RiskSharingPassiveReturn

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Revision as of 05:52, 2 August 2007 by 198.92.67.28 (talk) (→‎On Discussion)



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Problem

Assume you read a posting on the internet, about a project, perhaps needing a million dollars to execute, that for whatever reason gives you motivation to contribute some of your money, with the expectation of getting some money back, that is in excess of your original contribution.

This dynamic has potential to gain execution of more projects that are expensive and involve high risk, by having many average folks, typically contributing less than $100, share in the risk.

Today it is illegal to make such project postings to the general public on the internet, because they involve the contributor having potential to make a passive return on their investment.

The SEC views such Internet postings as ripe for many scam artists to create “give me your money and I’ll make you lots of money” postings, that could create hardships for people having little financial sophistication, when the scam artists steal their money. The downside is these existing SEC laws are preventing financial risk sharing by large numbers of people, having good intent.

Purpose

Develop a List of Safety Procedures

To break this barrier it is proposed to develop a list of special procedures, that must be followed, by anybody wanting to make such posting.

Develop a List of Self Policing Methodologies

It is also proposed to develop a list of methodologies that can make this system self policing, to prevent the bad apples from corrupting the new system of money pooling/risk sharing.

Seeking an adequate "legally recognized" exemption status

It is then proposed to give these lists to lawyers with expertise in SEC, cooperative, business, and cyber law, so that they will add their credibility and expertise, then send the resulting suggestions to the SEC, in hopes of gaining a new “legally recognized” exemption, or new classification of investor, to enable such postings to be made “legally” on the Internet.

Preventing the Worst case

It is suggested that we do not approach the list from the attitude that humans are inherently good people, and thus with enough carrots built into the system, there will be little or no fraud. I suspect the SEC will view that attitude as naive. In contrast to assume the worst case human behavior, and then figure out ways to check or prevent it.

Assuring Honest Effort

People making such project postings have potential to raise lots of money. In return they should expect to put in some effort and “pain”. In other words there should be procedures to follow and hoops to jump through. However they should not be expensive, because that would exclude too many people from making a posting.

Criteria for checking the Sincerety of new Entrepreneural Offers

A straightforward Hoop, that doesn't scale

“Who are you?” If I give you my money, I want to know who you really are. One way to do this is to hire a good private investigator to dig up the skeletons in ones closet. However that does not scale well, and is expensive. What other ways to prove who you really are?

Other hoops that might scale

Public Assessment/Vouching by Independent Renown and Trusted People

a) If you have projects with big social or other upsides, then it is not unreasonable to expect that you did not just think of this yesterday, but rather have been working on it for some time, and in such activity you have come into contact with others. Have these “others” vouch for you, in a transparent way on the Internet. If these “others” are your brother or somebody I can’t verify, that is not likely to help you. In contrast if it is a teacher, an attorney, a scientist, a non profit director, the pastor of your church, a well known community leader, etc. – then you gain more of my trust.

Disclosing Identity in a reliable way

b) Tell me where you live, so if something goes wrong I can find you. If you have only a mailing address, or a boiler room operation, don’t bother making the posting. Some might argue, “but this will leave me open to having strangers find me, when I have done nothing wrong!” That is the “transparency” price you must pay in exchange for the opportunity to raise large amounts of money.

Other things that might be done:

Care for Extreme Financial Transparency

1. Agree to, and implement, “extreme” financial transparency. The community should develop these transparency standards. The point is if one gets money, the flow of that money should be easily viewable by the public, at any time.

Minimize the investment needs

2. Agree to ask for no more than a smaller amount of money, for example less than $100, from an individual. The point of this new system is enabling small contributions rather than large. If you want to solicit $100k from a deep pocket, there are already procedures to solicit “accredited” investors via the Internet, that will not have the SEC breathing down your throat.

Balance Carrots and Stick

What is the carrot? The carrot in this system is that people making postings have potential to raise lots of money from the public, also potentially quickly.

What is the stick?

