Sunday, March 7, 2010

Would I sell equity in my life Earnings?

I recently read a blog post by Michael Norton Obe, blogger of The 365 Ways, entitled "Invest in Me"

In a nutshell, he discusses the idea of social entrepreneurs or entrepreneurs in general selling equity in their life earnings. I found it to be an interesting concept but entertained the thought of it. I wrote a lengthy comment but thought I would share it on my blog.

I did check out the two sites mentioned in the article because I am currently working on various social enterprise projects part time as I devote a majority of my time to a paying entrepreneurial venture.

I can attest that if I received a substantial investment, I could devote my full efforts on social innovation and speed up the progress of my current social innovation projects.

Now what is substantial? No idea. For the past 5 minutes I have been thinking of scenarios as to where I would entertain the thought of selling equity in my life earnings. First, I thought what would be the bare minimum amount for me to entertain the investment.

To keep it easy, I selected $100k. I picked this number because I can easily allocate this amount to fully sustain myself as I devote a majority of my time to developing, monetizing and scaling my social venture ideas. Some of which I am bootstrapping right now. A substantial investment would definitely speed up their progress. So if this was the minimum amount, what would be the minimum amount of equity life earnings that would go with this amount? To keep things easy, I chose 1%.

So to entertain the thought, I selected $100k for 1% to start thinking about the possibility. That doesn't seem very bad.

Especially when that thought led me to think that once I multiplied that $100k investment into various profitable social enterprises my social impact value would increase and I could then go back and get additional investment, possibly, from additional investors for more rapid innovation at a higher valuation.

So say 2+ years after the initial $100k for 1%, I could now sell life earnings equity for $250k per 1% and so on as the years go on the valuation per percent is higher. This would greatly benefit the initial investors because every subsequent investment would be compounded with higher investments with very minimal dilution. This could also serve as an exit option for the investor even though there is no buyout clause between myself and the investor. An investor could sell their stake at a premium only with my full approval on the new investor. Of course no one would want to sell their stake in my life earnings equity but it’s to show how flexible it could be.
In the same train of thoughts, I thought of what would be the maximum amount of life equity earnings that I would sell at once. I first started out with what amount I would not even put on the table. 50% was out for sure, and 25% seemed still way too much to give up. So I went with 10%. Once again, to keep it easy, I selected $1 million for 10%. But and this is a big BUT, but wouldn't want it all from one single investor. I would limit a maximum investor amount to be 2.5%.

I would want to build a master mind group who is an all star team in its own merit who can all work together through my actions to drive social innovation. I am a strong believer in the acronym for T.E.A.M., together everyone achieves more.

I would be so committed to whomever I selected as my master mind group of investors that there would be no buyout clause because money wouldn't be a driving force for any of the investors nor me. We would partner up for life because of our passions, personalities and commitment to driving positive innovative change throughout a lifetime.

It is an interesting idea to entertain. It seems like a pretty good idea on the surface but it definitely doesn’t motivate me to go try and sell myself that way. A very small part of me finds it a bit insulting that entrepreneurs would go out there and in a sense “pimp” themselves for investment on their life earnings. I did not want to have to use that word but that was the only word that I could associate to how this idea can be viewed and how it makes me feel in a way. A part of me makes me think that this would be ideal for someone who wants a quick fix and willing to trade a percentage of their life for without putting in the work to manifest their dream. Seems kinda desperate to me but I can definitely see the benefits. This idea of selling equity in life earnings screams to me that entrepreneurs are saying “Hey, I’m a good smart person. Give me money because I am good and smart.” Ok well there are many good and smart people out there. I guess the opposite could work as well where really evil and mean people can invest in up and coming mean and evil people.

Of course there are entrepreneurs who are doing some great things. I checked out the Thrust Fund site and it looks like everyone is working on something great and on the right track to continuing a life time of great things. From my impression, it seems that if an investor were to invest in a Thrust Fund, it would go towards an existent operation. That forces me to ask the question, is the investor investing in the individual or the social enterprise? Most likely it’s both, the individual and the social enterprise. If it is not about the money then how come the investment is seen as a buy into an asset at a rate per percent determined by the entrepreneur? It might be better suited to be structured as a club with memberships. For example, instead of selling 1% of my equity life earnings for $100k, what if I sold one partner spot for $100k. For investors to attempt to see this approach as a means to get any financial return is delusional. Of course we all know that the investors are not investing for financial returns. So if that is the case then why set it up that way to where they are getting a percentage in life earnings? If they are doing it because they want to help a new wave of social innovators then why not set up a concept to where they are buying a membership to your master mind group. Just a twist to the thrust fund concept.

There is a part of me that whispers that I wouldn’t take that kind of offer. There is something not so satisfying about just being given something. In this case, given a substantial amount of money to work on your passions. To me making the dream happen is all part of the journey and to be simply given something to make it easier would take much of the gratification out of the experience. Yes, more innovation can possibly be developed more quickly if money was widely available but much of the experience is how one develops in times of adversity and scarce resources.

I believe it would a disservice to fund an extremely young individual to work solely on their passions with no real experience. Having been learning in the school of hard knocks of the entrepreneurial world under the mentor-ship of many great mentors, I can say it’s a tough out there.

I say this because if someone is just given something of that magnitude then they may not be prepared to handle it. I have been on an entrepreneurial journey for about 5 years now. Most of that time was in school and two years in the professional world working at a bank. Over the years I have tried my hand at over a handful of business ideas where I have invested ample amounts of money and spent many hours on developing. I have learned quite a bit and continue to build upon my experiences so that I can work my way up to doing bigger and bigger things. This past month marks my one year anniversary of pursuing my own endeavors. It was tough first starting out and if it wasn’t for all the lessons over the years of experiences, I would not be who I am today.

I can honestly say that if I was given an easy start from the get go, I would not be who I am today and I wouldn’t trade who I am today for all the money in the world.

Luckily, I see all these years as training and development towards building the mold of who I wish to become. Right now its unfolding nicely and a substantial cash injection would definitely catalyze many great things.

Thanks for sharing the concept of Thrust Fund but I am going to keep on doing what I am doing and if someone approaches me then I will have that discussion and see what unfolds. Let's be honest, a cash infusion in these economic times can do quite a bit of innovation.


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  2. JC,

    Greetings from Hong Kong/Chicago - my name is Terence. Very interesting post of yours. I came across the blog post you mentioned and subsequently your blog because, out of the blue, I came up with the idea of investing in somebody for that person's future income. I decided to search online and see if it's done before. Now that I see there is a potential for people to be interested in selling their future, I'm thinking of starting some kind of online platform where both investors and people offering their future can come together - sorta like an eBay for this kind of stuff. What do you think, since I believe this may extend to people from developed countries investing in high school students who need money for college in exchange for twenty or thirty or whatever percentage of the kid's future income for ten, twenty years, or for life.

    What do you think about this idea? Perhaps you and I could join forces to start up something like this since it is quite apparent that you have a great mind for great ideas. Plus, this may allow you to be part of a successful startup with a big playoff - and ultimately own a yacht capable of sailing around the planet.