

Please give feedback on our YC app - nicholasdrake
http://nicholasdrake.svbtle.com/preview/lmbei1MHvAtYBliq8Gfa/

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nicholasdrake
'Constantly seek criticism. A well thought out critique of whatever you're
doing is as valuable as gold and you should seek that from everyone you can
but particularly you're friends. Usually your friends know what's wrong but
they don't want to tell you because they don't want to hurt you. They say 'Oh
I want to encourage my friend so I'm not going to tell him what I think is
wrong with this product.' It doesn't mean you friends are right, but very
often they are right. And you at least want to listen very carefully to what
they say and to everyone. You're looking for, basically you should take the
approach that you're wrong. That you the entrepreneur are wrong. Your goal is
to be less wrong.' [https://www.youtube.com/watch?v=0Bo-
RA0sGLU](https://www.youtube.com/watch?v=0Bo-RA0sGLU)

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smt88
This is a great philosophy. It's going to hurt a lot of the time, but not as
much as losing a bunch of your own money and firing good people. Keep it up!

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nicholasdrake
haha thanks. elon musk is one of my heroes
[http://nicholasdrake.svbtle.com/my-favourite-
quotes](http://nicholasdrake.svbtle.com/my-favourite-quotes) these are some
other great quotes from him (and others)

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smt88
This is difficult in the US to the point of being impossible (if it's not
unenforceable from a legal standpoint to begin with). It can only work as
debt, which is why similar companies have created P2P student-loan
financing[1][2][3].

In the US, you can't issue shares for sole proprietorships (meaning you
yourself are the business). Any entity whose ownership needs to be sold to
multiple people will need to be a partnership or corporation.

Let's pretend there's a student named Bob. Your company must create a
corporation for Bob and then sell shares in it to investors. There would also
have to be a contract between Bob and the corporation saying that Bob will pay
_x_ % of his future salary to the corporation for _y_ years.

Now let's say Bob doesn't want to continuing paying the investors. He can work
as an independent contractor, which would make it nearly impossible to figure
out how much he's earning. He can also just refuse to cooperate.

This would inevitably end up in court. A judge would decide if the original
contract, where Bob agreed to pay the corporation _x_ %, was enforceable. It's
possible the judge wouldn't agree.

But let's say the judge agrees it's enforceable. All Bob has to do is declare
bankruptcy, and any damages awarded by the judge go away. That leaves the
corporation (and your investor clients) with huge legal bills, at least in the
tens of thousands of dollars.

Even if that scenario only plays out 1% of the time, you still have to adjust
your interest rates to compensate for the risk. At that point, your interest
rates have now become higher than a regular student loan, which a reputable
person can get for under 8%.

Furthermore, once people have graduated, they can refinance their student
loans for much more reasonable deals, which means that even your stated 5%
rate would be higher than what they could potentially get on the open market
as a gainfully employed adult.

If you then consider the huge percentage of college students who fail to get a
good job (or any job at all), plus the ones who die or become disabled, your
investors just can't feel confident enough to accept a low interest rate like
5%.

In the US, Congress passed a law saying that student-loan debt is not
forgivable. That means that even if a student goes bankrupt, s/he can't get
out of paying back the student loans. That means that, even with a guarantee
of payment and the goodwill of the federal government, a student loan is only
worthwhile at more than 6%.

So basically I don't think this concept works from legal, financial, or
economic standpoints. It also smells a bit too much like indentured servitude,
which the public would frown on anyway.

1\. [https://commonbond.co](https://commonbond.co)

2\. [https://www.sofi.com](https://www.sofi.com)

3\. [https://www.lendingclub.com](https://www.lendingclub.com)

~~~
nicholasdrake
thanks so much for all your great feedback. although we are open to new ideas
(and potentially the idea of doing it in the us - ironically because we think
the political/regulatory/legal environment is going to be more stable) we are
actually targeting china as the most likely place we want to invest (this is
just a first draft of the website but as you can see it's in chinese!
[http://www.seldoncapitalpartners.com/](http://www.seldoncapitalpartners.com/))

the main reason for choosing china is because university is much cheaper there
relative to incomes. the key equation is

L _p = x_ u

where L=lifetime income y=number of years working u= total cost of university,
x = return to investor e.g. x=4 means you invest $1 and you get $4 (compound
interest therefore over the assumed 35 years is x^(1/35)) p = contracted
percentage of income... y = number of years

you can re-arrange this to

dividing both sides by y you can re-arrange to find the ratio of annual income
(l=L/y) to total cost of tuition fees.

l/u = x/(yp)

what you find is that even for a relatively modest return, let's say x=8 (i.e.
a 35 year compound interest rate of 6.1%), if p=0.02, y=35 u need average
annual income l to be a whopping 11.4x the cost of university, which is u is
assumed at a modest $20,000 then income needs to be $200,000+...

this makes us feel like it's not possible in the developed world, univeristy
is just too expensive, however the best universities in the developing world
are very cheap (by western standards). e.g. the best university in china
(arguably) is tsinghua university where a four year education costs just
$3,000/4,000 (tuition and accomodation)... we think that given we are hand-
picking the brightest students in china in subjects that we think will be
lucrative, plus the fact that over 35 years you have a lot of economic growth
to help you out it's not unreasonable to assume average lifetime income could
be at a $40,000+ order of magnitude...

in terms of the 'shares' issue, i don't think that would work for all the
reasons you raise... really you would probably need to actually have it
treated as a completely new asset class... three potenial examples of how it
could work are a) taxation because an individual is liable to pay their taxes
and these are often a percentage of income rather than a flat fee and b) a
form of security e.g. think about how abs contracts were built on the income
streams from mortgage payments c) mortgages themselves, there the income
stream is securitized by the underlying asset the house - in our case the
secruity would be the income stream itself.

i think the refinancing poitn is very interesting to consider, we actually
thought we might start off (to get proof of immediate returns) by actually
offering students with loan debt who have already graduated a chance to
convert that into our 'human capital' the thought process being is that loan
debt punishes you for not paying a lot immediately (as the interest builds
up), whereas our contract because it's over a working lifetime's income stream
means you can basically trade future consumption (when your income is much
higher) for current consumption.

our main observation is that in the developing world there are a lot of people
who are credit-constrained when it comes to going to university. we think this
doesn't make sense and so we hope to change that.

to be clear btw, our 5% rate is % of income, not % of interest on debt... plus
we think 2% can work in china (for the reasons given above).

