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| A good investment |
In 2008 Portland entrepreneur Mike Merrill sold shares of himself in an IPO to his friends.
For $1 a share, he gave shareholders a slice of potential profits, and the right to decide the realm and scope of his creative projects.
This soon got complicated. According to Wired Magazine, when he chose to move in with his long term girlfriend in late 2008, his shareholders were furious that he failed to consult them before such major life shift. They were concerned about the deleterious effects that such a decision could have on his future profitabilty. Chastened, Mike now submits all major decisions (and a number of lesser ones)for approval from his investors. Subjecting their relationship to the whims of shareholders did not please his girlfriend. Merrill’s suggestion that she buy more shares for a bigger say didn’t bode well for their courtship.
With over 3,700 voting shares in the hands of investors( Merrill retains a 96% non-voting stake) it has been an interesting experiment in crowd sourcing, While it was recently mandated that he embrace a vegetarian diet and register as a Republican, shareholders nixed his desire to grow a mustache, and thwarted the physical prowess proposal, a plan to join a local Jujitsu gym.
I found this article an amusing primer on the perils of equity financing. Though Merrill is not the first to chart this path. In 1997, David Bowie sold $55 million in “Bowie Bonds” to Prudential Insurance, in exchange for full rights of future assets of his first 25 albums. The rights returned to Bowie after 10 years. Bowie’s example has inspired other business-minded musicians, though Goldman Sachs efforts in 2012 to orchestrate a similar bond (rated BBB-) for Bob Dylan failed to net investment interest commensurate with the $300 million valuation.
Shrewd investors take note: a stake in the Bieber kingdom may have to wait a while.
Though Merrill’s experiment is mostly tongue in cheek, cash-strapped students are beginning to embrace equity to finance higher education and life learning. Upstart is a website that supports the entreprenurial and educational pursuits of recent grads in exchange for a fixed percentage of their future income. For wages over $30,000 year, Upstart takes a slice for ten years. The profiles of the students funded is impressive and inspiring. Though it remains to be seen if this would be a viable investment model for “average” students in a competitive job market, it is a noteworthy experiment in supporting the dreams of highly motivated individuals.
Count Merrill’s new girlfriend as one of these. Financially savvy, she recently exercised her exclusive stock options to secure more sway. Additionally, she has been winning over skeptical investors left and right. Merrill is smitten. According to Wired,
"Instead of getting me flowers, she is trying to buy me, " Merrill says. "It bodes well."
At $16.30 a share, it surely does.
Hi John!
ReplyDeleteWhat!? That is really funny! I would not want people to have that much say over what I do but if it works for him - I guess good job.
I like that the investors made him become vegetarian. Funny!
Nice writing!
Molly
This is brilliant, funny... and reminds me of "The Truman Show."
ReplyDeleteWhat really piques my interest, though, is the idea of equity financing for education. This is precisely one of ideas we've kicked around on the poverty team.
A persistent challenge we hit is that poor students have very few assets other than potential motivation and time. That time also works against them - investing in a 10-year-old kid in the Bronx might not pay back until he's out of college at 24. Then you'll be withdrawing equity, probably at a relatively slow rate, for a long time.
The NPV is punishing. The risk of "default" is high. And there are social risks... among them, you're veering towards a model similar to indentured servitude. We sell aspects of our freedom for investment.
Then again, that's precisely what Merril has done. He's retained a 96% controlling interest, of course... but it also sounds like no one's leaning hard on him. Tell you what, I own part of Merril, I'm sending down my legal team, and making sure he's doing the due diligence!
So we arrive circuitously at: it's a free society... can you sell shares of yourself? Can you sell your freedom? Or is that something we restrict the individual from doing? And how is that different from contracts, from criminal law, and from civil unions?
Cool story, John. Presumably he could work out his terminal value and other valuation figures for himself. However, it's a leap of faith to presume he will be profitable in future years. I saw recently in Norm's blog that prospects for college graduates are not as rosy as they were a few years ago (http://abnormalecon.blogspot.com/2013/05/the-employment-rate-of-college.html).
ReplyDelete-- Greg
LOL!!!! Thanks for an amusing and relevant story John. My boss has mentioned and chuckled about the Bowie bonds in the past and now I know why, thanks.
ReplyDeleteJohn, how cool. My business model is a version 3.0 of this model.
ReplyDelete