Brainstorming section

Here there needs to be a lot more brainstorming. The SEC needs to see potential sticks. Scam artists are very good at evaluating the carrot versus the stick. If the latter is insignificant they will make the calculated step of risking the stick, for the big money.

Possible stick

I suspect that if this system were operational that all manner of internet communities would have interest in using it for fund raising. In such regard they do not want “bad apples” to spoil the system for every body else.

Thus to create a “policing network”. Just as we have “bad guy” hackers that can make people’s lives miserable, the community has potential to gain a lot of “good guy” hackers to make the lives of the bad apples miserable. How miserable, and in what ways is open to discussion. At a minimum this police network should “out” the scammers to make others aware that they are not legitimate. This network also has potential to do “due diligence”, to insure that people are who the say they are.

The “policing network” has potential for abuse. I don’t want to know if somebody making a posting is cheating on his wife, or is a rotten parent or boss – “the dirt” should be limited to whether or not this person has a relevant criminal record or similar activities, for example involving document forgery, embezzlement, fraud, and stealing. Even then there can be new bad apples that have no prior “bad history”, so the policing network should insure that “extreme” transparency is in place and functioning well. Lots of eyeballs “watching” can be a good preventive measure.

Pre-certification

The SEC could require pre-certification prior to making postings, where one must provide them with answers to questions, that we should be thinking about creating.

Seek your ideas on how to make this work or more efficient MartinPfahler

Call for passionate participants

I have ulterior motives for getting passionate members of the Wiki and open source communities involved with this topic.

I am currently involved with meetings at some very large corporations, meaning communications with executives having Vice President status. Then nature of these discussions involves me trying to convince them to support in various ways, including funding, a mechanism that in effect has a virtual collection pot, to pay for execution of a novel project, and where I am pushing them to first throw some of their money into this pot, so that people within the populace see there is serious intent, not just talk – behind a project proposal.

Corporation Involvement

Ideally the corporation would pitch in half the money, and then challenge Joe and Jane public to contribute the rest. The results of the project would have an upside for Joe or Jane, via something they can buy at a later stage, and ideally also to gain them passive income due to their sharing in the early stage risk, along with the corporation.

In this effort I also talk to cooperative and intellectual property and SEC attorneys, that are not currently part of the Wiki community, challenging them to figure out how to enable a general internet project posting, perhaps via a novel cooperative legal structure – that will be allowed by the SEC.

Collaborative as new Partner for large Corporations

Today it is common place for large corporations to form business and development partnerships with large institutions like universities, the government, and other large corporations, and then to share in the risk as well as the later stage benefits. In contrast it is to be able to write collaborative legal contracts between a large corporation and some type of new cooperative, this latter entity being the new larger entity that will ideally become a more common place corporate partner.

Collaborative as an Umbrella

The point of the cooperative is to act as an umbrella so that the needs of the individual are better heard and met, by large corporations. This also has potential benefit to corporations, such as reducing their risk costs, their market research expenses, their logistics overhead, and their public relations overhead. Making these types of explanations in detail is what has gained the attention of some corporate executives, I proposing at least some type of test or pilot project to see how the new process will work.

Integrating Social Networking into the legal Framework

In my ongoing communications with attorneys it is clear, and they admit, that they have little or no understanding about new Internet trends, social networking, Wiki culture, consensus polling, on-line trust building, etc. – so are not in a good position to think up novel money pooling/risk sharing dynamics that might occur “on-line”. In such regard it is the on-line community that has potential to give novel process suggestions. Then we could feed these to the attorneys, to see how they might shake out, or be implemented so they are “legal” and avoid SEC problems.

Currently I do not have the better process suggestions from the on-line community, put hoping under this Wiki topic, to get some. MartinPfahler

RiskSharingActiveReturn

Martin, what do you think about the idea of OpenSharedDomainsPortfolioTrading within a OpenBusinessWiki with collaboration in form of LiterateTrading or more general LiterateMarketing. It appears to be in accordance with some of your sketched ideas in the article: RiskSharingPassiveReturn

  • transparency of the whole business process
  • disclosed owner identity
  • disclosed financial status
  • efforts by public collaborations to develop domains
  • low cost involvement (of the Wiki-Entreprenuers, PennyBank.Biz)

fridemar 17:08, 31 July 2007 (PDT) imbedding the OpenDomainsPortfolioTrading idea into the SocialCommonWealth blog.

