Invest in Me, Take my Equity

Congrats yall!

having followed this convo since it's inception, as part of the select group mentioned, must say it was a wild ride. this idea is quite revolutionary! More and more I think this is the kind of tool we need to get great solutions created and transform the existing ones from a great idea getting by to a thriving and profitable one that is truly creating systemic change. Everyday I see more proof that social enterprise has a lot more in common with business that with 501c3s. This is an epic moment in the history of social entrepreneurship. Godspeed on this amazing journey!

Thanks for the kind words, Martin and I must say, a ride it was. The good news is that the more we fleshed the idea out with you and others, the more logical it seemed. I am particularly excited about the idea of leveraging Social Capital as a resource for investment beyond the typical standards of referrals. In our model, integrity and honesty are absolutely central to taking the first step. All the while, this is a fully capitalist approach that still appreciates the longer term - something we have seen too little of on Wall Street lately. This is a journey, glad to have you with us throughout.

Have thought about People To People Social Investing a lot in terms potential to not just Rethink, but truly REMAKE Education for the age of Web 3.0 and resolve extensive organizational effectiveness challenges: thought flash and resources here:
http://jthessert.posterous.com/9661020

Thanks for the link and suggestion. This is very interesting concept. I'd like to see it fleshed out more - and how it can be applied to our idea. What do you have in mind?

Saul,
I was just putting your idea in context. I am a supporter of your idea as well as the broader paradigm shifting potency of People To People Social Investing... you all are doing a phenomenal job using your high-profile status in the social entrepreneurship community to focus attention on the possibilities here, and I am sure the transparency of this discussion in addition to your past successes would work to both your collective benefit and that of any investors.

When people first explore the concept of people to people social investing I think you have to get past the two points of 1)someone should invest in me 2) lets create a fund. Instead I think the question is along the lines of where can we go from here?

Can we create a platform to make this mainstream and take it to scale to fix the broken system of Investment vs Philanthropy itself, can we use it fix Education + Ed Finance itself etc? Not just emblematically resolve the micro issues but actually create monumental transformational change in the landscape.

The dawning age of web 3.0 is really planting the seed of the idea in my mind that terms like "Crossing Disciplines" "Interdisciplinary" "Multi-Disciplinary" are by products of a broken system.

Everything is connected and Web 3.0 is begining to allow us to pursue those natural paths through mash up of online social networks + real world, effective real time search, stream of consciousness learning, location based services... traditional Education is Stone Age and I believe the way we organize ourselves and interact with value (blossom / release of community currencies) is on the verge of change as well.

Feel free to look through those resources if you have the time; the concept is pretty clear, though admittedly basically just a long twitter post. Definitely wish you all best luck with your goals.


 

Hi Saul et al.,

It's an interesting model and sounds very exciting. A couple of questions:

1. Why equity? Why not debt? Is it the lack of collateral? The high amount of risk?

2. Would someone invest in you for purely financial reasons? When Kjerstin put out an offer of $2M for 15% equity, that sounds like a pretty steep valuation for a social entrepreneur who runs an NGO for a financial-first investor (and very different than the valuation of $300K for 6% earnings listed elsewhere on the site). $300K for 3% is also pretty steep - NPV of lifetime earnings has to be greater than $10M for the investor to make back his money; $20M for the investor to double his money..

Overall, it sounds like an interesting marketing trick to get more unrestricted funding now - but honestly, it sounds like at the terms you guys are offering and what you guys really want for your organizations is unrestricted grant funding - and that trying to get funding through personal equity would simply make things more complicated. If I wanted to support FORGE, why would I invest in Kjerstin and not the organization? If I wanted to support Appfrica for some kind of expansion, why wouldn't I provide a grant directly to the organization or offer a Program-Related Investment (a type of below-market rate grant)?

I'm big fans of all y'alls work, but just wanted to throw some questions out there to really think through what's going on.

Hi Tony, Thanks for the comments. Honestly, it's extremely hard to get debt for our work. My org manages several hundred thousand dollars a year and the bank repeatedly turns us down for "too little cash flow". Also the terms would be far worse. We would owe a much higher interest rate, in a shorter period of time. I have no problem just paying back the money as a part of my income for the rest of my life - there is virtually no amount that makes 3% unmanageable.

Meanwhile, Rafe and others have worked out that this investment (especially if we hit it big and use the buyout option) could yield as much as 40% annualized ROI. This is huge.

I appreciate your final thought, but it's more than a marketing trick. We actually will/would do this. The benefits to all far outweigh the costs in our calculation.

This is an excellent idea that I have been quite excited for some time. However, I liked this model: http://emergentfool.com/2009/10/30/investing-in-superstars/ much more - because of the opportunity for an "exit." I think it solves a few fundamental problems that you run into with a perpetual model as you have proposed. Good luck!

Deyan
Philanthropedia
http://www.myphilanthropedia.org

Deyan, the model proposed by Rafe in your link forms the core of our contract as well (see http://www.thrustfund.com/documents/contract.pdf). We are only interested in offering bits to multiple investors because it should be something that more than one person gets access to. We also allow for an exit - by payment of the Termination Amount. Look forward to your thoughts.

Wow I love it.

