Entrepreneurs offer their life’s future earnings for an investment
deals.venturebeat.com
deals.venturebeat.com
"A brilliant industrialist named Justin Cord awakes from a 300-year cryonic suspension into a world that has accepted an extreme form of market capitalism. It's a world in which humans themselves have become incorporated and most people no longer own a majority of themselves."
Companies are much bigger than the entrepreneurs that start them. Say this woman sells 6% of her earnings to get $600k for her C corp. The C corp could literally turn around and fire her with very little consequence (except maybe some stock acceleration and severance). Then what? She has traded 6% of her future earnings and she doesn't even have a job at the company she started and limited upside in the venture she started. Super risky.
This is why we have corporations. To separate personal and corporate responsibility. Doing something like they are suggesting is as crazy as repealing the separation of church & state.
Again, I'm not trying to make a strawman here comparing this investment scheme to child exploitation. But while this scheme may indeed be north of "not even worth discussing," the idea of "selling off" any part of your life is not something to be taken lightly, which I imagine you'd probably agree with.
1. This is actually happening. Rafe Furst, who is the investor who first put this into action, has actually made this sort of investment in at least 2 (and maybe more now) people. So it's jumping off the page.
2. The Thrust Fund model that this article discusses and that Kjerstin (the girl in question) is working on is slightly different, in that it is more heavily focused on social sector organizations, where the "gain" for investors is even more complex then just making a new type of financial bet.
3. The reason this is coming up for mission related ventures is that there is simply less funding available for social (vs. web) startups, the costs of building a successful organization are often higher, and frankly, the entrepreneurial class is just at an entirely different place than the foundation class that has traditionally been in charge of funding nonprofit ventures.
4. What came out of the conversation last night is that this is not a type of investment that someone would make for a purely financially strategic reason, although Rafe would argue that it's extremely financially strategic in that you get a piece of a rockstar's success, wherever that success comes from.
Instead, most investors that I've seen interested in this (and a couple made commitments on the spot last night) are thinking about this as a new way to combine mentorship and investment.
Right now, the armed forces in America regularly engage in a similar practice by paying for school in return for a commitment, and maybe their agreements could provide a model for a more entrepreneurial version down the road: We'll invest in your education plus a start-up stipend, in return for a stake in you and your projects during college + x years after, with a clause that you can leave at any anytime and assume your debt with a high level of interest.
I had a friend whose MS in Nursing was paid for by a state government and in exchange she had to agree to work for a number of years (I think 3) at a hospital in a low-income neighborhood that was having trouble attracting good nurses. Yes, she was paid, etc! It worked out great since she got a free education and found out that she enjoyed working with that particular population and the state had one more highly qualified nurse on its roster.
Win-win incentives like these have a fighting chance, "opportunities" that are heavily weighted in one party's favor tend to not do so well.
The graduate student is signing a part of her future income away in her 20s before she has even earned income.
It's very dangerous to enter into an agreement where you are assuming that things will go well. If your assumptions don't pan out, you will be in big trouble.
She shouldn't just look at the upsides but also the downsides. If things don't work out, does the person really want to be paying 6% of their meager retirement income when she's 80?
I think it's pointless to even plan more than 6 months ahead as priorities and situations change. I cannot imagine entering into an agreement for a lifetime.
Money is a very psychological thing. There's a big reason why people get paid after they have delivered work and not before.
A graduate student in her 20s does not have the experience to see all the potential downsides of an agreement like this. That is what makes it dangerous.
What if someone founded a college that instead of making people go deep into debt, took, less than 1% of their earnings forever.
It could end up attracting a lot of people planning to be homemakers, or at least those planning to get lower-paying jobs like teaching, but it definitely has potential.
An added bonus would be differentiation/branding. Colleges that aren't near the upper echelon go to a lot of effort just to seem special and get potential students to remember who they are because really they're all more-or-less the same. Having something as unique and appealing-sounding as "we're free! ... in a sense" would make sure that people remember them.
This would be a normal college and thus would be able to take people who want to go into any field.
The more I think about this the more I think it has potential. All kinds of interesting things could be products of it. For example, the career services department (or whatever they call the unit that helps people find jobs after they graduate) might be substantially better than at most colleges because it's seen as an investment, not just a nice, but nonessential, way to help their students out.
They built a cool algorithm to predict your future earnings, nd let people invest in you in exchange for a portion of your future earnings.
They quickly realized that this doesn't scale, and while they garnered a lot of attention thanks to the novelty of the idea, the business failed.
In a stroke of brilliance they leveraged their brand value into using MyRichUncle as a student-loan portal, and then after growing astoundingly fast, were nearly jailed for fraud and collusion with a handful of other scumbag student loan predators, and ultimately crashed and burned.