Meta-communication

Fridemar,

Thanks a bunch for your edit improvements!

Martin, there is so much content in your contributions, that my titeling only scratches the surface, emphasizing perhaps only a subset of your message. I feel nearly overwhelmed by the energy and information. On the other hand it prepares the refactoring of your contribution to a lot of pages. I thank you too, for the inspiring and highly motivating conversation. fridemar 16:40, 1 August 2007 (PDT)

From what I understand about the above (admittedly I still need to learn more), I find interesting.

The same with me. fridemar 16:40, 1 August 2007 (PDT)


Problem of public solicitation of a passive investment deal

Martin: That said, in any of the above, if at any time there is mention to the public, about a process where one contributes their money, with the expectation of a passive return (for example the community’s wealth increases and then a share is returned to a contributor) this can raise legal problems with the SEC, because they typically view this as doing a public solicitation of a passive investment deal.

Fridemar: Our conversation helps to clarify the difference between active and passive sharing.

I agree Fridemar. In a case where cooperative group members contribute their money to in effect pay others to do something that none within the group can do, and where this activity then generates for the members a revenue stream, I would call this "passive sharing" I have interest in passive sharing dynamics because there are many activities where members of cooperative groups could gain revenue streams, even though they cannot do the direct work themselves. Example: Members of the cooperative have a conceptual idea for a novel raw material or mini-machine that would fit in their garage. In this case assume it takes PhD material scientists to actually do the R&D to invent this or that. Once it is produced, then each member buys the raw material or machine, then adds their labor to it, to create a local company offering novel customization services. People outside the cooperative (that did not contribute to the early stage risk) might also buy this "stuff", but if that happens patents can create a passive revenue stream for the cooperative members. In this case the members are initially passive, letting the scientist to their R&D, but at a later stage the members become active, when they actually put the resulting product to use, and apply their labor to it, to add value along a supply chain. This is an example of how on-line activity, can help people that do not spend much time on-line, and need better "off-line" work opportunities. And it just so happens that this reflect lots of folks in the populace. Online folks tend to think people are not actively involved in the group, if they do not contribute on-line. In this example one can see that their initial on-line activity is rather passive, but later they become active in their off-line world - as a result of their minimal on-line activity. MartinPfahler 


Therefore I created the term: RiskSharingActiveReturn. The community creates value, that has two parts:
  • the non-tangible value of publicized ideas, concepts, software, music, artwork, etc. round about a domain
  • the market value of the domain, that can only be estimated, as long as it is not sold.

The financial investment into a shared domain is less, than buying it all for oneself.

The risk is reduced, when more active shareholders develop the value of the domain by collaboration.

By "Domain" do you also mean tangible stuff that cannot be put through a digital pipe? MartinPfahler

The risk is reduced even more, if the active shareholders don't put all their "eggs into one basket", i.e. if each one of them cultivates a portfolio of domains.

Transparency of the Whole Business Process

The Traditional Way to Secure Income by Protecting Project Secrets

Martin: I think in general this is good, with one exception. If there is a cooperative structure having members, and they are involved with R&D activity that can lead to a new invention or technology, and these members have contributed their own money, to fund this project, then in today’s business environment (as well as in the foreseeable future) the members are likely to make bigger financial gains if they keep some of the details of the R&D project secret. That enables them to gain intellectual property and generate licensing revenue. With complete transparency they would lose this passive revenue stream.