We offered something quite similar to a couple of friends and family members to raise money for our social/philanthropic entrepreneurial start-up. We wanted to stay as a non-profit but wanted to offer success based returns to investors so we offered 3 packages based on 3 levels of investor risk. The first was just debt with interest - 2nd no interest but a small fixed % of our income for the life of the venture and we pay back the principal - 3rd we don't pay back the principal but offer a slightly larger fixed % of our income. We also offered the ability to switch between packages for the first 6 months of the venture.

The investors share in our success not the ventures success but unlike yours idea we limited it to the venture. We didn't need too much money and were luckily to have most of what we needed to start with but did have a couple of takers.

I will be following the progress of this great idea with interest.

Good luck!

The mutual benefits are enormous. I'm with you on this one!

My first response upon reading this topic was that, to me, there is something deeply dehumanizing about selling stock in a human being, which is essentially what you are proposing.

Secondly, as one other reader mentioned, there is a logical disconnect of some sort because you are trying to raise money for a specific project, or if that is not the right term then there's something a little inaccurate in the language being used. I'm assuming that the money while technically "unlimited" would be spending it on hiring new staff, buying needed technology, funding media campaigns, etc for your ventures. You would impose your own strings because of your commitment to the current venture; you take on a risk which the person investing in you is not willing to make directly. I think this testifies to your intense commitment and your creativity, but I'm not sure such actions, which move away from the equitable sharing of risk among funders and "actors", would move the investment community in directions that would benefit the field of social investment in the long run.

Thanks for this provocative comment, which drew me in after a long silence here, and very best wishes for each of your endeavours, Anais

While I certainly understand the argument that this is in some way dehumanizing, for me it is invigorating and is truly an investment in what I bring to society (in terms of social good and to the marketplace) in a way that will only serve to enhance life (at the very least, its possibilities). The crux of the issue is this: I have no problem slogging and working hard for what I believe in and hope to achieve. But if I could fast track it even a bit, I think of the potential. I have spent years building my organization, learning management, operations, and all the rest of it - if my only yellow light is available cash in the short term, it's my job to find a way to correct that. This way works in a way that I am comfortable with.

Hi Saul,

Thanks for your response. I think it's partly because I am really a social scientist "to the bone" as you put it, and only a social entrepreneur because it is an effective means to an end, that I could never find the idea of being commodified to be invigorating, only oppressive. It's also probably why I tend to be preoccupied with the long term effects on the field of interactions, rather than with a short-term fix, which it sounds like is the difficult situation you confront (you know you've got a great project, and it needs money, so that's the priority for you at this time).

My work in health is motivated by a desire to enhance human dignity, following thinking like Amartya Sen's on the need for a shift to measuring human capacity in terms which are (to some extent) quantifiable but not reducible to monetary terms. Like other commentators I think a fascinating question here is, how do you comprehensivly measure a person's achievements over a lifetime? Limiting it to income is likely to both fall short both of investor expectations (in the current investor environment, when higher returns are still expected) and to leave out so many important measures of success. So the concern is that this kind of move narrows rather than expands the conversation because it subtly reinforces the existing idea that a person's worth is most accurately captured by what they earn. If you are willing to sell stock in yourself, it is more likely that I am going to be expected at some future point to be willing to do the same. Hence the protest!

best wishes,
Anais

Personally, I think you are exploring one of the most interesting elements to this entire discussion - and the most relevant to the future of social entrepreneurship. Too often we do boil it all down to financial metrics. We should continue to use that as one of the chief metrics while developing others as well. I think the gratification of a lifelong partnership with entrepreneurship and an investor (that this essentially creates) will yield numerous social or intangible benefits to both the individual and the investor.

For example, as the social entrepreneur identifies a new way to leverage cell phone technology in the delivery of medicines to rural Africa, the investor will feel the reward of watching it develop knowing that he/she has had a hand to play - much like a philanthropist. In this sense, the investor will feel the recognition or satisfaction that Robert Kent mentions above.

As for my personal fortune being dealt for the cause of both profit (enterprise) and humanity (social enterprise) - think of it more as a contract to create, innovate and keep an open mind. I think that I can make that small sacrifice personally for the broader goals whatever they evolve to be.

There could be a variety of negative consequences as people begin doing this, but its inspiring to see first movers such as yourselves jumping into relatively uncharted waters. This idea is has been festering in markets across the world and there have been rumblings of this in higher education. The difference there is that there are many statistics to gauge how much more a person who, say, attends college will earn over their lifetime vs someone who does not (justifying a reason to invest in their education and what rate to expect).

This whole idea opens up so many interesting questions... What if you take years off to go to school, travel, have a child? Do investors have a say in what you do? Why not set a maximum interest rate and let the market decide if they will settle for a lower rate (saving you $)? Will a secondary market open up? If so let us hope no one would short sell your stock - how disheartening!

Best of luck!

Tyler from the Unreasonable Institute

 

Thanks Tyler. The idea of going to school or doing other things would be completely acceptable here. The investors are investing enough in the person that they still think it will come around to benefit themselves. The investor would not have any say. One of the stipulations is that the money invested in the person truly becomes the persons. As for a secondary market, how exciting! Being sold short is no different (or should I say worse) than being told no after a fundraising pitch.

Saul:
I've spent 25 years as a headhunter and during that time I've seen highly talented people fail and jerks succeed. Talent alone is not a guarantee of success. As Malcolm Gladwell points out in his book "Outliers", talent is required but being at the right place at the right time with the right idea is the determining factor for success.

