Comments on: Buying equity in people http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: seanmel http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-43832 Fri, 12 Oct 2012 10:00:52 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-43832 We need a simple model to help us properly slice the pie. It needs to be flexible and fair. By fair I mean it needs to give each founder what they deserve. And by flexible I mean it needs to adapt over time to re-allocate the startup equity so that the distribution stays fair until the fledgling company takes flight. check out Mike Moyer’s book slicing pie it talks about 50/50 share and how to divide it through his grunt calculator.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37202 Thu, 22 Mar 2012 10:41:07 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37202 Agreed, artisticidea.

Contractual obligations can be and often are abused. Find a loophole in the contract to exploit, then use the contract to twist your counterparty into cooperation.

Non-contractual obligations require a continuing consensus to function. If either party ever feels that it has been unfairly used, it can choose to terminate the relationship.

Working without a contract can be safer sometimes, when you aren’t certain you trust the counterparty.

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By: artisticidea http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37192 Thu, 22 Mar 2012 06:31:17 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37192 Obligations of payment to creditors should be limited to traditional debt instruments, such as personal loans and mortgage with interest: period. Usury laws are already ridiculously lax and this just takes it to a whole new level. The preposterous idea of an “equity share” in someone’s future earnings ad perpetuum is immoral and could easily be found to be a form of indentured servitude: because that’s exactly what it is.

A corporation or investor cannot own a predetermined % of someone’s personal earnings: this is a power only reserved solely for the state – in the US, via the 16th Amendment – and many disagree that it should even be a power of the state. Listening to proposals such as these cause irrational thoughts to start creeping into my head involving some diabolical conspiracy between the originators of the Federal Reserve, the Federal Income Tax and the future corporate ownership of human beings. Wage exploitation & extortionate rental and loan pricing already creates de facto slaves out of most of the world’s poor: let’s not add a titular element to the mix!

The fact that people are seriously discussing creating bond servant agreements between school districts and future alumni is disgusting and highly disturbing.

One commenter raises the organic, and non-contractual bonds held between parents and children in pre-industrial or developing societies. Well and good, but these “agreements” are 1. Non-contractual, 2. Non-binding and therefore 3. Unenforceable by law. These are EXTREMELY IMPORTANT distinctions between such tacit agreements based on cultural consensus, personal trust and shared values and explicit, legal ones based on written contracts.

Industrial society is already a dystopia. Let’s not accelerate the trend unnecessarily.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37181 Thu, 22 Mar 2012 01:48:42 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37181 @ TFF, Does that “C” student from a working-class background earn more by taking on debt to attend college? Or by entering a trade? Are we afraid of the answers?”

not so much anymore… at least not where I live. Lobstermen make great money and get the girls… at least when the price is good. Venture caps would have little interest investing in those “C” students. They are going to be looking for star athletes, debate team captians, math team captians, all state violinists, valadictorians. Your absolutely right that many of those students would already be from afluent famlies.

Even affluent famlies would love to remove the risks of a 100-200k student debt overhang for a measley 10% of lifetime earnings. Starting a business would be riskier still… but even more rewarding for the outliers.

If and only if the VC’s thought they could collect on their 10% from the elites you would be shocked how much they could pay out to the promising youngsters. Best of all they could actively aid their rising stars just as they do their start-up companies now.

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By: Curmudgeon http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37174 Wed, 21 Mar 2012 20:58:08 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37174 y2kurtis – >>The education is 200,000 and that lifetime earnings are going to increase by 1MM. That’s a pretty reasonable current estimate . . .

The problem here is that you’re talking about an individual, not a group where statistical processes apply. While it might be worthwhile to invest in such a group if it consisted of 100,000 people (or preferably many more), your statement makes no sense if directed toward a single individual. That person may die young, or renounce their education, or simply not meet the 1MM increase you seem to expect of each of them.

Let’s talk about equity in individual people for what it really is – a bet. No government I will vote for will do that.

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By: TFF http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37168 Wed, 21 Mar 2012 18:13:16 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37168 youniquelikeme, I might argue that people are making decisions off bad statistics.

In dietary health studies, researchers might look for disparities in disease incidence (e.g. CHD) between people who eat different diets (e.g. a “Western diet” vs. a “Mediterranean diet”). But they don’t stop there — they also strive to factor out other dozens of other variables that might confound the association.

