Related posts:

1. Revenue Sharing
2. Are Realtors Really Making Too Much?
3. Private: Prediction Markets for Valuing Private Companies

I then remembered another colleague who was universally praised by the media and others as being a one-man savior in Haiti after the earthquake. He had quite admirably hit the ground running, on his own initiative, with incredible resources, to set up a refugee camp. While I’m not sure how his efforts have evolved today, when I visited his camp I was struck by how isolated it was from the rest of the relief effort, and how sanitation and medical care were actually worse than what was reported about the USAID and Red Cross camps. This is not to question his good intentions or the impressive amount of work he was able to almost singlehandedly accomplish in a short period of time. But rather the way he was going about it possibly nullified all that.

Together these two examples illustrate to me that social enterprise is not about What you are doing so much as How you go about doing it.

To be sure, there are limits to this definition. Does it matter how Pepsi creates its products, or what refreshing innovation challenges it supports, when the vast majority of its operations are to sell us sugar water in plastic bottles?

But shifting the focus from What to How, enables us to see more clearly that most entrepreneurship these days is in fact social enterprise. Why? Because most entrepreneurs these days care deeply about social/environmental problems, and are intent on addressing them, either directly or indirectly through their business. Nor do you have to be an entrepreneur to be a social innovator.  Pepsico has legions of them as employees and consultants.

Calling yourself a Social Entrepreneur or saying you work in Social Innovation does not automatically make it so. And on the flip side, just because you don’t identify with these terms, doesn’t mean you are not a positive role model for social enterprise.

It’s time to shift the conversation from What to How.

Related posts:

1. Help Wanted: Social Capital Uncontractors
2. “Social Entrepreneurship has Complexity Written All Over It”
3. Social Entrepreneurship Tax Credit

Yet, all around the world, there are signs that the Berlin Wall of education reform is crumbling. Here are a few shining lights:

TEDucation

No single institution or movement has done more to spark educational change than TED.com.  Hundreds of millions of people are watching their videos and learning from inspiring individuals sharing ideas and experiences that cannot be learned in a traditional school environment.  And there’s an acceleration effect because many of the talks are about education and the transformation that’s going on in areas you would never know about otherwise.  Best of all, these talks are free.

Working from Within

There are groups like Decision Education Foundation which go into schools and augment their capacities by teaching skills that should be part of every curriculum.  And there are individuals like John Hunter who teach lessons which cannot be learned at home or on the internet (unlike the three R’s).

Not Waiting Around

There are many groups who are not waiting around for Supermen like Hunter to save the existing system.  Rather they are working alongside it to make it more effective.  There are after school programs, like Self Enhancement, Inc., which miraculously has transformed an entire population of at-risk youth into a community of high school graduates (100% in 2008 and 2009) many of whom go on to thrive in higher education settings.  Dave Eggers, the bestselling author, started a grass-roots initiative to provide extracurricular tutoring in which the tutors get just as much benefit as the kids.  And there’s El Sistema (“The System”), which famously produced the virtuoso symphony conductor, Gustavo Dudamel, but which more importantly is transforming our idea of what education is.

Reinventing the Model

Others, like John Hardy, are taking taking the idea that education can be revolutionized, and are just doing it.  And in doing so are challenging our most basic assumptions, such as “adults know what’s best for kids to learn and how to teach it to them.”  What if there were a school with no classes, no grades, no tests, and the students (age 5 to 18) decide what they are going to learn and how to run the school?  If you are thinking “Lord of the Flies”, tune in to hear about the Brooklyn Free School and free your mind….

Turn On and Tune In

It’s no surprise that formal education is moving online.  But did you know that it’s top notch and free?  Check out the Khan Academy which has delivered almost 100 million lessons to students around the world in math, physics, finance, history and more.  And why pay over $300K attending Stanford to get a degree in Computer Science when you can take the same classes for free online?

