Master of 500 Hats

Taking "Me, Inc." Public: Market Caps for Individuals

I occasionally dabble in speculative (some might even say imaginary) asset classes.  One that doesn't really exist yet is the market for securitizing individuals, or groups of individuals. 

While this market does conceptually exist in various forms -- credit cards & microfinance provide unsecured debt, the real estate market is sort of a proxy for individual incomes, and government bonds are perhaps the largest aggregation of groups of individuals within geographic boundaries -- as yet there isn't a market for taking individuals (or groups of individuals) public.

While there are a few notable folks like David Bowie, the Beatles, or Michael Jackson who have executed a form of intellectual property securitization, these are infrequent & unusual examples.

(UPDATE & CLARIFICATION: many folks in the comments are focusing on the literal interpretation of my headline, namely taking *one* individual public.  while i'm neither for or against that concept, what i'm really talking about here is more likely the creation of a derivative instrument that maps to the future income of an *aggregate group* of individuals. i severely doubt any one person is going to be enslaved as a result of an individual IPO, but regardless that's not really what i'm getting at... the calculation for an individual market cap below is merely an exercise by which to arrive at an estimated value for the asset class.)

If we were to create an asset class for "human capital" securities, how might we calculate it?  

Well, we would probably add up the total market cap of all "stocks" in this potential market... which would be the equivalent of the collective market cap of ~6 billion people. 

So what is the market cap for an individual?

Let's assume the following:

• in developed economies, average wage earner makes ~$25K/yr
• the average individual works for ~40 years during their lifetime
• they save an avg of ~10% of income per yr (probably optimistic)
• their savings earns ~6% and inflation is ~2% (net int. rate = 4%)

Ok, so now the average wage earner in a developed economy might earn a cool million in revenue during their lifetime ($25,000/yr * 40 yrs = $1,000,000).  If they saved 10% of their income, they'd be able to put away $100K, which if invested appropriately might be worth ~$250K by the beginning of their retirement.  finally, let's assume that a present value (PV) calculation for that $250K using a discount rate of 4% results in a value of $50K at the beginning of the wage earner's working career. 

If this is a reasonable way to calculate it (not sure if i've made any obvious errors here; please comment if so and i'll revise), then the market cap for an individual might be around $50,000.  if you wanted to be generous, it might even be north of $100K.  if you're pessimistic on the savings rate, then it could be as low as $10-25K (or even zero i guess?).

anyway, i think i'm close enough to go on record in saying the Atomic Unit of Happiness = The Value of an Average Human Life = $50,000 (roughly).

if this is correct, then the overall market value of the asset class representing Individual Income Futures is $50,000 * 6 Billion people = $300T (T=Trillion)

now here is where it gets interesting...if we assume that at least a 1/3 of the world isn't earnng $25K per year, but perhaps only around $5K per year, and another 1/3 might only be making $500/yr or less (the Bottom of the Pyramid, or BOP), then what we're really saying is that the overall asset class is currently only worth around $100T, and is undervalued by about $200T due to the current state of healthcare, education, housing, and overall economic opportunities for 4 billion of the world's 6 billion people. 

imagine then if you could invest in the undervalued portion of the asset class, and then enable access to healthcare, education, and housing for those $4B people.  you'd have one of the best and largest investment opportunities ever.

Fifty thousand here, two hundred trillion there... pretty soon you're talking real money.

hope to see some of you folks at Social Capital Markets 2009 :)

(included below is my previous presentation on Securitizing Happiness):

Securitizing Happiness: Solving the World's Problems by Making Trillion-Dollar Markets for Individuals, Small Business, & Natural Resources

View more documents from Dave McClure.