In the education studies that I’ve seen, researchers typically look at the average earnings of college graduates vs. the average earnings of high school graduates and stop there. No attempt to adjust for the myriad STRONG confounders that are present.

* Socio-economic status of parents. Shouldn’t surprise anybody that (on average) the offspring of wealthy parents do better than the offspring of poor parents. Of course rich kids have a much easier road to and through college.

* Personal motivation. A highly disciplined, goal-oriented personality is likely to be successful no matter what the career. But of course this is also a key trait for success in college.

* High school success. Definitely correlated both with career success and college success.

What we really need is a study that takes these confounding factors into account, especially one focusing on the margins. Does that “C” student from a working-class background earn more by taking on debt to attend college? Or by entering a trade?

Are we afraid of the answers?

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By: Eericsonjr http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37165 Wed, 21 Mar 2012 17:50:36 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37165 Measure, monetize; speculate, collateralize. The secret to the good life–and the good society–is to reduce every social interaction into its components and auction them off on the open market.

(Only in this way can those who have lots of money today dun from future generations their rightful take).

What could possibly go wrong?

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By: youniquelikeme http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37159 Wed, 21 Mar 2012 15:15:49 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37159 Some manufacturing jobs are out there yet there are very few skilled labour being trained, so why is that? Shortages of skilled people exists in construction, services, and manufacturing continues and this is a topic?

Machinists, tool and die makers, computer-controlled machine programmers and operators were the 2011 shortages, but factories hired foreign workers through H-1B visas, which can be extended to 6 years for foreign skilled labourers.

http://money.cnn.com/2012/03/05/smallbus iness/manufacturing-workers/index.htm

Barrnone, local governments would do well to make contracts with schools and students to ensure no brain drain, as they have done with medical students and nurses in the past. Payback the with time served or pay back the subsidies, with 2-4 years of service mandatory and with notice before moving on.

Shows like the Dragon’s den on BBC and CBC, Shark tank in USA, show how entrepreneur start ups can be helped with very little money invested, with big returns and flexible contracts offered depending on the likelihood of success, so it is inevitable that sites like “Upstart” would do the same.

The contracts wouldn’t be able to take your first born or your inheritance … although it might seem like it over time. The legal advice would consist of looking over the contract to ensure you aren’t screwing yourself before you sign it, and ensuring there is an exit point, no?

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By: TMEX12 http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37155 Wed, 21 Mar 2012 13:27:07 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37155 Felix,

How is this different from a parent investing in their child with the expectation that the child will take care of them in old age and extend help to siblings.

In most developing countries this is the model in play. There is no social safety net nor is there a viable student loan program. The family is the source of funding with the quid quo pro expectation of the individual extending help to others within the family circle.

This was my fathers experience. My grand parents invested heavily in his education, and he over the years as served as a source of help to his parents, siblings, cousins, nieces and nephews. Its a great burden (tax) no doubt, but the collective success of the greater family is the light at the end of the tunnel. Luckily for us its worked out well. In 2 generations we’ve moved from a hamlet in an African village to professional careers all over the world.

These startups remove the need for familial connections to make it work. I am all for it!

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By: TFF http://blogs.reuters.com/felix-salmon/2012/03/20/buying-equity-in-people/comment-page-1/#comment-37152 Wed, 21 Mar 2012 09:01:26 +0000 http://blogs.reuters.com/felix-salmon/?p=12548#comment-37152 “Lets assume that some poor white trash has somehow gotten into a great private school. The education is 200,000 and that lifetime earnings are going to increase by 1MM. That’s a pretty reasonable current estimate.”

No it isn’t…

First, it isn’t clear whether you are talking high school or college, but if you want to have a dramatic effect like that then you need to begin EARLY. You can’t simply take an illiterate teenager and plop them into Philips Andover and expect miracles (though I know a wealthy violent sadist who did well there, so perhaps they can work miracles?).

Secondly, while surveys suggest that the median college graduate earns $20k/year more than the median high school graduate, those surveys make no attempt to adjust for confounding factors (which surely abound). Nor do they separate out those who went beyond a bachelor’s degree to earn that extra money.

On the individual level, it isn’t clear that education pays for itself. It especially isn’t clear that elite private schools ($30k x 13 + $50k x 4 = $600k) pay for themselves. Financing on that $600k, whether debt or equity, would eat up any possible gain.

The equation is a bit different at the societal level, as the quality of the workforce shapes the jobs that are created. But even there, I think we could do a bang-up job of education for a lot less than $30k/year.

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