Strong management talent is a requirement for investors but without the right idea at the right time, the venture won't succeed. It is true that most philanthropic funding sources are not as sophisticated in their investment decisions as venture capitalists. However, if you have already demonstrated that your business model can successfully throw off a 3% return, delivers a measurable social benefit and is scalable then I am certain funding is available. But you have to able to prove it.

  

I fully appreciate the point you are making - and Outliers makes a valid point there. But the social enterprise I am currently running does not offer any 3% return to investors precisely because it is non-profit (we benefit from the tax structure, etc. enough to justify keeping it that way). What it seems like I would do is drop the non-profit, go for-profit, and just not worry about lifelong equity shareholders to deal with. But then I'd have to forgo the social mission I am currently pursuing and all the beneficiary's of that work lose out in the process - all that, when a modest investment now at a higher risk stage could make the whole thing scalable and sustainable. Thus, why the space is under developed. It's a tough one though - after all, the three of us may just have inflated views of our potential... but we will let the market decide :)

While commoditizing and selling the future value of a person's contributions is a clever way to bring that value forward in time to the present where it can be most useful - it is not at all clear that you CAN capture the value of someone's contributions - ESPECIALLY for social entrepreneurs.

Economists measure a persons value, typically, by the salary they are able to secure in a free market. Obviously Kjerstin and the others, driven by a much more noble sentiment than money, are not paying themselves nearly what they could earn in the private sector. and wouldn't be doing what they were doing if money were all that important to them in the first place.

Thus it seems highly unlikely that their motivational structure will radically change such that making top dollar will ever be a priority for them (making enough to pay the rent and put kids thru college may well push them into the private sector, but not into the soul-sucking positions that generate the greatest income.

I fundamentally disagree with my straw-man economist that a person's value, their impact on society, or their worth to friends and family, can be fairly measured by their salary. The world does offer celebrity and respect to individuals (or groups) that have a large impact on society, but the best and perhaps only way to monetize this celebrity or respect is with book sales - so as an investor in Kjerstin, Jon, or Saul, I'd have to hope for them to get famous, get on Oprah (or the post-Oprah equivalent), and have a best-selling memoir ("Dreams of my Father"), advocacy text ("The Audacity of Hope"), slide show ("An Inconvenient Truth"), speaking tour, or some highly profitable Web 3.0 version thereof (if you're looking for a high-impact web 3.0 venture - figure out how to monetize people's social contribution).

As per my subject line, some of the greatest people the world has ever known, Gandhi and Desmond Tutu, were probably not, in fiduciary terms, a good investment (though both wrote books, neither is portrayed as having cashed out in some spectacular fashion.

The metric of MONEY, I suggest, is wrong - and this "Take my Equity" concept relies on an investor motivated by money, who is likely to be sophisticated enough (if they have that much money to invest) to see this as a bad deal.

Conversely - each of these three are a GREAT deal (I know Kjerstin personally and would vouch for her to anyone, I assume the other two are equally worthy) if the metric is IMPACT. The challenge thus becomes how to make impact as easily measured, and commoditized, as money can be. Do you measure with Google? ("Kjerstin Erickson" gets 79,000 hits) Do you measure with the number of lives saved? with some quanta of dignity restored? With awards won? And once you figure out how to measure it, how do you translate that into something that can be shared with your empowering investor? Kjerstin could promise to thank said donor in Oslo should she ever win the Nobel Peace Prize, but on the off-chance she doesn't win, she would turn out to have been a bad investment.

Charities share the credit all the time - with "Gold Circle" members listed on event programs and the like, and that system is well understood and works consistently - but is not suitable for the game-changing transactions envisioned here.

Cashed-out Internet titans from Google, eBay, Microsoft, or Facebook could afford to underwrite a team of social change entrepreneurs just like other latter-day de Medici's currently finance yachts in the America's Cup, Formula One racecars, or sports franchises. Imagine if metrics were developed so that competing teams sponsored by different billionaires could be ranked in the Social Change League standings. Now imagine the odds makers in Las Vegas making their cut on the competition to win The Gore Cup for Environmental Impact, the Larry Brilliant Prize for Medical Intervention, or the Gandhi Trophy for Nonviolent Progress . . .

Governments could play too, though it seems harder to imagine new thinking coming from the State Department or Environmental Protection Agency. The current administration, however, does not make this concept as laughable as the previous one did.

Robert, awesome post! I think that you are right to say that you really cannot measure how much a person is "worth to society" by money alone. I think recognition is an even more dubious metric. Often the prize goes to the politically connected or the biggest donor or something otherwise wanting.

I think Kjerstin, Jon and I are really going for a way to move the market toward Social Capital while still using the common denominator that everyone understands: Money. From this discussion the Quadruple bottom line discussion has been born, and in many ways, it is

You present another really interesting point - clearly money is not our motivator and likely never will be why we wake up in the morning and head to work. For me, I have the same exact salary as I did when I left graduate school nearly three years ago. Never a raise (and, at least at 26 years old, I couldn't care less).

But, I am very interested in trying new things, exploring exciting new enterprises, working with social causes and the market, and the investor in my future would understand how I work/what makes me tick enough to see that this could really be a worthy investment for the future if I go for-profit (even if I don't start a hedge fund).

Book income, speaking income and that are possibilities. But remember, we are talking about entrepreneurs to the bone. People who start many things - sometimes random things. All of which would be socially aware (for motivation) and market aware (for-profit or non-profit sustainability).

