Popular Equity

The part that feels similar is that without ownership of long-term profit growth, it feels like there's nothing here. Without something real, we might even want something like an NFT or a crypto something to give the venture a uniqueness that we can then value in a market. The value of a venture isn't real, but a made-up NFT is? Oh dear, we've become warped.

Better to remind ourselves how we got here. Things have value: eggs, bread, houses. Services have value: cooking, cleaning, teaching, helping. Exchanging things and services (bartering) is cumbersome without money. So we invented the abstract tool of money to hold value. Now everyone can trade with everyone, as long as we all value the intermediary of money. But the things that have the real value are the things and the services. Unless we really can't get toilet paper anymore, money itself is just an abstract tool.

After inventing money and much more recently, we realized that the goose that lays the golden egg is worth a lot more than the eggs. And it turns out that goose is even more valuable if we let everyone own a piece of it. Again, what has value? The goose, or ventures that generate things and services that have value. The combination of an equity market and the abstract tool of money puts a price on the value of the venture.

By including goodwill as a potential success criterion for ventures, Popular Equity allows investors to own ventures that generate services and things that people value, even if it doesn't necessarily generate money. Many of us value ventures that could save forests responsibly, or collect key climate data, or fix homelessness in a scalable way. Why? Because they help everyone. How much do we value them? Who knows? It's more than zero. We just need to do the trick of combining currency with an equity market to figure out the value. And when we do, we give investors and ventures the path to a win-win situation that by definition becomes a win-win-win when the ventures are doing good things (for everyone, or at least, others).

Crypto is a great way to make transactions private. Transactions with Popular Equity are by definition public. So crypto isn't helpful.

NFT is a great way to make something unique out of something that can be readily and freely copied. If your venture is successful and can be readily and cheaply copied, then your venture is scalable, and it's now even more successful. There's no need to invent uniqueness for something in Popular Equity-- as long as the ventures are only listed on one exchange.

Prominent economists have argued that there's nothing of value at the core of crypto currency and even most NFTs -- they're pure speculative bubbles. The main difference with Popular Equity is that most of the ventures represent something like people's life-time of work. In some sense you can't point to the value of everything Bob Dylan's done, or everything Planned Parenthood has done, but there's no question that there's something very real with both of them.

One worry is that since most people pay financial advisors to do their investing, something like Popular Equity will never catch on. As a rich person, I might value saving the rainforest, and great blues music, but it's too hard to communicate the subtleties of my values to my financial advisor. So I'm happy, as long has they're investing my money well, by making more money for me while reducing risk.

Until there's a new financial services company that starts asking things like: Would you like to use some fraction of your assets for "direct value" investments in arts, creation, and goodwill?

What's that?

Some of our clients have started investing 10-20% of their assets in ventures that focus on generating direct value, and aren't necessarily focused on long-term profit growth.

Interesting...

And with that money, many clients have specific areas that they think are important. If you'd like, we have funds set up that are addressing climate change, long-term health and healthcare research, public safety and homelessness. It's a long list.

Actually yes, I'm interested in something like that. Do you have anything focused on Parkinson's specifically?

Of course. There are a range of ventures that are looking into that problem. Most of the more notable efforts are now part of the Parkinson's ETF.

But I'm guessing we're going to expect less than market returns with those investments?

We'll see. It's a growing market, and with more people shifting money toward investments in ventures doing things they value, the market has done remarkably well recently. Long term it'll depend on the value these ventures ultimately generate.

If there's some potential upside there too, then I'd like to start at 20% of my assets. Let the other 80% chase money. Let's do some good with at least 20% of it.

Sounds good. Anything else?

Thanks for your time.

The argument for ESG underperforming is that you're wasting time and effort that isn't going into maximizing profits. That doesn't apply with Popular Equity. Ventures decide their own measures of success, and investors buy in.

So the real question of whether things will under- or over-perform the market have to do with whether investors will under- or over- buy-and-hold the venture, which will be related to how successful the ventures are in meeting their success measures, and how much investors value that type of success.

With ESG there are at least rationalized arguments for under (and over) performing the market. With Popular Equity, it's a new investment vehicle. With enough listings, it's only obvious that some will perform better, and some will perform worse.

It does.

(Put money into your favorite new startup, that you just made up, and take it out over there, and like magic you have clean money. Add a ponzi scheme on top of it, with other money coming in to prop up the valuation, and your money can even grow as it gets cleaned!)

Our hope that it's legal rest on the idea that ownership is better shared, and that inherently public transactions will generally discourage some of the more obvious abuses. We'll also put in other community-sourced safeguards to help reduce abuse.

Another related concern is what SEC scrutiny ventures will have to go through in order to have their securities listed. Does the musician need to prove SOX-compliance for themselves and the band in order to be listed? That seems silly, but it also seems silly for Popular Equity to provide a path for traditional businesses to be listed without things like GAAP and SOX-compliance.

In cases where the success measures of the venture are outside profit, it seems less likely that existing SEC regulations would be helpful. In those cases, investors aren't interested in profits, they're interested in the success of the venture.

And in cases where the success of the venture is primarily based on profit, then existing SEC regulations seem helpful and necessary. If there's an awkward middle ground, with semi-non-profits (like many tech startups), our starting assumption is that many of these will list success measures not based on profit, until they're more interested in and capable of following SEC regulations.

Many of the bad scenarios are first around rapid price fluctuations. Corrupt investors and corrupt ventures could find ways to exploit the variance, and people could end up not trusting the entire platform. A promising nonprofit could lose investor interest because the platform loses investor trust.

There are other bad scenarios in the area of intentional abuse.

The more interesting bad scenarios are what happens if it becomes "too successful." How do things break when investors and ventures are aligned to work on the things people value?

The most obvious might be related to everyone having to spend time trying to convince investors that what we're working on is valuable. That's a little like advertising and marketing already, so we think that's generally okay. But maybe things get distorted in particularly surprising ways in the context of dynamics with Popular Equity. We'll keep thinking about it.

At its core, Popular Equity provides a path to monetize what a sufficient number of investors value. That's probably the scariest potential. On the surface it feels okay, but things get murky when the investors have very different political interests than yours. Below that are the nightmare scenarios.

How many rich investors would go along with something that makes them richer, if it also served Putin's interests? How many of us are already doing that today? Is Putin clever enough to come up with a set of misinformation success measures that enables whatever he needs? The main starting defenses Popular Equity has are around public trading, and weighted (recursive) public review. At some level, many of us will be incentivized to point out misleading / corrupt goals, and at some level it'll be obvious who is involved.

By increasing the potential space of equity markets, it's revolutionary enough to have unintended consequences. It's not silly to imagine: "how would Putin use this?"

If something comes to mind, please send us a note: faq@popularequity.com.

The thinking here is that without a profit motive, there is no real competition, and eventually "it all falls apart." To me communism implies an entitlement (along with equality), and that entitlement is part of the problem. The other problem is that most communism systems have been implemented with single party control that leads to natural corruption.

With Popular Equity, as long as there are reasonable hard goals that are valued by the ventures and investors, there is real competition. And as long as there is choice in where investors invest, there are a diversity of investors and interests influencing what gets done, with less of a natural pressure toward secrecy and corruption to maintain power.

If those assumptions are correct, then it's more common values between investors and ventures, and less the abstract tool of money that holds things together and drives things forward.