According to Paul A. Gompers and Anna Kovner’s research, serial entrepreneurs are the key driving forces in the modern business world. Those who succeeded once have significantly higher chances of succeeding in their next venture by 30% when compared to the first-timers. That makes the past performance of an entrepreneur is a strong indicator of a future success.[1]
Identity-centric investment model is a financial asset model that capitalizes on the iterative nature of a personal success. The model creates an ecosystem where an individual (e.g. an entrepreneur) becomes an object of an investment itself.[2]
Figure 1: VC model (left) and Identity-centric investment model (right)
Figure 1 shows that investing in a personal success creates an opportunity to capitalize multiple attempts of the “breakthrough”. The overall personal success is accumulated during the lifetime through business endeavours, personal projects and outside investments.
Identity capitalization and HCBA
Theodore Schultz, the Nobel prize-winning economist, invented the concept of human capital in 1960s that reflects the value of human capacities. He stated that human capital is like any other type of capital could be multiplied through education and enhanced benefits.
In other words, human capital is an economic value of a personal skill set. The concept of human capital recognizes that not all labor is equal and the quality of personal skills can be improved by investing into them. A personal education, experience and natural abilities can be quantified and have an economic value.
Human Capital Backed Asset (HCBA) is a type of financial instrument that is built around identity-centric investment model. It offers individuals an opportunity to fund their endeavours with an equity financing which is something available only to corporations before. It offers investors a chance to fuel a lifetime growth of current and future business leaders and benefit from their achievements.
Figure 2: Identity capitalization
Figure 2 shows the Identity capitalization model and direct relationship between personal success and generated capital through HCBA. The major difference from the enterprise model is that the capital is not bound to a particular project but to a person (e.g. an entrepreneur).
“HCBA creates a unique opportunity for individuals to raise funds for their endeavours and vision on their own terms. It gives an equally unique chance for investors to grow their wealth from both early and late stage success of individuals they chose to support.” — Vlas Lezin, Ex-VP of Goldman Sachs
The growth criteria for identity capitalization and HCBA coincide with the criteria in traditional capital models where the growth of firms` capitalization correlates with the total market value of assets, it’s intrinsic value and investors belief in future earnings.
Intrinsic value of HCBA
Secured by personal reputation
In the modern society, a personal reputation often equates a brand’s reputation. As internet has allowed businesses to become more visible, business leaders became an immediate representatives of their enterprises. Ones` reckless tweets or unmindful comment can steer chaos and cause enormous losses for a company.
HCBA is build to monetize the value of personal reputation, brand, skills and track record. The lifetime of continuous success created by an entrepreneurship and other endeavours is captured in the representative growth of a personal asset.
Dividend payout
While a personal track record provides a direct support for the market appreciation, hard money tied to a certain asset and provides much better stability, clearer expectations and calculated growth. Thus HCBA has a number of built-in models for paying out the respective dividends.
Within these models investors and HCBA issuer can negotiate a mutually beneficial scheme to channel direct financial representation of one’s success to his or her supporters.
Return on investment
Return on HCBA investment is driven by two major forces of the traditional stock market: market appreciation and dividend payouts. As an individual behind HCBA reaches new validated results, value of his or her personal asset grows along with HCBA market price.
HCBA issuer is directly motivated to adhere to the terms negotiated during the initial listing as the model allows disbursement of raised funds and subsequent issuance only after current investors confirm the ongoing compliance with such terms.
Additionally, an individual HCBA issuer can decide to buy back part of his or her outstanding emission, pushing price higher. Dividend payouts also play a major role — future cash flows can be discounted to the present value and adjusted for growth to determine an intrinsic value of HCBA.
Liquidity
Unlike other early stage investments, HCBAs are traded under the traditional exchange model where each listed asset could be bought and sold at any given time.
Conclusion
Modern technology finally reached a stage where we see less intermediaries and more direct peer-to-peer interaction. HCBA and Identity-centric investment model finally create a mutually beneficial ecosystem that allows everyone to fuel ventures through their network and benefit from personal success.
References
1. Gompers Paul A., Kovner Anna, Lerner Josh, Scharfstein David S. (2006). “Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs. “. Social Science Research Network.Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=933932
2. Goryunov Kirill, Lezin Vlas. (2019). Identity Fund Position Paper. Retrieved from https://identity.fund/position-paper
3. Garton Eric. (2017). “The Case for Investing More in People. ”. Harvard Business Review. Retrieved from https://hbr.org/2017/09/the-case-for-investing-more-in-people