Securitizing Happiness: Hacking Human Suffering thru Financial Engineering (TEDxShanghai, June 2009)

Below are slides from my talk on "Securitizing Happiness" at TEDxShanghai later today.  This presentation is a slight update to the original talk i gave back in March 2008 at the O'Reilly Collective Intelligence FOO Camp, held at Google HQ in Mountain View:

Securitizing Happiness: Solving the World's Problems by Making Trillion-Dollar Markets for Individuals, Small Business, & Natural Resources

View more OpenOffice presentations from Dave McClure.

Note: many of these concepts are still fairly raw, and since i'm not really a financial engineering expert they could certainly use further refinement... so your feedback and comments are appreciated.  That said, i'm optimistic the basic ideas here are viable, worthwhile and can have substantial economic impact on society in the future.

Google.org Initiative: Accelerate Growth of SMEs, Small- & Medium-size Enterprises (Sonal Shah)

My friend Sonal Shah is working on a new initiative at Google.org to help fuel the growth of Small- & Medium-size Enterprises (SMEs), initially in India & Africa.  Along with Omidyar Network & the Soros Economic Development Fund, Google.org recently announced the creation of a $17M investment company focused on SMEs in India. 

VentureBeat reported the investment company announcement, and provided other info on commercial capital projects in India, including a report on India infrastructure investment by Arun Natarajun of Venture Intelligence.

These SME initiatives have tremendous potential, and i wish Sonal & Google.org & other groups best of luck with their efforts.  Go small business investment!

Below are two short video clips that explain more about the five core initiatives Google.org is doing; the end of the first video & the second video specifically discuss the SME initiative.

Video on Google.org & Five Core Initiatives:

1. Renewable Energy Cheaper Than Coal (RE<C)
2. Accelerate Commercialization of Plug-In Vehicles (RechargeIT)
3. Predict & Prevent Global Emerging Threats (ex: disease, climate risk)
4. Inform and Empower to Improve Public Services
5. Fuel the Growth of Small & Medium-Sized Enterprises (SMEs, @ 7m30s)

Video on SME Initiative:

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My Steamy Love Affair (!) with Microfinance, Startups, & Small Business Finance

Helping grow SMEs is an interesting topic that is closely related to two of my favorite subjects, startups & microfinance. Over the past 5 years i've spent time learning about microfinance & helping support Unitus, Kiva, & Microplace, and more recently running the Silicon Valley Microfinance Network (SVMN.net).  For the past 10-15 years, i've been trying to learn how to start & run tech startups better, and figure out how to make it easier to get them funded & financed.

That's Right Ma'am.. I Got My MBA from The School of Hard Knocks

Having spent a few years at PayPal & eBay, i was always fascinated by how small business provides a huge engine of growth for many global economies, yet equally amazed at how little access to capital & business education most SMEs have.  As a small business owner myself for a few years back in the mid-90's, i learned this the hard way. My first company, Aslan Computing, was a small consulting shop performing internet & e-commerce projects for clients in Silicon Valley and San Francisco.  I started out as an independent developer doing database consulting & programming for Microsoft & Intel, then gradually we grew into a small consulting group of ~15-20 people. 

But i was pretty clueless about basic business finance, and altho we grew rapidly so did my personal debt: in the first few years of the business i ran up almost $250K of personal & business debt, and explored every possible wacky financing angle including: high-interest credit cards (~10 of them, at one point over $100K in debt), borrowing money from employees, equipment leasing, factoring invoices, and selling equity to friends & family.  I even tried raising venture capital, but slowly came to realize most VCs aren't likely to fund consulting businesses (tho US Web, Scient, & Viant all did manage to get plenty of VC funding during the late 90's).  I once had an offer from an angel investor to put $250K into the company in exchange for 20% equity, but i wasn't very experienced at the time, and i wasn't sure about the investor.  Well, you know the old adage: experience is what you get when you don't get what you want. 

Folks, lemme tell ya: i got a lot of experience out of those years.