We Are Superman

It turns out that kids really can teach themselves and each other, when provided with the right guidance and framework.  And it’s not just in resource-rich areas like Brooklyn.  In India, Kiran Bir Sethi and Shukla Bose are showing the way.  But it also turns out that kids don’t need guidance from adults, they just need access to learning tools and for adults to stop interfering.  If you haven’t seen Sugata Mitra’s experiments of providing free internet terminals without instruction to rural Indian kids who don’t speak English, you need to watch what happens.

It turns out it’s not just kids who can learn from one another.  The Barefoot College is turning grandmothers into solar technicians and teachers of solar technology.  Oh, and again, a common language is not necessary in either case.

It turns out, it’s not just schoolchildren and the elderly that can learn from one another.  Skillshare is connecting individuals who want to learn anything to people who want to teach them.  Why not teach a class yourself in your local area?  After all, we are all Superman or Superwoman in something.

So, what are your favorite examples of Education 2.0?

Related posts:

1. Decision Education Foundation
2. Decision Education: A Call to Arms
3. Reinventing Liberal Arts Education

Background: part 3, part 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 PIC.  Click on the thumbnails to expand the graphs.  These are modeled with various “reasonable” assumptions but if you want to experiment with how it might apply to you or under different assumptions, here’s the spreadsheet.

Example 1: Entrepreneur

• Investment Amount: $50K
• Maximum Return: $2M (i.e. 40x )
• Annual Exclusion: $100K
• Minimum Revenue Share: 25%

Example 2: Social Innovator

• Investment Amount: $100K
• Maximum Return: $1M (i.e. 10x)
• Annual Exclusion: $50K
• Minimum Revenue Share: 30%

Example 3: Small Biz Expansion

• Investment Amount: $300K
• Maximum Return: $1.8M (i.e. 6x)
• Annual Exclusion: $0
• Minimum Revenue Share: 40%

Example 4: Career Change

• Investment Amount: $1M
• Maximum Return: $4M (i.e. 4x)
• Annual Exclusion: $200K
• Minimum Revenue Share: 60%

Example 5: Investor

• Investment Amount: $3M
• Maximum Return: $300M (i.e. 100x)
• Annual Exclusion: $250K
• Minimum Revenue Share: 100%

Several things to note: the Minimum Revenue Share is calculated from the gross income (all sources) as reported on your tax return; you get to deduct the Annual Exclusion amount before figuring and paying taxes.   If your effective income tax rate is 40% and you quit your job — using the Investment Amount to live off of — you’ve just stretched out your runway by 40% (i.e. you don’t pay taxes on the money someone invests in you).  Finally, this contract gives you incentive to pay more than the Minimum Revenue Share to your investors, since the more you return, the quicker you reach the Maximum and end the contract.

Related posts:

1. Investing in Superstars
2. Investing in Superstars, part 3
3. Revenue Sharing

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 Jon’s future earnings, we’d do better than investing in his projects.

Why is the contract only three pages if it’s a lifetime deal?

Basically it comes down to this:

1. The contract is there simply to remind both parties of what was agreed to at the time of signing.
2. Inevitably circumstances change for one or both parties and it will be necessary to amend the contract.
3. If both parties are committed to maintaining a strong relationship, then amendment is easy and actually leads to strengthening the underlying relationship.
4. On the flip side, if one or both parties are stuck in the past and are not looking for the continued win-win, it ends in lose-lose (i.e. litigation).
5. If you can’t trust each other to honor the spirit of the agreement when conflicts arise, is a longer contract going to make matters better or worse?

Are there legal and tax consequences you had to consider?

Yes.  It turns out a three-page contract is way more complex than a 30-pager.  If you are considering doing anything like this and want to deviate from the contract template, I recommend contacting Orlando Medina who created the contract and vetted all of these issues.  There are very few lawyers like Orlando who are both legal virtuosos and business-creative rolled into one.

Why not create a fund for Personal Investment Contracts?

Most investment funds are explicitly meant to remove the personal relationships that a PIC relies on.  While not explicitly a PIC fund, the Presumed Abundance fund is based on the premise of investing in people and relationships.

Another approach that might work is to attach a fund to an incubator like TechStars or a fellowship program like the TED Fellows.  The incubator then acts as a proxy for that personal relationship: both investor and investee feel a sense of responsibility to the third party, which can also act as an neutral arbiter if problems arise.