A bold CreativeCommons Alternative

Fridemar: Yet, there is a bold CreativeCommons alternative to this traditional approach. Please have a look at RepRap. The first search result's entry lets you find a non-profit organization, that develops a hightech 3D printer for DeskTopManufactoring. Anything is open and shared. Normally a 3D printer prototyp would cost 20,000 US$. These people give you all the information to build a prototype with materials, that cost 400 US$. Contrasting to the 'Linux OpenSource movement' they started the OpenProcess straight from the beginning and are confident, that at last they will have more momentum than any proprietory process.


Fridemar, I am familiar with some of these "open innovation" efforts. The 3D printer is much lower in price – but how many decent paying “printing designing/manufacturing” day jobs are sacrificed for this lower price? I can imagine a world where everything costs only $10, but there are no day jobs left for anybody to earn the $10, so they still can’t buy it - and the only folks with the money, are the relatively few entities that maintain or started up a commons – just as today the content on Wikis does not enable day jobs for the many content providers, only for those few starting and maintaining the Wiki site.

With your 3D example I suspect you will find it much easier to gain technical talent willing to provide the printer expertise to the commons, related to the engineering features, than to the material that comes out of the nozzle. Go to the material science community and ask the PhD research talent that you would like them to invent, and then contribute without payment to the commons, a radically new material for deposition or extrusion from the digitally controlled nozzle, I suspect few takers – a different scientific field is involved in that type of research work. MartinPfahler

“How do you Plan to Maintain a Barrier to Entry?”

Martin: People involved with computer technology are often familiar with “open source” modes. Computer technology relative to the entire world of all technologies, is a small segment of the larger world, and the vast majority of this “other” technology world is still heavily grounded in secrecy and patents. To gain a better understanding of "why?", try to pitch an R&D project to an angel investor, and you will discover one of the first questions they ask you is, “how do you plan to maintain a barrier to entry?” – without the typical secrecy and patents you are unlikely to get their money.

OpenProcess capable Projects

Fridemar: One possibility is to concentrate on projects, that are OpenProcess capable, like OpenSource development, but also OpenEngineering like visible in the RepRap project.

What does "OpenProcess capable" mean? One process issue that I worry about is the generation of so many new terms, that a new comer gets overwhelmed in trying to understand what is going on, then simply drops out.MartinPfahler

However we need all our creativity to invent income models for CreativeCommons people that these great people get food on the table.

Again: “How do you Plan to Maintain a Barrier to Entry?”

Martin: I think the aboutus founders pitched a version of, “our barrier is the community we are building up – it is not fast or easy for a potential competitor to do this – and community building can also be more difficult than trying to copy a typical widget technology”. The point is, even with aboutus, where there is passion for “openness”, some of their risk investors want to know, “what are your barriers to entry?”

Opportunities in OpenBusiness and Non-OpenBusiness

Fridemar: I think in the short run, there are opportunities to invest in both: OpenBusiness and Non-OpenBusiness, but in the longer run intellectual property mechanisms and non-open R&D will be inferior and diminish into thin air. See (must find the mindstretching article).

Note I am not “pro patents” – they are expensive and slow to get, and expensive to maintain. In contrast I am anti-free rider, because that creates a dynamic that makes lots of people less motivated to contribute to early stage finical risk. In such regard we need new ways to prevent free riders from taking advantage of people that have put their “skin in the game”.

I am still not convinced that one can do open R&D yet still prevent the "free rider" problem. Can somebody offer a solution to this problem? Also I still to not see clearly how the average Joe and Jane will put food on their table with OpenBusiness. Just because I don't see it does not mean it can't happen - it could reflect my tiny brain. But in the populace there are other tiny brains, and to gain critical mass they have to understand to "buy in".

MartinPfahler

Still common Secrecy and Patents

Martin: In other fields of technology one is not dealing with networking issues like with the Internet, rather stuff one cannot shove through a digital pipe – like “widgets” – and in those cases it is still common to have secrecy and patents for new innovation.

To be worked into subsections

Agreements

Martin:

  • disclosed owner identity – I’m for it
  • low cost involvement (of the Wiki-Entrepreneurs, PennyBank.Biz) – I’m for it, if it is high cost then few people can afford it.

On Discussion

Martin:

  • disclosed financial status – Not sure what this means?