Overall it was quite the financial & emotional rollercoaster, and while i managed to make payroll mostly on time for ~3 years, eventually we ended up selling the business to a larger partner for a rather modest sum.  It was a small win, but i wish i spent more time learning how to manage our finances better, and had created a better financial foundation for the business with more reasonable access to credit.  Ah well, nothing like the school of hard knocks to teach you a tough lesson.  And perhaps also, to discover a new market opportunity.

Getting Back on the Bike... After RTFM

Anyway, that experience made me hungry for more info on venture capital, startup finance, and in general on how small businesses get access to capital.  In 2000, i read The Venture Capital Cycle by Gompers & Lerner, which explained a lot about the motivations of VCs and their LPs.  In 2001-2002, i read Hernando de Soto's incredible book The Mystery of Capital, and Muhammad Yunus' first book Banker to the Poor. 

Both books focus on how sole proprietors & small business have limited access to capital, and also typically a lot of bureaucratic red tape, but that in the right environment & with good capital availability small businesses can thrive.  Around the same time i also read MoneyBall by Michael Lewis, which made me think a lot more about how people overlook & underemphasize metrics.

Creating New Asset Classes & Securitizing Small Business

Ever since reading these books, and after i wrote the first draft of my magnum opus on Securitizing Happiness, i've become convinced there is a huge missing asset class in small business debt & equity that could dramatically help fuel the growth of the global economy.  All we are missing are 3 things:

• a way to automate business metrics & provide greater transparency
• a way to lower transaction costs & accelerate the financing process
• a way to provide back-end liquidity / fuel exits to 'make' the market

Gotta be a Pony in Here Somewhere !?!

While these are difficult & challenging issues to address, i'm optimistic several organizations are working on solutions that may emerge over the next few years.  In that light, it's great to see Google.org and others going after these opportunities.   I'm hopeful for the future, and i look forward to seeing what happens next :)

Securitizing Happiness (v0.9): Solving the World's Problems by Creating Trillion-Dollar Asset Classes for Individuals, Small Business & Natural Resources

For the first time i tried to put together my earlier thoughts on Securitizing Happiness, and gave a brief presentation at O'Reilly Collective Intelligence Foo Camp to people a lot smarter than me.  Here is the rough first cut...

Securitizing Happiness: Solving the World's Problems by Making Trillion-Dollar Markets for Individuals, Small Business, & Natural Resources

view presentation (tags: finance capital.markets social.entrepreneurship economics)

hopefully i didn't end up looking like too much of an idiot, but regardless it was great for me to finally get this out in the public domain and get some reactions.  appreciate any feedback or thoughts on the concepts & proposed solutions, and particularly any good hacks you think i've overlooked...

Swear Like a Pirate. Win $50K for Cambodian Kids. FUCK yeah. (congrats beth :)

  Swear Like a Pirate. Win $50K for Cambodian Kids 
  Originally uploaded by davemc500hats

Beth Kanter didn't sleep for 2 days, and proved that one passionate individual can make an amazing amount of difference.  In this case, over $50K worth of difference. 

holy candystripers batman!

i like to think my "Give it Up, Bitches" post and Facebook tag-spamming for charity (fucking for virginity? hmmm)... made all the difference.

hey, every little 4-letter word helps :)

Beth Kanter: Give It Up, Bitches. NOW.

  Beth Kanter: Give It Up, Bitches.  NOW. 
  Originally uploaded by davemc500hats

Beth Kanter is an awesome blogger & non-profit evangelist who does terrific stuff to help people around the world, particularly kids in Cambodia (her adopted daughter is Cambodian too).

Right now, she's competing to help raise funds from the largest unique # of donors (not amount of money, rather # of contributors).   Interestingly, she's competing as a 1-woman social media-enabled army against other bigger organizations.

So why don't you take one minute to donate $10 to her cause, and help her get over the finish line? She needs 28 donors to catch up with the leader, and i just gave $10 so now she only needs 27.