The Renaissance had, as I referenced above, rich patrons like Lorenzo de Medici, who financed what we now consider to be several of the greatest works of art in history. Those were not unrestricted grants such as you three seek, but specific commissions. Is there a way to package what you three DO such that it could be commissioned in the same way?

The new wave of internet-fueled philanthropists (such as Jeff Skoll, whose generosity keeps this website going) are social titans very much in the de Medici mold that really want to catalyze important changes in the world - and you, Kjerstin, and Jon are in your way no less deserving of patronage than Michelangelo and Leonardo were in their day.

You three (and obviously many others) are capable of imagining, generating, and nurturing important and potentially planet-saving change. That's a fairly rare skill, and worthy of great praise. The trick, however, is to get someone to sponsor you, and I continue to believe the far-sighted patron you seek is not going to be as interested in making a profit as in getting credit for having found you first.

Nixon famously critiqued rich people as being profoundly boring, as all they were interested in was money. Those are not the rich people who'd invest in social entrepreneurs in the first place - so I don't think pitching within that familiar paradigm actually will get you want you want. I suspect that the better use of your fairly high-profile pulpit here is to connect, perhaps serendipitously, with the much rarer but more valuable benefactor more impressed by your unrelenting passion than your potential profitability.

Of course, I'd be glad to be wrong if it meant you got your funding.

I actually agree with you here. I don't think traditional investors will be interested in this model (even if they can foresee a profit) because I think their interests lie elsewhere (maybe just on the money side, as Nixon quipped. Many of the more traditional investors who have heard me speak about this idea frankly scoff or find it repugnant. I usually smile when they do - precisely because we are looking for the kinds of people you discuss (Skoll, et al.) to get involved with.

Recall, a key component of this (and something described on the website) is the importance of mutual trust and confidence. One social entrepreneur told me over tea that the MOST important criteria would be how "awesome" the investor were - above anything else. I'd love mentorship and guidance out of an investor - certainly not someone just keen on bucks. There is an easier way for me to accrue $300,000 in the next couple years than this! But this idea, and the possibilities inherent in it, are too extraordinary to pass up!

Thanks for starting this discussion. I actually invested a small amount of money in an individual about 13 years ago, with a commitment to a small annual payback. Unfortunately, the individual and my money disappeared. Maybe they will show up again some day in the future.

In addition, because I've given about 35 years to leading a tutor/mentor program connecting inner city youth with adult tutors/mentors, I've invested in their futures for many years. Some have become donors and are paying back in that way.

Thus, the concept of investing in people is one that has some history, and is worth exploring.

You're focusing on an issue. Since I re-organized the volunteer program I had led from 1975 to 1990 into a non profit, I've been dealing with this issue. I can remember a conversation I was having with myself every day back in 1990, where I was looking for a Medici, to support my work.

I suspect any social innovator has been dealing with since time began.

I've not found such a person yet, but many non profit leaders do have people who invest in that way. The Harlem Children's Zone in New York City is a good example of success in this area.

Thus, "How do we find investors/benefactors who will provide the money and other resources when we need them, on an on-going and long term basis?" Someone could get rich if they could figure this out.

The reference to the Renaissance, and rich patrons, has always resonated with me. As a former advertising manager with a large corporation we sent out 20 million copies of our three times every week to tell people to come to our 400 stores when they needed appliances, auto products, clothes, etc. As a publicly traded companies, we were also creating public awareness that we hoped would attract people to buy our stock. We were building our financial resources through both activities.

I participate on Social Edge, and in many other forums, and write blogs, and maintain a web site, for much the same purpose. I'm providing a service, but I'm also shopping for investors and benefactors.

Why is this discussion important?

Hopefully it gets more people who want the world to be a better place (you define better) to spend more of their time, talent and dollars to make that result a long-term reality. If this discussion generates investors for Trust, great. If it provides long-term "flexible capital" for individuals, so be it. If it leads to a "fix" to the inconsistent way current philanthropic and government funding provides resources, society benefits because we build more human capital, better solutions, and apply them in more places.

I've not looked too closely at Trust, but have you considered creating a "public trading" version of your "equity" so that small investors might contribute?

They have developed a very similar model and are implementing it in the US, Chile, and Colombia.

Jenny Kassan, Katovich Law Group

I really appreciate the creative thinking here, and the need for funds. When the recent discussion referenced in the post came up, I remember crunching the numbers on $300,000 for 3% and noticing it didn't come out too favorably for the 'investor.' So as mentioned in the comments above, the devil will be in the details.

What concerns me most, though, is noted in the last paragraph -- "We may be working in the non-profit space now, but a true entrepreneur never stops at his/her first enterprise. There will be others and it's likely some will be for-profit."

I'm wary of any deal that -- for years and years and years into the future -- pulls an individual into one kind of career path or another. Hard to anticipate that impact, but there's something about this structure that makes me doubt it'll be positive.

Very good point, Christine. Stockholders are good at finding ways to influence the future directions of their investments, and I can think of many ways the investor could influence the career choices, even the career options, of even the most idealistic social entrepreneur, given a life stake in their actions. I wonder legally if such an arrangement would hold up, given the issues involved?

Hi Anais - glad to have you in the discussion. I think that the investor would be offering tips and guidance throughout, but the person receiving the investment would have to be strong enough to say "I am doing what I believe is best for me." Also, the key here is that the nature of the investment actually puts a premium on how much the investor believes that the social entrepreneur does know what is best or at least will seek good advice to figure it out. Investor's should have what amounts to extraordinary confidence in the individual, rendering this concern relatively limited.

