h a l f b a k e r yWhat was the question again?
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Ideas are hard to sell. You can cover yourself by
Confidentiality Agreement, but then how do you sell an
idea? How can you reassure the buyer of the quality and
your commitment to helping?
If you had lots of money you could develop it yourself,
but
how many people have such an excess of
finance? Not
many, this limits the flow of ideas from the brain to the
marketplace, as those born rich aren't necessarily the
ones
with the best ideas.
If the general mass of society could offer ideas and get a
share or cash in return, there could potentially be an
increase in the flow of ideas.
My idea is to have a new set of securities which allow
some
risk to be sold to the inventor. I have only one type in
mind
but you may be able to think of more.
1. Loss Share - Works like a share, except in reverse. An
ordinary share allows you to share in the profit of a
company, but you are never required to pay money back
if
the company runs at a loss - although your share price
may
go down.
A Loss Share, would require the holder to pay a
percentage
of loss. It would be calculated the same as for ordinary
shares - incrementally or annually. There may be an
added
clause which delays the calculation of loss until when the
idea is expected to make a return.
You could create a new type of share which incorporates
both Loss and Profit, however it makes sense to
decouple
them keeping the markets separate.
2. Loss Bond - A Loss Share would likely mirror the time
frame for an ordinary share divid end which are annual.
This would require immediate payment, however a Loss
Bond could be used to delay payment?
Discussion of how such securities increase idea flow:
Pretend you have an idea - A Croissant which makes you
invisible (CWMYI). You approach a large bakery and ask
them to commercialise it. You want a 20% share in the
profits, but you've got no capital to bring to the party, so
instead you agree to take on 20% loss share starting
from
when the product is launched or when 5 years have
lapsed.
Those without money can now sell their confidence in
their
idea for shares. You also have a resellable debt - you
have
to pay someone to take it off your hands - the amount
you
pay decreases as profits increase.
[link]
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In general I'm in favor of ideas that try to make concepts into reality, but I think this is an unnecessarily complicated version of what already exists. |
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How it normally works: if you want a 20% share of profits you should provide 20% of the investment (and hence take on 20% of the risk). If you can convince the company you're pitching to that your idea is worth something, then maybe you only need to provide 10% in cash, while the other 10% is the value of the idea (you see this kind of deal on "Dragons' Den"). If you don't have the 10% or 20% cash then you borrow it from a bank on a business loan. |
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Banks provide several important functions: they have cash ready to lend, they check the viability of the venture, they collect repayments and punish defaulters. |
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Your idea is, in a round about way, to remove the bank from the equation (I'm still not quite clear on all the details). However this means all the roles that a bank plays is then passed onto the business. This is inefficient and unlikely to be embraced by businesses. sorry [-]. |
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it reads like instead of providing (say) 20pct of investment funds up front, somebody else provides it and you guarantee it. |
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But if you don't have the funds... what are you guaranteeing with ? |
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"However this means all the roles that a bank plays
is then passed onto the business. This is
inefficient and unlikely to embraced by
businesses" |
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No, if you are taking a Loss Share, you are saying
I'm so confident in the idea, i'll pay 20% (or
whatever %) of the losses if there are any. |
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"it reads like instead of providing (say) 20pct of
investment funds up front, somebody else
provides it and you guarantee it" |
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Well yes, if you're approaching a box company to
build a new type of box, it might cost them 100K
to do, which they can do on their own cash flow,
but they'll want to know you're taking some "risk". |
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"But if you don't have the funds... what are you
guaranteeing with" |
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You're gambling that you won't have to pay
because it will be profitable. The case we're
dealing with is someone with < $10k cash with a
really good idea - maybe they'll put in $5000k in
capital as well. So if the product does slump, it is
then that you will have to pay - in the mean time
you keep working your regular job putting aside
cash in case you have to pay. |
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Standard shares already have a perfectly acceptable way to incorproate loss -- as they may go down to zero, and may incur debt obligations. |
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There are also ample ways for inventors to attempt to monetize their ideas without any signfciant risk of loss -- by licensing a patent, for instance, or putting up a website, etc. |
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Finally any meaningfully committed inventor already risks significant capital, and their own time, often for many years. |
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There is definitely room for improvement in the venture industry and in small business lending, but I don't see how this adds any meaningful options to any of the players involved. |
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What theircompetitor said. As things happen, "Loss Share" example is generally how ordinary shares work: you are entitled to a share of the profits available for distribution (and also of the voting rights) but you have liability limited to the amount unpaid on your share capital (which is likely to be a nominal sum, if any). Similarly, you could formulate a Deferred Loss Share, to achieve all of the ends of your Loss Bond. There may be some terminological confusion on my part (I am aware that shares and stock can mean different things in different jurisdictions) but the general point to note is that modifying the rights attaching to classes of share is not new and, if you have an idea for a particular set of rights attaching to a class then (a) there's nothing to stop you incorporating a company with such share rights and (b) doubtless someone else already has. |
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I think this idea has some merit. It is not wholly different to the way the LLoyds List worked for a long time. In that situation list names were not required to put up any capital but agreed to an unlimited liability if claims exceeded premiums. (After a couple of hurricanes this was put to the test and has subsequently been modified to limit liability.) |
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There may be potential for government and/or entrepeneur support groups to create an innovation support fund which offered to cover limited losses for companies wanting to invest in innovation without having to commit any capital. In return they receive a profit percentage. The fund could either specifically support an inventor or invention or, more likely, directly support companies wishing to innovate. [+] |
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I like [The Saint]'s suggestion. There are many smaller
companies with excess machinery time and skilled
human resources. With the right incentives, this can
be leveraged, bringing together ideas and the means.
I like the idea of having, say the Government taking
on the full or fraction of Loss liability, which of
course would be accessed before hand. |
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