Fridemar:

  • All assets in the domain portfolios
  • consolidated account statements

Martin:

  • Efforts by Public Collaborations to Develop Domains

After reading about your domain vision, I still am not sure about how it works. To me it reads a lot like the following pitch: I go to a person on the street and say, “would you like to invest in a neat company name I just thought up? The upside for you, if you invest your money, is that this neat company name will turn into a real company and make real profit, at which time you will gain a return on your investment” – to which I suspect many folks would reply to this pitching person, “no thanks, first show me you have a real company with real products, making real profits”.

Fridemar:

-) Your formulation is provocative and helpful to make the point clear.
  • Portefolio Collaborators don't go to anyone on the street. Instead of this they build their portfolios within AboutUs, where there are a lot of smart, friendly and open community oriented people.
  • They invite qualified peers to share by writing this in the wiki.

You say share by "writing this" - what is the "this?" - is this portfolio content only limited to and engaging people that like to write text, or share "digital" stuff? MartinPfahler

  • Peers qualify themselves by offering to "share alike" their open portfolios

So I am thinking, "what could I offer to 'share alike' to qualify myself with peers? - and then how does this put food on my table? MartinPfahler Can you give me some examples of what is inside a portfolio? MartinPfahler

  • Currently all portfolio owners are in charge of all their domains in their account, but after a sharing agreement, they pledge a share of the resp. gain, when the share is sold. (I.e. not necessarily at the time, when a real company with real products .. has evolved)
  • The nice thing is, that pledges can be reconfigured, when all involved partners agree. This reflects the involved timedependant collaboration profiles of each peer.
  • There are no financial transaction costs when sharing agreements are made in public and authentificated on their blogs.

I get hungry (I am a weak human). At this time, how do I convert the sharing agreements to money, so I can go to the store and buy some bread? MartinPfahler

  • Each open portfolio operationalizes the GoalStatement / InterestStatement in a clearcut way and can be monitored by the community, which builds trust.

Gaining Critical Mass to attract support of Corporations

Martin: Fridemar, I continue to read about this or that tiny community or passionate “tiny” group on the Internet, brainstorming the types of issues we have been recently discussing. In such regard what I see as a process problem, is all of the many tiny pockets of people with similar interests, seem to get nowhere, because they can gain no larger awareness of the general populace, thus no critical mass.

Other people on the Internet with related passions have come to the same conclusion, and then post things like, “this is the new place to come, for all of these many fragmented communities to join forces, to gain the critical mass” – and too many are claming such “come here to join forces” places, which itself is fragmenting.

I think a possible way around this current “on-line” dynamic is to get the support of a large corporation with deep pockets, already having a name the general public recognizes, so that a relevant effort gets on the public’s radar screen.

In my dealings with the mentioned corporate executives I am bracing for the day when they ask me, where is this community of Internet folks, having passion for these issues?” - and then, to be candid, one has difficulty showing it, because the demographic is so fragmented and hard to see. This is rather ironic because on the Internet I see so much talk about community building, network weaving, social connectors, in other words “lots of talk” about connecting people of common passion and interest – yet then it still does not seem to be happening – at least not in the types of topic areas where we seem to have cross interests.

If a larger group could ever get to the point of in effect saying in unison “we are here”, I suspect some large deep pocketed corporations would be willing to provide some relevant funding and support. Five passionate people brainstorming off in a corner is not going to impress these large corporations, they want to see big community numbers. If anybody has any ideas on how to demonstrate those numbers exist (such as people with interest in new ways of sharing early stage financial risk, and that also enabling better income opportunities), please let me know. MartinPfahler

Fridemar: Thank you Martin, it is 3:35 in the morning and I must go to bed now, to get new energies for continuing our conversation and actions. I think we need a new page where we collect the tools and make efforts for GainingCriticalMass StrengtheningTheGrassRootsMovement. fridemar 18:43, 1 August 2007 (PDT) embedding the whole page in the SocialCommonWealth.com Blog.



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