

Entrepreneurs offer their life’s future earnings for an investment - MotorMouths
http://deals.venturebeat.com/2010/03/03/life-investment/

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tbgvi
Can an investor in this situation force someone to work? Can they sell their
share of a particular worker to another investor? Sounds like something we
abolished a while back...

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goodside
No. Yes. Problem solved.

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Mankhool
Life imitates art. Has anyone else read The Unincorporated Man by Dani and
Eytan Kollin?

"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."

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brezina
Anyone with experience in funding a company through equity financing would
never put their personal equity into an agreement like this. And I wouldn't
fund someone who is as fiscally irresponsible with their personal finances.

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.

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bravura
Interesting, I always thought of the separation between personal and corporate
responsibility in just one direction. Could you elaborate?

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dantheman
These types of schemes are not even worth discussing, they're horrible for
investors, and if the first venture doesn't work then does the investor buy
more of the person? So that their their initial investment isn't lost? At want
point does the person having sold 80% of their future earnings just stop
working because they don't see it as worthwhile.

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rewind
Anything is worth discussing if both parties see the benefit. The "not even
worth discussing" mentality would have stopped a lot of successful businesses
and individuals if that's the attitude they took at the beginning.

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mortenjorck
I'm not trying to discount you with a strawman here (you make a good point),
but I'd take issue with the idea that " _anything_ is worth discussing if both
parties see the benefit." Here goes my extreme example: Child prostitution.
The child makes money to pay for living expenses, the customer relieves his
sexual tension. But no one would argue that, despite the benefits to both
parties, the downsides of this arrangement vastly outweigh the benefits.

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.

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dustingetz
I think the financial pressure of bootstrapping is such a powerful motivator
that I dunno if giving an unproven entrepreneur 600k is such a good idea.

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OmniLarry
So to break even, she will have to make 10 mil$, not doing the math on
opportunity cost, taxes, etc. Sounds dubious.

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dustingetz
an entrepreneur making 10mil lifetime? a reasonably bright kid could prob make
half just by climbing the corporate ladder.

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cglee
You make that sound like such an easy and sure thing.

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nlwhittemore
So I moderated this conversation last night and there are a couple of
important elements to keep in mind.

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.

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morisy
This particular execution - a lump sum of $600k for a lifetime's earning
percentage of a successful __non-profit __entrepreneur - seems absolutely
insane _to me_ , but I've wondered about a similar arrangement under more
narrowly contrived circumstances: Invest in promising (18 and over!) students
by paying off their school for percentage of their salary, rather than dumping
huge loans on them that demonstrably reduce their opportunities.

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.

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dantheman
You can leave at anytime by not working.

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morisy
That's definitely another way :)

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mattm
I feel sorry for the people trying to do this. They will be in debt forever.
You only understand the downsides of debt once you make an effort to get out
of it. These people will never be able to do that.

The graduate student is signing a part of her future income away in her 20s
before she has even earned income.

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dustingetz
it's financially brilliant from the kid's perspective, assuming she is
successful. she gets a 5-year head start in business. compound that head start
all the way to retirement, and its surely worth more than she paid.

<http://www.paulgraham.com/equity.html>

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mattm
There's a lot of assumptions that need to go correctly for this agreement to
work. In my experience, assumptions like this rarely work out.

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.

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jackowayed
I've thought about a similar idea, but a college.

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.

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aresant
Isn't that what PG set up with Y-Combinator ;-) ?

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jackowayed
Heh, not quite.

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.

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johnl
Sounds lame, way too many variables. You could hedge the downsize with life
insurance I guess. YC has a much better model. .

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og1
I still trying to figure out what agreement is. Is this the same as someone
investing in a company for equity? Where lifetime is the time the company is
in business (but without bankruptcy)? Or is it just a really bad non-fixed
rate loan? I would not agree to this contract on either side though.

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aresant
MyRichUncle attempted this at scale a few years back.

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.