Have you made an equity investment in anyone else besides Jon?

Yes, Michael Keller.  He was a founding partner in the instructional video company (along with myself, Phil and Jon).  Michael and I have been friends for years and I had also invested in one of his movies.

Do you only invest in film makers, I thought you were into technology and social entrepreneurship?

The film connection is somewhat coincidental.  Michael is working on a startup in stealth mode right now.  I’ve talked with a few close friends who are tech/social entrepreneurs about investing in them but the conditions just haven’t been right.

Would you invest in me?

Not unless we’ve known each other for several years and have been through some experiences together that have tested our relationship.  We need to know that we’ve got each other’s back, and are committed to working out problems that arise.

What’s more important to you as an investor, trust or talent?

No question: trust.  I truly believe that “talent” is within us all, and by removing obstacles (financial and otherwise) we can unlock that talent.  That said, not everyone is at the point in their lives where lack of money is the real obstacle.  In fact, very few people are, even though we’d all like to believe otherwise.

So if money isn’t the real issue for most people, what is?

It’s different for every single person, but what I see most often is that there is a tricky balance between the drive/confidence to achieve lofty goals on the one hand, and the courage/commitment to personal development, growth and learning on the other hand.

How have your personal investments turned out?

From an ROI perspective for me as the investor it’s too early to tell (it’s been two years since the first one).  But from an interpersonal standpoint, my friendships with Jon and Michael, it’s been incredibly positive for me so far.  To give you insight into Jon’s experience, we recorded this:

Related posts:

1. Investing in Superstars, part 4
2. Investing in Superstars
3. Investing in Superstars, part 2

“Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has.”  (Margaret Mead)

“Be the change you want to see in this world” (Gandhi)

There is an idea virus within American culture that has the power to destroy.  The idea is that technology and innovation are fundamentally good.  Whether you consider yourself a technologist, an entrepreneur or a scientist (all labels I use to identify myself at times) I’d like to propose an alternative to to this idea and an inoculation against the virus.

Observation #1: Innovation amplifies whatever values and beliefs are held by the innovator.

For instance, if I value my time, I might invent the first clock, or start a business to create time-management products, or devote my life to unlocking deep mysteries of the physics of time.  And if I believe clean drinking water is a fundamental human right, I might invent a new method of water purification, or start charity:water, or study how global climate change affects water policy for at risk populations.

Observation #2: When certain values or beliefs are amplified others are necessarily diminished.

This is moral leverage.

Through the creation, promotion and use of specific innovations, the values associated with those innovations become selected for; conversely, those innovations which are never created (or are out-competed in the marketplace) leave their concomitant values vulnerable to conflicting and more technologically fortified values.  Think of it as an evolving moral ecosystem where values thrive and spread or go extinct bad on selective pressures amplified by innovation.

Let’s look at the global financial crisis through the lens of moral leverage.  We may ask ourselves what are the innovations — technological, financial, legal, political, and so on — that enabled the situation to unfold as it did?  What are the values that were promoted or amplified, and what are the values that became “collateralized damage”?  Finally, what are the individual and collective beliefs about the world that were either reinforced or falsified by the events of the past few years?

To make it more concrete, listen to this Fresh Air segment on tax liens and see if you can answer these questions.  Or listen to the second segment in the show to hear the link between the industrialization of food production and the advent of breast cancer.se

Observation #3: Innovation by itself is neither good nor bad.

There are luminaries that argue innovation is inherently good because it is democratizing.  And others who point out that technology leads to bubbles and echo chambers, which lead directly to evil.  But innovators are optimists and often make the claim that, in the long run, innovation leads to good: violence declines; eventually dictatorships fall.  The techno-optimist story goes that violence and dictatorship cannot last against the inexorable and exponential advance of technology, especially those that promote transparency.

Moral leverage provides another another interpretations of the same data, which is not that innovation is good, but rather…

Conclusion #1: People are inherently good.

