Incentives

Will the Next Unicorn be a Distributed Autonomous Organization?

With the recent talk of reddit being cannibalized by bitcoin technology, I thought it a good time to post something I’ve been thinking about for a while. Could a completely decentralized startup one day rival the likes of Google, Facebook and Amazon?

Within the bitcoin world there’s a common understanding that the most valuable thing about bitcoin is not the monetary currency but the underlying “blockchain” technology that the bitcoin currency runs on. For those unfamiliar, you can check out three heavily-funded ventures creating infrastructure that would enable anyone to program applications on the blockchain that go way beyond monetary currencies: Ethereum,Swarm and Blockstream.

One such application is what’s known as a “Distributed Autonomous Organization,” which is an organization like a corporation, government or NGO, but which has no central leadership and uses internet technologies to organize and function. Examples of DAOs that you are familiar with include open-source software systems like Linux; terrorist organizations like Al Qaeda; communities like Anonymous; and …

Your Pitch Sucks

I have yet to meet a founder who knows how to pitch their company so that it immediately resonates with investors.

[ I’ve moved this post to Crowdfunder, and Google dings you on SEO if you have the content in both places. ]

 …

From Wall Street to Main Street

My TED Talk on the Magic of Crowdfunding

Why Crowdfunding Changes Everything

I have a new column on Unreasonable.is, which is where this five part series is published:

  • Part 1: The JOBS Act will unlock $30 Trillion in long-term investment capital that can legally be invested in startups and small businesses through crowdfunding portals.
  • Part 2: Currently, investors have a stranglehold on the fundraising process. Once the JOBS Act is implemented, there will be a leveling of the playing field in which entrepreneurs and citizen-investors control the process.
  • Part 3: Investment crowdfunding enables individuals to invest in companies they are passionate about, and in so doing, outperform professional investors.
  • Part 4: “Do you want to sell sugar water for the rest of your life or do you want to come with me and change the world?”
  • Part 5: There is a second revolution coming: investing directly in people. When it collides with crowdfunding, this will create a perfect storm….

Revenue Sharing

In my last blog entry I talked about the perils and evils of debt for both the lender and debtor.  Here I’d like to discuss an alternative which I believe could replace the entire concept of debt.

Revenue sharing, sometimes referred to revenue-based finance and income-contingent loans, is just recently starting to take off. The White House is making a big push for income-based repayment of student loans.*  And at least two private (and highly capitalized) startups are launching soon to provide revenue-based financing options for individuals who agree to pay a portion of their future income in exchange for cash upfront.

With U.S. consumer debt topping $2.5 Trillion and student loans now totaling over $1 Trillion, it’s no wonder that there’s a lot of interest in revenue-based finance. Let’s look at several common debt scenarios and see how they could be different — and better for all parties — if they were based on revenue-sharing instead.

There are many ways to structure a revenue-share …

Lo@n, D*bt and Other Four-Letter Words

Prior to the mid-19th century, those who could not pay their debts were routinely tossed into prison.  Actually, you can still go to debtor’s prison in Germany, Greece, China and Dubai.  In the United States, two of the signatories to the Declaration of Independence (James Wilson and Robert Morris) were incarcerated for their unpaid debts.  In theory, the U.S. abolished such practices in the 1830s.  But six states still allow you to be arrested and detained indefinitely until you “work it out” with your creditors.

And while we humans seem to have a visceral negative reaction to welshers, our disdain for bad faith lenders goes deeper.  Condemnation of usury dates back to the Vedic texts in ancient India, and is condemned as well in all the other major religious texts in the world.  Islamic law (Sharia) prohibits the charging of interest at all, and considers the practice to be one of the seven heinous sins, right up there with murder and “unlawfully taking an orphan’s …

The Economics of Abundance

Here are some things I used to believe:

  1. The power of the free market comes from competition
  2. If you are nice to someone, you will be rewarded commensurately
  3. A penny saved is a penny earned
  4. The more scarce something is the more valuable it is

I no longer believe these statements to be true.  To understand why, I’d like to share a little of my journey as an entrepreneur and investor.

In the mid to late ’90s I was working on a startup and getting my feet wet as an angel investor in Silicon Valley.  I, like everyone I knew, was an adherent of the Chicago School of Economics and the Efficient Market Hypothesis.  One of the mantras of this religion is that

The invisible hand of the marketplace will feed us all, but we have to compete vigorously with one another for it to work its magic.

Signing a Non-Disclosure Agreement on a first date — that’s not just good business, but a moral …

Investing in Superstars, part 4

[NOTE: I updated this post with more detailed examples]

Background: part 3part 2 and part 1.