Also, we have talked to lawyers about the whole things. It's not easy, but it can be done. A certain amount of risk is involved, and the overall enforceability of a contract is hardly absolute. That said, given the right pair, there are very logical limitations and operating agreements to make this a go.

The investor would benefit most from a buyout option being taken. I suspect that such an option would, in some ways, be a real motivator for the social entrepreneur if they are starting a for-profit venture. The price there would, understandably, be quite high.

First off, I love the idea. As a college friend of Saul, I headed down a completely different route, and was discussing a similar idea about financing business school tuition. Basically, it would involve selling some short term equity stake in exchange for an up-front payment for b-school (and now see that Lumni does something like this). I know the figures for the financial industry very well, but have very little knowledge of the pay scale for non-profits.

What I do know is that when I first read this article, I thought the price was cheap. I have no figures to back this up, but I knew Saul pretty well in college and have seen him do some amazing work. I saw the price and it's a bet that any of the entrepreneur's NPV of lifetime earnings will be more than $10 Million. I'm curious to know how you came to the terms on your deal. I'm sure you've given it considerable thought, but would love to see a rough idea of your numbers.

Thanks a bunch, Jeff, for your kind words. I would be delighted if this conversation leads to you receiving a loan for b-school - you, too, would be a great investment.

The valuation of $10 million may or may not be accurate with respect to my future, but I decided that I would feel fine with the value because the catalytic value it would have in my ventures and my personal development seem to be offset by the possibly high price to myself. Basically, I may be undervaluing myself (nice of you to say so!) but even if I am, that's ok. I'd rather have the opportunity at that generous price than not!

By MyRichUncle.com. This was their original model (school loans for Indian youth who showed a lot of potential), but it got shut down. Apparently are some legal and ethical issues with taking equity positions in people.

Still, I have always been a fan of this idea, provided that the valuations are fair (300K would be quite a steal for any of you).

--Leila

Thanks for your reference - I have no doubt that something like this has been considered (at least in one form or another) and has even been tried. The legal and ethical questions abound, but at this point they remain questions - not absolute inhibitors (for the idea of a 1-to-1 investment or for Thrust Fund's concept more generally).

Kjerstin and I are particularly inspired by the article here http://redeye.firstround.co[…]-a-competitive-weapon.html. We might be crazy, but we think that we are in good company and that this should be possible.

What I love here is that you show the challenge/risk and end with "I have always been a fan of this idea." That openness to new challenges and creativity, in short, is what I love about social entrepreneurship. Thanks for your comments and interest!

I don't think you will be able to get a major investor until you have a business plan that addresses the following business issues:

Assessment of Product’s Capability, Assessment of Market Definition of Objectives, Definition of Priorities, Determination of Alternative Approaches, Selection of Preferred Approach, Identification of Customers, Identification of Area to Sell Product, Identification of Constraints, Definition of Product, Analysis of Costs, Definition of Required Actions, Sequence of Required Actions, Schedule, Definition of Required Resources, Acquisition of Required Resources, Organization of Human and Material Resources, Acquisition of Training, Selection of Technology, Site Selection, Variety Selection, Feed Selection, Pest and Disease Control Practices, Water Use, Determining When to Sell, Quality Control Procedures, Maintaining Standards, Packaging Procedures, Training Workers on Use of Technology, Obtaining and Using Market Data (Pricing Analysis), Making Use of Market Intelligence, Selection of Target Markets, Identification of Middleman, Negotiating the Best Deal, Selection of Means of Transport, Packing for Transport, Keeping Quality Control During Transport, Analysis of Costs, Analysis of Returns, and Analysis of Business Operations

This should not take you that long to prepare.

You guys know I love you, and I think this is the right decision for you, but I wouldn't take it. I just posted this as a blog so I'm reprinting it here:

For the last couple days, I've been pushing the story of The Life Investment - this new approach to venture funding in which three social entrepreneurs have offered up a portion of their future earnings annually for perpetuity in order to get an up front investment today, with which they can scale their organizations, invest in their own financial sustainability, or generally give themselves a head start. The conversation has understandably generated a pretty high volume of responses, so here's what I think in no particular order:
This is not indentured servitude. One of the most boring and lackadaisical critiques of the idea is that it somehow constitutes a form of wage bondage that deserves to be called indentured servitude. Calling it that dramatically undersells the real problem of wage slavery that people around the world continue to face and fails to acknowledge the agency of the individuals in question.
This makes more (financial) sense to me from a for-profit perspective. The inspiration for the model that the Thrust Fund is using was investor Rafe Furst's model. The difference is that his includes a buyout clause and a built in sliding scale of return based on what type of impact the person creates.
Sasha Dichter is right to say that this implicates a broken model of funding in the nonprofit sector. Acumen Fund's Sasha Dichter wrote a good post reflecting on how, for him, this sits poorly not because it's not an interesting idea on the part of the entrepreneurs, but because it demonstrates the gaping hole for smart funding in the social sector. He's totally right. But.
The entrepreneurs in question feel that this is empowering, not desperate. The three in question here are skin in the game, make big bet types. That's why they're building organizations and taking chances that most wouldn't. This, to them, is not a perpetuation of nonprofit funding stereotypes but a chance to rejigger incentives in a way that gives them what they need now.
Most of the entrepreneurs I've asked about this would only take on a "Life Investor" who is already some sort of trusted mentor. Again, they don't see this as a form of bondage but a cementing of a relationship.
The idea of a 'lifetime' is scary than the reality. If you play this out, in pure financial terms it would take lifetime earnings of $10 million for the entrepreneur to pay back more than their initial loan. If they can find someone to take that offer, that's pretty damn smart financially. But the idea of being in debt forever is a big thing for many to stomach.
And so for the real million dollar question: would I take these terms?
Absolutely not, and here's why:
1) The Dollars Just Aren't Enough: For me, $300,000 just doesn't go far enough to really be worth considering an exchange like this. Northwestern sunk more than $500,000 into the various programs I built there and even with that we were scrimping and scraping to make it all work. With $300,000, I would still likely need to look for other investment to get any venture I was working on to where it needed to be. These circumstances change with different people, but the financials just don't make sense for me.
2) I'm Obsessive About My Freedom: At the end of the day, I'm planning on being wealthy. Not because I care about having stuff - I don't. I'm just obsessive about my freedom to think about what I want to think about and work on what I want to work on. I've pretty well hacked together that freedom since about half way through high school, but in the long run independent financing is the only path. This makes the idea of the lifetime debt, even though I know it is a potentially good financial deal, unpalatable to me. But I'm weird.
3) (The Big One): I Already Made A Decision To Shift Away From Pure Social Impact. This is the one maybe worth noting. I think that what I'm good at is bringing together people around a big new disruptive idea to make it happen. I did that at Northwestern for a few years and got, on the one hand, the satisfaction of having helped set some folks on a path where they'll be contributing more than I think they would have otherwise. On the other hand, I got four years of endlessly fighting inane bureaucracy, stupid turf battles, and status quoism. And frankly, I didn't even have to deal with the rat race of donation based fundraising.
How the hell do we set up our social change sector like that and expect people to stay there? My "career" (whatever that means anyway) will be full of impact for social good - sometimes direct, but knowing me more likely infrastructural like the tools I'm building with Assetmap or the education systems we set up with the Center for Global Engagement. But it won't be done in any way that resembles a nonprofit career these days. That path just seems too broken, and too abysmally destructive of passion and energy.

Saul, et. al. I respect your courage and initiative. This was simply an interesting idea one month ago when Nathaniel got us to consider the idea. Now it's a reality that may transform your lives and your organizations. I have a great deal of respect for you three...although I would not follow in your footsteps.

Nathaniel has already hit on my key points, especially how Sasha Dichter noted that this "demonstrates the gaping hole for smart funding in the social sector." You guys are going to extreme measures because the traditional nonprofit funding mechanism is broken. Fortunately, there are great new funders who are experimenting and will do for philanthropy and investing what social entrepreneurs are doing for the social sector. It may take them longer, but I still have hope

Good luck to you guys!

Thanks Mike. I think that you and Nathaniel raise some really great points, but I remain weary of the time lag in traditional fundraising options for social enterprises in the 21st century. I think that this proposal is one of many ways that we can begin to get truly creative about giving and receiving, perhaps unearthing the next big thing in building small, dynamic ideas into the global changemakers we all hope for.

I am not making any sort of unique sacrifice here. It should be noted that this will be a huge benefit to me and my colleagues should such a deal go through. Indeed, it is catalytic for me to work toward my vision for the global community. It appears to be an extreme measure, but millions of people take out home loans for 30 years, refinance them, and never really get out of debt. This idea turns everything on its head. Get me past the crushing burden of hand-to-mouth fundraising while I build an exciting social enterprise.

Yet, I agree, we must do more to find new solutions. And we must work fast!

The three of you seem like very impressive social entrepreneurs, and I'm not sure if I missed something in reading through this, but you guys are joking if you think $10mm is a reasonable valuation.

Assume you make $100k/yr right now - no clue if that's close (as social entrepreneurs - maybe it's too high?) but it really doesn't matter - double it and you still won't get to $10mm. Assume an investor will demand a 6% return (trust me, anyone rational would demand more for this - I'm guessing a rational investor would demand more like 10+% - but it will help make the point clearer). Your salary would have to increase over 10% per year compounded to create a $300k NPV for 3% of the cash flow from these assumptions over a 40 year working lifetime. 10% per year may seem like a low bar for salary growth, but over 40 years of compounding the required compensation would be over $5mm annually in the final year. Now, anything can be sold, so more power to you if you find a suck- I mean investor to take you up on this, but it's a bad bet. Make more realistic assumptions of a 10% return and 6% growth (still leading to nearly $1mm/year comp at retirement) and a fair price for your 3% would be $58k.

Your idea (and drawing a comparison with venture investing) conflates the magnitude of returns earned by venture investing with your perception of the potential for an individual to make a big impact. While true, venture investors earn high returns even after assigning $10mm valuations to start-ups because those start-ups go on to create value on the backs of thousands of employees (and more millions of dollars of incremental capital) when the companies get bigger.

If you're somehow trying to make a point about society not rewarding social value creation at sensible levels relative to more commercial endeavors, I sympathize, but I sure ain't buying your stock at that price...

