The Most Interesting Model of Startup Investing You've Ever Seen

by Nathaniel Whittemore · 2009-12-03 05:30:00 UTC
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What if someone offered you the chance to spend the next few years following your entrepreneurial dream? Would you trade 3% of your future earnings?

That's the premise that investor, thinker, adviser, and poker player Rafe Furst proposed in his recent post "Investing in Superstars." His basic notion is that sometimes you run into people that you just believe are going to be the innovative drivers of disruption, and you want in to whatever they decide to do. What takes this beyond a thought experiment is that he's actually doing it.

The idea breaks down to a few pieces.

  • The amount of money given and the industry in which the entrepreneur invested in is planning to work through determine what percentage of annual earnings would be owed

  • There would be a buyout clause at a preset rate, again based on factors like original investment and industry

  • The entrepreneur would have to give at least one year's notice before exercising the buyout clause

It's amazing to see the volatility of the comments. There is almost no middle ground. People either absolutely love the idea and see it as a more authentic and interesting approach to investing, or they through around words like indentured servitude. Some people are just downright angry, like the guy who said "you are an ass with more money than sense."

It's clear though that some other people are thinking about this type of loan as valuable for more than just startup investing. Pop!Tech blogger Ashni Mohnot is working on a startup called Enzi that will enable people to make educational loans in exchange for a percentage of income for a fixed amount of time.

I'm incredibly curious to see what young entrepreneurs would do? Use the comments to share.

(Photo: Jam Adams)

Nathaniel Whittemore is the founder of Assetmap. Previously he was the founding director of the Northwestern University Center for Global Engagement.
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