First off, I’d like to thank @MissRogue for pointing out this article last week in her Twitter feed. Made me think a lot about how we do business currently, and maybe how we should be doing business in the future.
It would appear to me that the current investment model focuses on the predicted performance of organizations. Once funds are granted, the investor is provided some share of the organization allowing them some say in how business will be conducted. Investors are then repaid based on the performance of the organization in the form of dividends or selling their interests at a profit.
The problem I see with this model is that the organizations are complex organisms full of potential but dependent on the motivation of individuals. Measuring this risk is difficult due to the number of influencing factors. Incorporated entities also have the option to fold up shop with no real impact on the executive or responsibility to the investors. As such, this model lends itself very well to large, established enterprises but makes it very difficult for the smaller new guys
The paradigm showcased by Rafe has the investor investing in the individual, and their potential. Allowing the investor to take the funds and spend them as they see fit, these funds become closely tied to the success of the individual. Risk here is controlled by the attachment to the individual since it is tied directly to personal assets. As well, one would assume and investor believes in the individual and in the individual’s potential.
This sort of Utopian people helping people mentality might just be a pie in the sky dream, but there is some proof now that people are doing it.
And if people are looking to do it, I’ll offer 7.5% ARP on $500,000 with a $2,500,000 buy out! 😉