Except for the value placed on democracy itself, democratic systems are, by definition, amoral; they simply allow “we the people” to express and live by our own individual and collective values, whatever those may be.  Part of the freedom of expression afforded by democracy manifests itself in what we would call innovation.  So if innovation acts as moral leverage — amplifying the will of the people — then the logical conclusion is this: the moral arc of the universe derives it’s bent towards justice, not from technology or innovation but rather from their source: YOU.

Is this so surprising though?  Isn’t “good” defined by that which promotes our values?  Or if you prefer, the value of life as a whole?  And even if you believe that good is defined by God’s values… are we not made in God’s image?

Now you may say, so what?  The distinction between “humans are good” and “innovation is good” is purely academic.  To that I would say:

Conclusion #2: Innovation without conscious moral intention is amoral.

Innovation by itself will not save the world, it will only hasten the arrival of its implied moral ecosystem.  If you are working on technology for violence — even in the name of “defense” — you are creating an ecosystem under which violence thrives.  This internet worm, presumably created by those who would protect you from nuclear attack, chillingly illustrates this point.  Without considering moral leverage, it’s easy to frame our choices in ways that blind us to the infinite possibilities, and “force” us to act against our own values.

Conclusion #3: It’s not hard to save the world.

What life requires if we are to survive is this: each of us must check in from time to time with our own values, and reflect on whether they are in harmony with our words and actions.  It’s really that simple.

The great thing about leverage is that it turns small shifts at the source (i.e. you) into massive revolutions in the end.  That choice you made the other day to forego the water in a plastic bottle is a small expression of your values, but it has the potential for viral infection that changes the world.  And when you align your career choices with your personal values as Scott Harrison did, you accelerate the spread of your values exponentially.

So how do we know what’s right for us?  Very simply… it’s what feels right.  It’s an emotional resonance (a loving feeling perhaps?) that tells us that we are in line with our values.  Conversely, when we feel stress or discord, or that sinking feeling, we know something’s not right.  It only becomes hard when we waste energy on things that we cannot control, when we take responsibility for other people’s actions, or when we mistake other people’s values for our own.  Which leads to the most subtle but important premise of all:

The only way to fail is to judge.

The act of judgment is what the “logical” mind does.  It tells us what we (and others) “should” do, based on a set of rules and assumptions.  The mind is a wonderful tool, essential for survival.  But it distracts us from listening to our heart and living by our values.  That is something that can only be felt and is beyond the reach of logic or words.

You don’t need laws or incentives to be a good person.  Listen to your heart.  And trust the universe be the judge of whether you did the right thing.

Related posts:

1. Violence on the Decline
2. Invisible Etiology

These days when I’m hit with the “I’d love to talk to you about my startup, will you first sign this NDA?” my first reaction is to laugh in their face.  I know instantly that they don’t get it and are doomed to failure.  While the NDA may once have been a necessary tool, in today’s environment (and increasingly so) it’s a hinderance to ultimate business success.  If you don’t get this, I’m not going to waste your time trying to convince you otherwise.  You’ll either learn the hard way or prove me wrong.  Either outcome is fine by me.

But if you do get it, and you also encounter this old-school naiveté, I invite you to do what I do, which is to thank the person for wanting to share their passion, and suggest a different kind of pact: the Mutual Disclosure Agreement (MDA).  I agree to tell everyone about your awesome idea/vision/startup, spread it far and wide, and hope you will do the same for me.  If you’d rather not sign, I understand; I’m sorry if I’ve wasted your time.

Related posts:

1. The Age of Radical Transparency
2. Investing in Superstars, part 3
3. Investing in Superstars, part 4

$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 process at this point.

$15K for Y Prize Platform

Same as the above except, instead of prizes, the cash award is an equity investment that gets executed once the stated goal is achieved (as determined by the crowd).  The platform must have been used to invest at least $10K in at least one for-profit venture in exchange for an equity stake in the venture.

Again, this is different than Kickstarter in that they only facilitate pure donations, not investment.  It’s also different from Unreasonable Finalists Marketplace as it currently exists.  I love both of these platforms and think they have worldchanging potential.  And both are eligible for my prizes here if they add what I’m looking for.  But I don’t think they will (they’ve got different fish to fry) so don’t be discouraged from jumping into the fray yourself!