In the interview with Jon Gunn in Part 3, I mention that I’ve been thinking of what “version 2” of the Personal Investment Contract might look like.  Here’s the model:

  1. Investment Amount – Same as before, intended to give the individual some time to pursue their passion (or figure out what that is) without having to worry about how to support themselves.
  2. Maximum Return – The cumulative total amount that the investor can receive as return on their investment.  If and when this amount is reached, the contract is over.
  3. Annual Exclusion – The amount of annual income the entrepreneur can make without having to share any of it with the investor.
  4. Minimum Revenue Share – The minimum percentage of gross income the entrepreneur returns to the investor after deducting the Annual Exclusion.

Following are some examples of various different career paths and uses for a …

Investing in Superstars, part 3

For the background to this post, start with part 2 and part 1.  The follow up is part 4.

I get a lot of questions from folks who are interested in learning more about Personal Investment Contracts and so I felt it was time to synthesize some of the most common ones and give you some answers.

Who is the first person you invested in?

A film maker named Jon Gunn.

What is your relationship with Jon outside of this investment?

He is my brother-in-law, and a former business partner of mine in an instructional DVD company we co-founded with Phil Gordon.  I’ve also invested in a couple of his independent films.

Why did you invest in Jon directly?

I have been a big believer in his talent for a long time.  None of the ventures I just mentioned though have made me any return on my investment.  Phil had been suggesting for a while that if we simply invested directly in …

Complex Adaptive Monetary Policy

Complex Adaptive Monetary Policy (CAMP) is, in essence, a reconciliation of Keynes’ top-down view of macroeconomics with Hayek’s bottom up view.  The particular details of the proposed policy below are not as important as the recognition of the fundamental forces at play and empirical evidence that we are at a very dangerous chaos point in history.  Both Keynes and Hayek have deep truths to tell, and we discount one or the other at our collective peril.  For those who want a primer on the great debate, this rap battle sums it up better than any text book could.  Now on to the idea…

The fragility of the global financial system (as measured by the US dollar) is a function of the gap between rich and poor.  In the past, only a small ruling elite could decide to use capital to purchase all of the following: food/clothing/shelter; savings; insurance; personal free time; investment; starting a business; buying a private jet; leverage/volatility; political influence; fame.  Today an …

Investing in Superstars, part 2

For the background to this post, start with part 1.  The follow up is here: part 3part 4.

In a subsequent post, I’ll talk about some lessons we’ve learned.  In the mean time, what questions would you have, either as a prospective investor or investee in the above scenario?…

The AI-Box Experiment

Several years ago I became aware of Eliezer Yudkowsky’s “AI-Box Experiment” in which he plays the role of a transhuman “artificial intelligence” and attempts (via dialogue only) to convince a human “gatekeeper” to let him out of a box in which he is being contained (resumably so the AI doesn’t harm humanity).  Yudkowsky ran this experiment twice and both times he convinced the gatekeeper to let the AI out of the box, despite the fact that the gatekeeper swore up and down that there was no way to persuade him to do so.

I have to admit I think this is one of the most fascinating social experiments ever conceived, and I’m dying to play the game as gatekeeper.  The problem though that I realize after reading Yudkowsky’s writeup is that there are (at least) two preconditions which I don’t meet:

Currently, my policy is that I only run the test with people who are actually advocating that an AI Box be used …

The Age of Radical Transparency

On Tuesday I went on Annie Duke’s internet TV show to talk with her and Jason Calacanis about Wikileaks and what the implications are for the future of privacy.  I made some radical claims:

  1. Privacy is dead: it’s only a matter of time now before we all have to face this eventuality.
  2. In a radically transparent society, personal willingness to share everything is a source of power/wealth; unwillingness is a personal liability.
  3. In a world with strong privacy rights, the exact opposite is true.
  4. We’re all better off in a radically transparent world than one with strong privacy rights; this is true whether you look at the individual, the corporation, or the sovereign nation.
  5. Worse than both extremes is where we are now, in transition, where some have privacy and others don’t.
  6. Those who insist on having privacy will have to pay an increasing price for it; and because of #5, this is a good thing.
  7. In the mean time, as the walls of privacy

$100,000 Reward: Y Prize

Inspired by the X Prize, Y Combinator’s “Startup Ideas We’d Like to Fund” and Kickstarter, I am offering a $100K prize in three parts:

$10K for Crowdsourced X Prizes Platform

  • Allows anyone to offer a cash prize for achieving a goal they want achieved
  • Allows anyone to pledge additional dollars to someone else’s already-offered prize
  • Uses crowdsourcing to vet which goals are worthy of public prize offer and which get top billing
  • Uses crowdsourcing to determine if/when a prize gets awarded
  • Has been used to award at least five prizes of one thousand dollars or more
  • Does not have any pending lawsuits alleging that the platform violates U.S. federal or state laws
  • Has an opinion letter from a U.S. law firm that the system does not violate U.S. federal or state laws

Note that this is different from Kickstarter in that (a) it’s the donors who set the goal not the recipient; (b) Kickstarter does not use crowdsourcing in its vetting …

Four Ways to Fix a Broken Legal System (TED 2010)

This was one of my favorites of the year.…

Investing in Superstars

This is the first in a four part series.  The other are here:  part 2, part 3part 4.

