Shower Thoughts #1: A Way Out For The Less Fortunate
/ Aram Barnett / 10.19.2018 /
Before we begin…
This blog post is the first in a weekly series where I propose an idea using blockchain or tokenization. The point of this series is to start a discussion and inspire people to build on chain.
The format is simple; I propose an idea, explain how it works, offer set of questions and act as a skeptic towards the idea then offer a rebuttal to those questions, then propose a way to build the MVP and how to go Zero to One.
For those who want to see the ideas to execution and have the entrepreneurial chops to do it, I encourage you to apply to Onward Labs, a venture studio with a primary focus on building decentralized applications, as an EIR where if accepted you will work along side a world class team ( and yours truly) to bring ideas to fruition.
What’s the idea
Give low income people the ability to participate in wealth creation through the tokenization of investments. Every business and investment should allocates a percentage of their fundraising rounds for low income people to participate.
How it works
Business and investments opportunities register either with a government organization or private company that registers the company and its shares on chain ( thus the tokenization of the asset). These tokenized assets are then accessible via a web app.
Low income participants are verified via the state or a third party and given accounts to the website. 10% of the fundraising round is reserved for low income participants. If they choose to participate, the shares are then assigned to them.
Problems with this idea
1. Prove to me you are low income. If there is an economic incentive to be poor, people will cheat to gain access to these investment opportunities
Validation of being low income can be done through available government registration. In regards to people cheating, we can limit the amount someone can invest into an investment.
2. Why would I allocate 10%?
This is a arbitrary number which can be changed based on the company’s fundraising needs and the amount of available capital in the low income population.
3. Communism, you’re describing communism.
Communism is the state distributes the means of production to the masses equally to the citizens and crushes free market capitalism. This system gives the masses the ability to participate in wealth creation aside the wealthy aristocratic class. This system is quite the opposite of communism and encourages participation in the free market.
4. What rights to the low income people have and who sits on the cap table?
Managing shareholder rights would be a nightmare if you had half of the low income population of a state on your cap table. My solution to this problem would be giving them common stock and grouping the population of participants into one entity which would sit on the cap table and act on behalf of the shareholders. If a lawyer is reading this by chance, please comment if this is possible and if not propose your own solution to shareholder rights.
5. What about non accredited investor laws like the JOBS ACT which will only allow 99 non accredited investors?
Perhaps participants in this system can be bundled into an entity. I would ask a lawyer to answer this question.
6. Why would I as a entrepreneur or investor do this?
As an entrepreneur, you are getting 10% of your fundraising round filled. That’s a huge benefit to you when it comes to fundraising efforts. For the investor, the upside is less defined given the fact that you could be giving up potential alpha to other investors. One could make the argument that you would be mitigating loss but further testing is needed in a live population to prove that this is a viable benefit to investors.
7. How does one abuse this system?
On the investor side, people could fake being poor in order to access investment opportunities. This problem could be solved through verification of economic status via the participant’s enrollment in government benefit programs and services.
On the entrepreneur/ investment opportunity side, people may submit non viable companies with a wild funding goal and getting 10% filled by the poor of society. An investment committee could be put in place to vet and verify the company and its fundraising goals but the committee may have biases which denies companies access to funding.
8. Investing is a privilege reserved for those with discretionary funds. The people you are targeting are don’t the financial means to make ends meet monthly, why would they put their limited resources into investments that wouldn’t return value for years when they have bills due at the end of the month?
One thing I’ve been thinking about is how to reward people with equity or tokens for doing work for the startup, like bounties. If a scheme is developed that makes sense, it could sidestep this particular issue
What needs to happen to go from zero to one
The objective of this MVP is to test the market demand and viability of this idea.
Find an investment company of substantial means and resources with the human capital to vet investment opportunities (venture capital/private company with a strong track record would be a prime candidate);
Find and vet an investment opportunity with the party seeking investments willing to tokenize their offering
Find a population low income people who would be willing to participate ( senior home, halfway house residents, college students).
Find a law firm willing to draw up the documents for low income people to participate in the financing round
Develop a GUI for all parties to participate with an emphasis on user interface and ease of use for low income participants who may not be technically savvy
After the investment company has vetted the investment opportunity and it has met it’s investment criteria, Have the investment company offer 10% of their allocation to the low income population via the GUI. The investment company collects fund from participants via this GUI and the shares are distributed to through the GUI. The low income population should be able to access their investment via a GUI that is accessible through a mobile device.
Do it again and scale.
Please comment if you see any fallacies in my thinking to get from zero to one and how you execute a test of the proposed idea. For those who want to turn this into a business, please contact me at Aram@onwardlabs to schedule a meeting with me and the team.