I'm also curious what their figures are, and jm, I think your math is correct, but your model might be flawed. I'm not sure it's best to assume a linear growth rate. I'll again say that I don't know anything about this industry, but is it possible that any of these three could be pulling in $1mm per year within the next 5-10 years. If you figure a very aggressive growth rate at the start, and then a leveling off toward the middle-end of their careers, the numbers will work out. (think of how much higher salary your model has in the 40th year from the 20th year - I don't think it should really be that different) The investor is basically making a bet on these particular people and their companies. I'm sure both the investors and the stocks are smart enough to have figures of their own that make the numbers work.

I think you are asking a totally fair point - but any purely financial metric used is not taking into consideration that an investor in this scheme would be making the decision to "get in the game" in part for social impact. The catalytic nature of the investment is for a presumably outstanding individual to get ahead outside of the constraints of their orgs 501c3 status. That all has to be reported meticulously, overhead has to remain low, and the pressures to spend on programming cloud the social entrepreneurs judgement in deciding on what could have long term benefits. Yes, an early increase in salary will make the return for the investor more palatable, but the social benefits accrued while taking a lower salary and pursuing a social enterprise (even non-profit) will have equal, if different, rewards for the investor.

As other people have mentioned I can't get these figures to add-up. It's interesting to compare the investment to a mortgage loan - both provide you with a large upfront cashflow repaid over a long period of time, admittedly there is a higher upside potential with your model but I would argue this is offset by the lack of security. The average monthly repayments on a $300K mortgage are around $2,100 or $25,200pa. At 3% of income this means you would have to be earning $840,000 pa every year - higher if you were payment annually in arrears. On a $600K mortgage your monthly repayments would be $4,200 meaning you would need to repay $50,400 a year from your after tax earnings - in addition to your home repayments, living expenses, 401K etc.

Realistically how much are you expecting to be earning, and what is the associated risks that this will happen?

If you're asking for a donation to help you develop a non-profit that's fine but don't confuse the two things

Bear in mind that the actual valuation of the individual's expected future earnings as well as the amount of the initial infusion are entirely open and subject to negotiation between the two parties. The math that you say does not add up here because you are not factoring in the variable nature of my future work (or the others in this discussion).

Awesome idea, great forum!!

Foundations don't look at you unless you're proven. Ditto government grants, from what I've seen. Maybe you can aggregate individual angel donors... maybe... good luck.

Then there are ad-hoc resources like the recent Gates/World Bank Finnancial Innovation for Development contest (http://en.fininnov.org). There were 800 applications for 20 finalist spots, and there will be 5 winners of one-time $100K grants this March.

Then there's the institutionalized nonprofit seed funders. Echoing Green just got 1,100 apps for what will be ~12 winners of $60K grants, paid over two years. Draper Richards Foundation gets 300+ apps a year to fund 6 fellows, but it seems they're averaging around 4 (who get $100K/yr unrestricted for 3 years). Then there's the Skoll fellowship, similarly good but so understandably competitive that these sorts of funders are practically a mirage.

Investors' Circle is another option. And Andrew Horowitz of Tech Coast Angels is seeking nonprofits willing to spin out for-profit subsidiaries with exit strategies. Both require that you be for-profit, but what happens if you aspire to be like Kiva and read about how 50% of their surveyed users would not lend if a for-profit model were adopted??

So, it's good to see unproven funding experiments continue to emerge, like this and ProFounder.com coming out.

Personally, I'd love to see foundations put up large, unrestricted, multiyear loans (which convert to grants or vice versa) but take a board seat, require you to have earned income, and then siphon off any surpluses (assuming you're a public charity) down the road until they're paid back. Or, if you're hitting your environmental/social metrics, forgive the loan because they got their money's worth!!

Would this fit with rules surrounding program related investments? I'm not sure. But again, neither this nor any other one option is for everybody and there is definitely much room for innovation and improvement on current options!

Thanks so much for this comment and your references. I hadn't heard of ProFounder and I am fascinated to learn more about their model. It appears that the web "marketplace" and social networking are potentially remarkable resources for massive investments into ventures and individuals. Undoubtedly, we are just getting started.

I also appreciate all the issues that you highlight with more traditional funding approaches. What I think is so valuable about the solutions that we are discussing from deal flow to future growth potential is that it is a mutually agreeable scenario that very much depends on mutual benefit - something that is as important as ever. New strategies are needed and these ideas seem as exciting as anything else I've ever heard of.

At the very core, people to people social investing is about investing in human potential that would otherwise get wasted because financial barriers prevent individuals from living up to their potential. Referencing what JT Hessert said in earlier comments, nowhere is this more apparent than in education - millions around the world give up the dream of higher education and waste their potential because they don't have the financial means to go to school. That is why I am working on Enzi (htpp://enzifutures.org) that does what you're doing with Thrust Fund, but specifically for education, and for set periods of time. We're doing a pilot right now at Stanford and excited about the outcome.

Having been privy to Nathaniel's email conversation on investing in people mentioned in your post, I'm glad to see that you three are also pushing the conversation on p2p social investing, albeit in the different context of 'for lifetime' and with unrestricted funds (not just for education). Great job, and wish you the best of luck. I'm excited to see how things turn out!

To me, the most exciting evolution of this concept would be if the investors in question are not just accredited but mainstream retail investors. Different set of legal challenges but already working on it for Enzi - stay tuned!

For those interested in following the social investing conversation elsewhere, I wrote a PopTech post covering the email discussion Saul references: http://poptech.org/blog/investing_in_you_inc

Ashni Mohnot
Founder & CEO, Enzi
http://enzifutures.org

Thanks, Ashni for the fascinating work you are doing and for posting. I look forward to learning more about your model as well and seeing what information we can share as we explore the world of life investments. This is an exciting time!