Hurry the F up! this needs to happen by TOMORROW 3pm (Eastern)

SO GIVE IT UP NOW, BITCHES
-> CLICK HERE <-

(click above, pull out your credit card, & take 60 seconds to donate $10 you cheap bastards you.  yes you.  right now, dammit.  YES I SAID!  STOP reading this shit, and CLICK!  Click Click CLICK!)

you're still reading this, aren't you asshole?   you didn't click yet?

oh you did?  ok, good.  you can stop feeling guilty that you haven't helped change the life of some poor cambodian kids for ten measly stinking bucks.  which you probably spent yesterday on some really shitty ham & cheese sandwich at some fancy-schmancy california foo-foo restaurant.  you pathetic piece of slime you.

sorry, you gave that $10 right?  much better.  kisses. XOXOXO

no seriously, click on that fucking link and give $10.

still feeling guilty? re-blog this & recruit 5 more people NOW.

share it on facebook.  digg it.  whatever.

(btw, i promise i'll take lunch meetings in Q2 with any startup that can show me they gave at least 5 x $10 donations to Beth's cause -- how's that for pimping with a purpose?)

ok, i think i've exhausted every psychological trick i can think of now.  if you folks get creative, pile on in the comments with your best Catholic guilt trip.

Bill Gates "Kinder Capitalism" Requires New Asset Classes = Securitizing Happiness.

There's a WSJ article this morning about Bill Gates' new ideas for a more creative "kinder capitalism" that needs to work better to address the issues of the world's poor.  That #, depending on how you count it, is somewhere between one-third to two-thirds of the world's 6 billion people.  Altho he says the ideas are still a bit fuzzy, he's planning to talk about it further in his speech at the World Economic Forum in Davos.

Here's a brief video clip on his concepts:

I applaud this kind of thinking, and Bill's efforts through the Gates Foundation are groundbreaking & innovative.  Other similar-minded groups at Omidyar Network, The Skoll Foundation, & Google.org also do amazing work.  I'm a supporter of microfinance accelerator Unitus also doing terrific stuff on economic innovation & emphasizing market forces to make the world better.

Securitizing Happine$$

However, I think there are still a few critical missing market components in what Bill is calling "creative" or "kinder" capitalism.  In fact, i'd say there are several hundred-trillion dollar asset classes that don't currently exist that, once created, will dramatically stimulate market forces to address global poverty issues & other beneficial public infrastructure. I call this effort Securitizing Happiness, or in the long form "Solving Global Economic Issues by Making Markets for Individuals, Small Business, & Natural Resources".  I think this is along the lines of what Bill's talking about, & i've written about it a few times.   

Note that i'm not professing some wacky socialist proposal for redistributing wealth -- i'm talking about unleashing the power of the market via the creation of huge new untapped economic asset classes, similar to the creation of mortgage markets and financial derivatives markets.

In particular, i think these missing asset classes include:

• small business equity markets (~50% of US GDP, more globally)
• individual economic futures (incl. aggregates & derivatives)
• human health impact of natural resources (water, air, land, etc)
  

For my more wacky & lengthy thoughts on this topic, please read this post from a few years back.  I'm continuing to refine my thoughts on the subject, and the concepts i'm working on with Startup Metrics are related in a somewhat convoluted but very essential way. 

hope to do more work on this down the road, and i welcome feedback.

UPDATE: put together a rough slide deck on this here:

Securitizing Happiness: Solving the World's Problems by Making Trillion-Dollar Markets for Individuals, Small Business, & Natural Resources

view presentation (tags: finance capital.markets social.entrepreneurship economics)

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btw, also mentioned in the Gates article is Dr. Muhammad Yunus, founder of the Grameen Bank, one of the fathers of modern microfinance, & recent winner of the Nobel Peace Prize... and certainly one of the most amazing social entrepreneurs i've ever met.  He was in town recently speaking about his new book, Creating a World Without Poverty. 

