By Neil Senturia
Published in the San Diego Union-Tribune, August 22, 2022
I recently read a New Yorker article “Is Selling Shares in Yourself the Way of the Future?” by Nathan Heller. The premise of the article is simple. The Liberman brothers, Daniil and David, two ex-pats from Russia, have decided to sell stock in their future life. They have formed a company called Liberman Co. and are hustling around Silicon Valley offering to sell a part of their current soul to venture capitalists (Sam Lessin at Slow Ventures invested) for a shot at a much bigger soul in the later years.
This is a fascinating amalgam of chutzpah, Valley/Tech greed and arrogance, seasoned with a dash of FOMO, (fear of missing out). Personally, I think the Libermans and their investors may want to revisit an old Broadway show, “Damn Yankees,” and their resident VC, Lola.
Adding insult to injury, the brothers have also gone to the SEC with the idea of taking their company public. Their current pre-money valuation is $400 million, with no revenue, as well as a checkered financial history, with more failures than successes. How can you turn that down?
But wait, maybe the idea of selling your future personal revenue for today’s dollars is not crazy. In 1997, David Bowie famously issued “Bowie Bonds” for $55 million, giving investors an interest in the future royalties from his music copyrights.
All these schemes trade on the idea of future earnings or FUTURE POTENTIAL. Now, while the personal idea is clever, it is too small, too modest. Let’s go big.
For example, “Jones” needs capital to advance his life. One way is to borrow, take on debt. But Jones has no personal financeable equity, so that route is closed. OK, as an alternative, he could take an equity investment predicated on his future earnings. Upstart, a public company, offers something called “human-capital contracts” that give money to promising youths for a percentage of their future earnings or value.
Liberman/schmiberman, let’s think like a real VC, let’s think about how to scale, and really change the world.
I propose to assemble 10 banks (any group of financial entities), and strongly suggest (an offer they can’t refuse) that they each put up $10 million, available to invest. We use the $100 million to lend $10,000 to each of 10,000 young men and women between the ages of 15 and 25 years old who reside in “less advantaged circumstances and neighborhoods” in our city, in exchange for a bet on their future. Do not get lost in the weeds, the exact terms of the repayment recovery can be fine-tuned by a coterie of green eye shade lawyers.
It is a simple venture capitalist bet on the next generation. If we assume a standard VC distribution curve on expected returns, we can posit the following. 35 percent of the group will return zero, 40 percent will return the original investment, 20 percent will return two to three times the origina, and 5 percent will return 50 to 100 times the original. If you run the numbers, the outcome is that you change lives and make money at the same time.
In a cohort of 10,000 men and women, there is a good chance there will be a couple Bill Gateses and a couple Jonas Salks. There will be winners and losers, but a few of those young people will create exponentially outsized outcomes, uncapped upside, and the net-net will be win-win. Factor in some health care to insure long lives and your return on investment increases.
Now, let’s bundle this initial cohort up with another cohort and take them both public. Then we would have $500 million for the next 50,000 young people and then we could begin to securitize the returns, slice and dice the tranches, throw in some synthetic derivative investments, and yes indeed, we could change the world — which is what every entrepreneur wants to do.
Heller writes, “Those in desperation reach for desperate measures, sometimes with destabilizing results.” The vulnerable are at risk, and it is a long way from the bottom to the top. Providing a modest step-stool, with a bit of non-recourse financing, coupled with some incentives and upside benefits, and voila, an investment in human capital might do better than some of the other ones you have in your portfolio.
And you would sleep better at night.
Rule No. 726:
Imagine 10,000 people ringing the bell at NYSE.