$75K for 20%

I’d like a 20% ownership stake in a for-profit venture achieves the Y Prize Platform above.  I don’t know if my making such a “reverse offering” would constitute a violation of U.S. law or not, so I am not actually offering it yet.  What I am doing is suggesting that if you build such a system, and you start a for-profit company to monetize it, and you can convince me and my lawyers that your company is fully legal, and you are willing to offer me 20% of that company, then I’m willing to invest $75K.

Furthermore, this whole page of offers is null and void in any jurisdictions in which it’s not 100% legal (a determination that you need to make personally, I can’t advise you on this).  And I reserve the right to modify anything on this page at any point in order to assure compliance with all U.S. laws and regulations and to clarify my intent.

Finally, if you are a lawyer licensed in the U.S., I’d appreciate your posting any legal opinions you have on any of this via the comments section below.

Related posts:

1. X Prize Annuity Funds
2. Project Runway
3. Open Letter to Gotham Prize

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, whatever you want it would be fine, just as long as you made sure to always pay the 3% of whatever you make (as little as that may be).

And finally, what if your friend said you could buy out of your obligation at any point for $6 million in cash.  Then would you take the deal?

. . .

Personal Investment Contracts

. . .

Personal Investment Contract

Phil Gordon and I recently made such an investment in a person we both know very well, call her Marge.  The thing about Marge is that she’s one of these people you know — you can feel it in your bones — that she’s a superstar.  She may have a string of projects and startups that don’t end up producing much in terms of tangible results — in fact she already has.  But you know that all of this “failure” is simply building Marge’s brand equity.  She’s learning how to navigate in the world, how to build value (whether it be monetary value, social good, or however you define it).  She’s also making connections with people who are taking notice of her talent, love her undefinable qualities as a person, and who just want to somehow help her succeed in her life’s mission and be a part of her success.  Everyone who meets Marge knows it’s simply a matter of time before her success is tangible.  Maybe she’ll end up as a founder of a billion dollar startup, maybe her book will top the NY Times Bestseller list, maybe she wins a MacArthur Genius award.  Or maybe over the 40+ years of her career doing what she absolutely loves and was made to do, she will touch the lives of millions of people.

From our perspective as investors, it doesn’t really matter what path Marge chooses or what twists and turns that path reveals.  We’ve already determined that she’s a winner and she will adapt accordingly.  The cash investment was intended to smooth out the earnings curve so that Marge won’t have to take jobs that don’t further her life goals just so she can eat and pay rent.  And even if she blows through the cash, she’s still gotta eat and pay rent, which means she will find a way to make money (while pursuing her dreams).  Maybe one year she makes $10K.  Down the road she herself inherits some money and coincidentally that same year is paid handsomely on a consulting gig and ends up making $400K.  Or perhaps she finds that she loves climbing the corporate ladder and steadily increases her salary from $50K to $500K over the course of 20 years.  Assuming Marge makes an income of some sort for 40 years, she only has to average $250K (in today’s dollars) for us investors to get our money back.

Now here’s were it gets interesting for the investors.  It’s very unlikely that we will be negative on our investment over the course of Marge’s lifetime, unless she dies or becomes incapacitated (which happens of course; there’s no such thing as a risk-less investment).  And in poker parlance, we are “freerolling” to make a substantial return if she hits it big and/or she decides she wants to buy out.  But even if we don’t make a ton of money off of Marge, we know that our investment will have made a significant positive impact on the world.  Why?  Because we hand-picked her as “the one” out of the thousands of people we’ve met over the years to invest in.  Amongst those other there are surely many winners, they’re just not… Marge.

. . .

Simple, Flexible

You are welcome to download and use the document above as you like, it’s hereby placed in the public domain.  Obviously Phil and I have to disclaim any responsibility for what you do with it, and we cannot give you any legal advice.  We are very comfortable that we are not breaking any laws or regulations and we’ve had a team of lawyers and personal agents vet and refine the basic template from both the investor’s standpoint and the investee’s.