I like the idea of investing in people. It is important to remember, however, that the same laws that govern investment in companies probably also govern investment in people. So, for example, just as it is illegal for a company to raise money publicly without registering with the SEC and/or state securities regulators, it is also probably illegal to raise money publicly as an individual. I would encourage people that are thinking about this model to make sure they talk to a competent legal advisor with exepertise in securities offerings.

Thanks for the heads up here. We actually have talked with numerous outstanding lawyers who have both worked deals like this and specialize in securities. We are proposing this on Social Edge and Thrust Fund as thought pieces - not a direct solicitation. Note above the importance I have placed in the mutual relationship that would be required for me to agree to a deal of this nature. Any general solicitation beyond a discussion board will in fact need to meet specific criteria in accordance with SEC regulations. Thank you for your comments.

Saul, I would like to commend you, Kjerstin, and Jon on your forward thinking and developing an innovating funding strategy! I am thoroughly intrigued by your article and Thrust Fund website. The concept is a great one. It is great people who have potential, as they are the ones who create exciting and successful ideas.

I am a college student who just formed an organization with four other students and we are currently writing a business plan in hopes of obtaining start-up capital. As a result, I was very interested in your idea and have already spoken about it with some of my company members. We are strongly considering using this strategy and I would love to hear about the success of your plan. What has the feedback from potential investors been like?

Finally, best of luck! If I were an investor, I would be extremely interested in your proposition as you have an impressive biography.

Thanks for your comments and congratulations on venturing in the wilderness that is creating a new enterprise. Life nary gets more exciting than this! I think that the concept is just now getting legs - people are talking about it and are finally getting serious about individual potential - and beyond the traditional "Scholarship, Fellowship, Award" framework. Why not create a system in which everyone wins. I was excited to read above that there is a quadruple bottom line developing from this concept. Perhaps that is one way to make appeals with this strategy in your personal outreach.

Feedback is that we are embracing the exciting, the irreverent (good things) and the unenforceable (not necessarily true, but worth noting). Keep in mind, any investor should be someone you want to be like, someone you admire deeply, and trust. Why? Because they will help you succeed and you will agree to terms that are mutually palatable.

Saul - you and your team appear to be very good people who are looking to do the right thing, but like many other commenters, I don't see how the financial aspect of the equation even comes remotely close to a reasonable return to the investor. So first, I will explain why I think the financial-only piece won't work, and then I will introduce an idea on how it could be structured.

Investors look for risk-adjusted rates of return not just the potential of a large return. The risk adjustment comes from a probability-weighted view of potential future outcomes. Ex: There is a high potential return for "investing" in a lottery ticket, but adjusted for probability, the risk-adjusted return is negative.

Let's take Ms. Erickson as an example. Since the risk of under-performing expected returns is certainly higher than high-yield corporate bonds... at a 10% discount rate (which is probably way too low), it would require a $60K payment annually in perpetuity to reach a normal expected return (not even an outsized return after adjusting for risk), which at 6% of her salary would demand that she makes one million dollars per year! (Cue in Dr. Evil). Far less than 1% of americans, and probably less than 5% of Stanford grads make that much at any one time, and it is certainly much rarer to earn that much consistently for an entire lifetime. And that earnings level would just to be to get a normal return (equivalent in risk-adjusted terms to buying treasuries). And these young people look promising, but have no stable earnings history or track record of absolutely hitting the ball out of the park in the business world - and it is near impossible to earn at that level in public sector, non-profits, or academia. Even worse, if you put in a more realistic discount rate based on the statistical probability of a person with Ms. Erickson's background actually hitting and sustaining those levels of income over the course of a working life, you would likely have to go to a 35% or higher discount rate, which would mean her target annual income would have to be north of $3M annually, which is exceedingly uncommon.

Actually, thinking about it, I am not sure the equation would ever actually converge, because using a realistic discount rate would increase the target earnings rate, and in turn, increasing the target earnings rate would decrease the probability of her hitting it, thus again increasing the discount rate, and so forth. So, in other words, aside from the other concerns about the securitization of human beings, the proposed pricing appears to be way too slanted toward the income earner, and more realistic pricing ($60K to 150K for 6%) would short-change a promising young person like Ms. Erickson. But to your point, there is more to it than a pure financial return, and something more flexible may make sense.

Here is my idea - what if you offer a sliding "social scale" where the income earner returns either a full return of income (ex: a $60K annual payment which corresponds to a 10% discount rate for Ms. Erickson), OR an equivalent quantifiable social return. Ms. Erickson can then deliver $60K annually of quantifiable social benefits OR face a graduated financial penalty as % of income. That penalty should be steep to ensure that the security seller has the proper incentives to deliver to the investors.

I think social entrepreneurs need to consider all options that they find ethical and reasonable in order to launch and expand their ventures.

As indicated in the introduction, "our greatest burden is a sense of unrealized potential because the philanthropic and social innovation markets are not yet evolved to catalyze high-potential nonprofits and social businesses in the same way that the traditional venture markets have learned to do."

We need more supporters who really "get" this. These individuals then won't expect the same types of traditional returns on their investment, but would still benefit. They would be open to negotiating and considering various options for mutual benefit. Afterall, as has been stated here, true entrepreneurs never stop at their first enterprise, so there will be other options for profit over time.