Mohamed Yunus.  I especially like Morrison’s quote on this defining nature of the success of these emerging models:

"Contrast that to aid organizations that have spent hundreds of years providing selective handouts — with little result. In just three years, microfinancing by both non- and for-profit organizations has taken flight, with a huge effect. The key was simply adding old-fashioned capitalism and a business model to charity."

The founders of CommunityLend have been greatly influenced, as they develop the social lending model, by the amazing work of Yunus and others challenging the rules in the world of microcredit.  We thought it fitting to provide a shout out.

Michael

We were fortunate enough to have the opportunity to speak and provide a demo of our lending system a the SIT annual user conference in Markham yesterday.  The audience comprised a broad group of banks, credit unions, and technology providers.

Patrick Lannigan who organised the event introduced us following an overview of their strategy.

Then on to our presentation …

and live system demo …

I wanted to highlight an upcoming conference in Toronto aimed at startups and entrepreneurs.  Its been organised by the irrepressible David Crow, and Jevon McDonald who have put together a great speakers list, including:

• Hugh Macleod
• Don Dodge
• Austin Hill
• and many others

Click through for details, and if the purpose, timing and location works then its one to think about.

They have just announced an innovative idea that will see the Blackberry Partners Fund provide $500K funding during the conference.

StartupEmpire | Startup Conference Toronto | Nov 13th & 14th

StartupNorth is Canada’s only grassroots conference for startups. Created for entrepreneurs and by entrepreneurs, StartupNorth aims to educate and inspire by connecting you with other entrepreneurs, mentors and the ecosystem of support needed to create and operate a successful startup in Canada and the world.

StartupNorth, the conference, is being produced by the team that has created StartupNorth.ca, DemoCamp, Founders & Funders, and and Startupindex.ca. StartupNorth.ca is Canada’s most popular community of web entrepreneurs and DemoCamp has been voted Toronto’s best “un-conference” and has been held in over 15 cities attracting over 10,000 individuals.

Register Now

Good wake up piece here indicating the relative appetite for credit and in particular credit card and unsecured lines of credit in Canada vs the US.  Not sure the numbers sound completely right, but the indication is that Canadians have relatively much more unsecured debt that Americans, and that might come as a surprise to most Canadians. 

The article goes on to draw out the distinctions between passive saving while the stock market was rising, versus the current situation, whereby saving must come from monthly income - old fashioned saving as the CIBC economist calls it.

Plastic Nation: Canadians Drowning in Credit Card Debt | Epoch Times

“People have put themselves in this situation where they’ve got cars on lease or on loan, they have a huge mortgage on their homes and they may have $30,000 to $40,000 on lines of credit and unsecured debts such as credit cards and that’s just not sustainable.”

…

CIBC senior economist Benjamin Tal says savings rates went down because net rates went up. In recent years people were making a lot of money in the stock market and in the housing market, he explains, and this was their way of “passively saving.”

“But beyond that, now with the housing market levelling off we will see a situation in which people will go back to old fashioned saving, especially in an economic slowdown,” Tal predicts.