Imagine you are in your early twenties, out of college several years and your best friend, who recently came into an inheritance of $300K cash told you they could think of no better way to invest the money than to invest it in you.  Not the company you started, not as a loan, but invest it in YOU, as if you were a startup.  In return your friend said all they wanted was 3% of your gross income for the rest of your life.  Do you think you would take it?

Now what if your friend said that they didn’t care what you did with the money or how much you made each year.  If you wanted to sit on a beach in Nicaragua learning to surf, go work in the Peace Corps, stay at home and do your art projects, …

The Limitations & Dangers of Incentives

If you liked this, check out these posts:

Health Care Parallels Education

I was listening today to a Fresh Air interview from a couple of weeks ago on the reasons for the high cost of health care:

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Highly informative and thought provoking. One thing that struck me was the discussion about how we don’t pay primary care physicians enough and that specialists make a majority of the dollars. This is not earth shattering news, but it I was reminded of a similar problem in higher education. Specialization is highly valued where as general studies and thinking/life skills are not, despite the fact that it’s these more general abilities and knowledge that determine how successful you are in your chosen trade (specialized or not). Same thing in medical care: it’s not the specialists who have the most impact on your health and mortality, it’s …

Name That Financial Debacle!

The following quotes are from a book describing a real set of events:

[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.

It’s hard to overstate the significance of a [government-led] rescues of a private [corporation].  If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse?  The government risked becoming the margin of safety.  No serious consequences had come about in the end from the… near-meltdown.

Was the incident:

a) The savings and loan scandal

b) The collapse of Enron

c) The sub-prime mortgage meltdown

d) none of the above

First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!…

Should We Tax Poor Nutrition?

I just tweeted on a subject that I suspected would cause a stir, and so it has, I’m moving it here:

RafeFurst: I strongly support a soda tax! RT @mobilediner: check it out:  a Soda Tax? http://amplify.com/u/dvl

coelhobruno: @RafeFurst what about diet soda? Would it be exempt?

RafeFurst: @coelhobruno no diet soda would not b exempt from tax.  Tax should be inversely proportional to total nutritional content.  Spinach = no tax

Lauren Baldwin: I do as well … and while they are at it they should tax fake fruit juice too.

Kevin Dick: I think this would be an interesting experiment. I predict a tax does not cause any measurable decrease in BMI.

Kim Scheinberg: New York has had this under consideration for a year.  Perhaps surprisingly, I’m against it. In theory, people will drink less soda. In reality, it will just be another tax on people who can afford it the least.

Leaving aside the “rights” issues and …

Paying Women to Not Get Pregnant

What’s fascinating to me about this is not that it works so well and or that there might actually be support in the Obama administration for doing it on a national scale, but rather that there has not been a backlash against it yet.  What are the odds that something like this will actually get implemented?  Is it actually a good thing?

hat tip: Annie Duke’s mom

World’s Most Ambitious Crowdsource

Everyone has heard about the Large Hadron Collider, arguably the most ambitious and complex engineering project ever undertaken, anywhere.  The purpose, no less ambitious, is to answer all sorts of burning questions about the nature of the universe, including whether the Standard Model of particle physics is valid.  Given such ambition and high stakes, it would surprise most people that the LHC is managed in a collaborative manner with very little hierarchy.  Essentially it’s a giant, crowdsourced science experiment.…

Don't Eat That Marshmallow!

Short but brilliant TED talk by Joachim de Posada.  I love the economic point he makes at the end.

Best Reader Comment Award

I’m giving my “2009 Q1 award for most concise, lucid comment” to Paul Phillips for this gem:

Viewed from a thousand miles, the financial system has a incalculably large incentive to fail catastrophically as frequently as it can do so without killing the goose that lays the golden eggs.

As long as there is such a thing as “too big to fail” and trillions of dollars are available for siphoning, according to what logic can this cycle be dampened? Nobody has to explicitly pursue this outcome (although there are many who will) for it to be inevitable; the system obeys its own logic above all else.

[ commenting on Alfred Hubler on Stabilizing CAS ]

The Good, The Bad & The Ugly

A few articles on the economy that were sent my way recently.

The Good: After Capitalism (Geoff Mulgan)

The era of transition that we are entering will be disruptive—but it may bring a world where markets are servants, not masters.”  I urge you to read this entire article, and leave your ideological biases at the door.  Despite the title, this is no polemic.  Here’s the punchline:

Contemporary biology and social science has confirmed just how much we are social animals—dependent on others for our happiness, our self-respect, our worth and even our life. There is no inherent contradiction between capitalism and community. But we have learned that these connections are not automatic: they have to be cultivated and rewarded, and societies that invest large proportions of their surpluses on advertising to persuade people that individual consumption is the best route to happiness end up paying a high price.