And sorry, we are not accepting applications nor will we consider investing in you.  But if you have people who believe in you and trust you as much as Phil and I do in Marge, then show them this blog post and convince them to invest.  The Personal Investment Contract (PIC) can be calibrated for just about any situation where the investor believes the person they are investing in is (a) a true superstar, and (b) completely trustworthy.  Here are the key numbers to keep in mind:

• Investment Amount – This should be determined by the entrepreneur such that they feel like they have enough breathing room to pursue their passion for at least a couple of years, or longer if they feel like supplementing their income themselves.
• Annual Return Payment – The idea is keep this low enough so as not to be a burden on the entrepreneur, but high enough to be attractive for the investor in combination with the Termination Amount.
• Termination Amount – If the ARP is low, this should be high; if the ARP is high, this should be low.  It’s the slider that trades risk for reward.

. . .

Examples PICs

• Example 1: Technologist or Business Person
  • Investment: $250K
  • ARP: 2%
  • Buyout: 10x ($2.5M)

• Example 2: Social Entrepreneur
  • Investment: $150K
  • ARP: 5%
  • Buyout: 5x ($750K)

• Example 3: Do Gooder or Research Scientist
  • Investment: $100K
  • ARP: 10%
  • Buyout: 1x ($100K)

. . .

Important Details

Despite the fact that the contract is ridiculously simple (three pages!), there are some key details in the contract that we believe make this work.  The first is the clause that says the entrepreneur has to give the investor a year’s notice that they intend to buy out.  This is so that the investor can’t be cut out of a big, pending deal that closes soon after the entrepreneur buys out.  It’s possible that the entrepreneur gives notice but for whatever reason (turn of fortune?) can’t come up with the cash required a year later.  That’s fine, the contract stays in effect and the entrepreneur can give notice again in the future.

The second important detail is that the Termination Amount isn’t really just the buyout multiple on the original investment but it also crucially includes the ARP times the net fair market value of all unrealized gains made during the course of the contract.  The reason for this is as follows.  What happens if the entrepreneur buys a house or invests in a business which becomes the dominant (or even just a significant) portion of their net worth by the time they want to buy out.  The investor rightly feels like they contributed to that gain and should get their fair share.  The entrepreneur may not want to (or even be able to) realize the gain at the time of the buyout, e.g. they still want to own and live in the house, or the business they invested in isn’t public yet.  But the investor shouldn’t have to take the worst of the deal.  Hence the fair market value assessment is made (by third party arbiter if necessary) and the investor gets paid.  For instance, consider a PIC using the numbers from Example 1 above.  Entrepreneur buys some property that appreciates by $20M, so the actual Termination Amount becomes ($20M x 2%) + $2.5M = $2.9M.

There are sure to be loopholes that we didn’t close, and it would be great if you could bring those up in the comments section below so the template can be adjusted or variants of the PIC can be made.  Ultimately we decided that because we are investing in people we can trust, and we want to foster that sense of trust and fiduciary obligation, it was better to have the contract be short and to the point, rather than cryptic and air-tight.  Yes, there could be problems down the road, but then again if one party really wants out of a contract or wants to bend the rules in their favor they will be able to.  We’d rather enter into a handshake agreement where we are partners in the success of a budding superstar — as motivated to help them achieve their goals as they are to leverage our resources, experience and connections — than to take advantage of someone because of their temporary circumstances.

. . .

Replicate, Don’t Grow

The first thing that angel investors or venture capitalists think about (once they decide they like the model) is how can they create a fund to achieve scale.  Caution! This way there be dragons.  A PIC is fundamentally a personal investment reliant on mutual trust and respect, not a mechanical device suited to turn into a factory.  PICs can achieve scale, but it will happen from the bottom up, rather than top down.  That is, they are meant to replicate, not grow.

. . .

Feedback

If you have any feedback or experience with this sort of investment, we’d love to hear it!  Share your stories in the comments below.

. . .

Related posts:

1. Investing in Superstars, part 4
2. Investing in Superstars, part 3
3. Equity Micro-Investing