Two other books mentioned in the article are among my favorites:

• The Mystery of Capital, Hernando de Soto
• Fortune at the Bottom of the Pyramid, CK Pralahad

The Mystery of Capital in particular is a book that really opened my eyes to the value of property rights and housing / mortgage markets in making economic progress.  It's worth the read.

Kiva using Beacon to promote microfinance lending

i'm in San Francisco at the Commonwealth Club listening to Dr. Muhammad Yunus, founder of the Grameen Bank & winner of the Nobel Peace Prize.  while i was listening, i thought i'd login to Kiva.org and make a few microfinance loans in real-time. 

as i made the loans, i noticed Kiva is using Beacon to share info about the loans i'd just made on Facebook.  that's cool :)

Here's the Facebook screenshot showing the new Beacon opt-in user notification:

And here's the screenshot showing the Kiva microloan stories published in my Mini-Feed:

While i'm talking about microfinance, i should also mention another organization i'm involved with called Unitus, that also does amazing work in the field.  Kiva works with individual borrowers, while Unitus works with microfinance institutions to help provide financial capital & management expertise.

WTF: US State Department Congratulates Kenya Election "Winner" Kibaki... huh?!?

Does anyone think this is exactly NOT the way the US should be supporting democracy in Africa?

US Congratulates Kenya Presidential Vote Winner, EU Monitors Question Results

"The United States congratulates the winners and is calling for calm, and for Kenyans to abide by the results declared by the election commission. We support the commission's decision," said spokesman Robert McInturff. He reiterated a State Department statement from Saturday that asked Kenyans "to reject violence and respect the rule of law."

I'll admit i've only been following this over the past few days, but the recent Kenya election certainly would appear to be far from a free & fair one. EU monitoring officials expressing significant concerns, initial results showing opposition challenger Odinga winning were overtaken by Kibaki at the last minute, slow election result reporting, the Kenyan government bans national news television broadcasts...

and the US State Department is congratulating the election winner?

What. The. Fuck?!?

Perhaps this was an inaccurate report of our country's representatives in this situation... i sure as hell hope so. Otherwise it sounds like we're passively supporting yet another not-quite-democratically-elected African leader.

Someone please explain to me how we could be screwing up US foreign policy any more than we have in the past 6-7 years. Sigh.

UPDATE: the New York Times has an interesting report of the Kenya election commission's decision to certify the results, rejecting recommendations from Western diplomats (incl. the US ambassador) to recount votes & investigate:

75 of the 210 constituencies — meaning more than one-third of the vote — had serious question marks and that the election chairman initially agreed to investigate. But later on Sunday he changed his mind.

Kenya is a close American ally, and a team of Western diplomats, including the American ambassador, tried for hours to persuade election officials to recount the votes. One Western ambassador said they knew that if the dubious results were certified and the president declared the winner based on them, Kenya would plunge into crisis. But the commission would not budge.

“The government was determined to hold onto power,” said the ambassador, who did not want to be identified because he said he feared reprisals from the Kenyan government.

If the above account is accurate, it seems hard to understand why the State Department would knowingly congratulate the winner of a likely fraudulent election process.

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side note: i'm a supporter of Unitus, and one of the microfinance groups Unitus has funded is Jamii Bora in Nairobi. they've made incredible progress in helping make business, education, and housing microloans to over 100,000 working poor in Kenya.

if you want to make a real difference for someone, i encourage you to support Unitus and other microfinance organizations around the world.

Unitus: Venture Capital for Microfinance -- The Smartest Way to Change the World

Want to make a holiday donation that makes a real difference? 

Give to Unitus.

here's why:

i'm a Unitus board member, and tho it's not a Silicon Valley startup it's one of the most scalable & innovative ventures i'm involved with.

want more info on our impact?  here you go:

• Unitus partners with 16 microfinance institutions around the world
• Unitus reaches 3 million people lifting themselves out of poverty
• Unitus changes people's lives every day... but only with your help.

convinced?  good.   now give it up.

then kick back & feel good about yourself :)