When VCs make investments we are told that they are really â€œinvesting in people.â€� Some businesses invest in advanced education for their top employees.
I have always thought it would be interesting if people could invest in other people. Consider this â€“ if a VC is really investing in people, then why are people not investments in and of themselves, rather than simply vehicles to investment? We can now invest in everything from weather derivatives to exotic asset classes. What if you could invest in an entrepreneur, rather than his or her company? Would that person have more incentive to perform? Could the ROI be greater, or the risk diminished?
Recently we have seen a rise in â€œcreative lending,â€� from micro loans (Kiva) to lending among friends (Facebook Loans) to MyRichUncle, a New York company, offering â€œhuman capitalâ€� as an investment. MyRichUncle creates mutual funds for investors willing to provide students with funding for college in exchange for a percentage of future earnings. For years, Warren Buffet has auctioned off a luncheon that he will attend and entertain questions at. Author Tim Ferriss is currently auctioning himself off (for a date).
This week I came across a Forbes.com article talking about a charity auction at Harvard Business School where students bid out percentages of future earnings in exchange for philanthropic donations. For example, one student promised 3% of his earnings in 10 years. There other students put 1% shares paid in 10 years on the auction block. I find this sort of human capital marketplace both fascinating and scary.
When people are desperate for money, they will accept deals that are insanely foolish because it’s difficult to think beyond immediate needs and desires. Thus, could such a human marketplace be regulated so that the desperate are not taken advantage of? Still, despite the hurdles, the benefits (outside of ROI) could be tremendous. For example, for those with little or poor credit, an individual lending money for law school could be a win-win for both parties and the difference between attending and not attending.
Outside of individuals, what could be the role of corporations? Why do colleges like Stanford not bankroll more of their obvious student entrepreneurs? Harvard would certainly being doing even better with a small piece of Facebook or Microsoft. Instead of teens paying for an internship with an investment bank, is there a scenario where an iBank would pay for a teen’s education? If the student left the firm after graduation, there could be an option for equity (percent of salary); a convertible note of sorts.
Is such a marketplace a good idea? Is it viable? Is it ethical?