James Piecowye thinking out loud

Ideas, inspiration and a bit of random.

New Way of investing?

Posted on | January 23, 2011 | No Comments

What if we thought about investing in ideas different?

Presumed Abundance might just be that group.

The idea is simple.  Fund it forward!

How It Works

We provide startup capital for your company. Instead of buying equity for ourselves, the equity we purchase goes directly into our angel fund. Upon a liquidity event (merger/acquisition or IPO), the equity we purchased becomes available as seed stage capital for new social enterprises. The twist? You are now our angel partner, with an equal voice in determining where to invest that money.

An Example:

We invest $10,000 in Nina’s Fair Trade Kale Company in exchange for 10% equity in her company.

In three years, Whole Foods purchases Nina’s Fair Trade Kale Company for $1,000,000.

The fund’s equity is worth $100,000.

Together with Nina, we invest the $100,000 into new enterprises under the same terms as the original agreement. The result? The equity that Nina initially sold to us is used to jointly fund the next generation of social entrepreneurs.

But what really caught my attention was the Presumed Abundance Clause!

The Presumed Abundance Clause

We want to create a new model for investors and entrepreneurs. We have been angel investors for a long time, and believe in getting a financial return on our investments, as well as a socially rewarding one. We know it is unrealistic to expect traditional investors to give up 100% of their equity, but we do see an opportunity and a need for a more collaborative approach.

In our ideal world, all contracts will contain a Presumed Abundance clause, in which the investor and the investee mutually agree to set aside a small piece of equity to create a new vehicle for good.

Whether you are an investor or an entrepreneur, you can make this happen. It starts with a personal commitment to set aside 1% of your equity to pay forward to future entrepreneurs.* Honor this commitment no matter what. When you begin negotiating, say that you have done this, and ask the other side to do the same. If 1% represents a much larger portion of equity for one side or the other, offer to set aside equally proportionate amounts.

Perhaps this will not remove all the friction inherent in any financial negotiation, but we believe that even this small act will foster a more cooperative, long-term way of thinking.


Imagine if we did do things different?


I suspect the starting point is back at the university and the business schools/colleges/departments!

Educators have to educate differently in order to hope to really see any change int he thinking of the business leaders to come.

I am optimistic change is coming.


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