The Value of Private Venues, Part 4

We will create private venues within which entrepreneurs may make private offerings in compliance with the U.S. Regulation D and most European equivalents. All parties pay a fee for participating in the venue. This is in contrast to the Industrial Age method where a broker would sell the offering in exchange for a commission and often a stock option. Many investors mistakenly think that they do not pay the commission and, consequently, will be reluctant to pay a Membership Fee. In reality, the commission is paid on a per share basis. So, if you invest $10,000 likely $1,000 would be paid to the broker. Clearly, the brokerage route, while having the advantage of exactly matching investment with expense, will, in the end, be much more expensive.

Perhaps you are in the position to become an investing Member. Perhaps you are interested in developing an entrepreneurial opportunity of your own. Perhaps you would like to find an existing opportunity to join. In any of these cases, you should first follow http://thefuture101abstracts.blogspot.com or better still, friend me on facebook.com or let's connect on linkedin.com.  We will work from there.

If you, on the other hand, know someone who might be interested in our private venues, introduce them to me.   I will make a note of it and if they join, I will send you a generous referral fee.

The Value of Private Venues, Part 3. Network Enterprises and Easy Access to Capital

Next, as the appetite for PPO's explodes, necessarily the experience level of the start-up management team will fall. It will become critical that the start-ups are swaddled in a success prone environment. This is precisely what Enterprise Networks do. They provide easy access to capital, a benefit that will decrease in value over time, legal, accounting, finance, human resource, IT, etc. expert counsel and shared customer base.Generally, a start-up enterprise will have 30 to 50 investors. That means for us, at the beginning, we need to aggressively recruit investors. Whether crowdfunding legislation passes and is signed, the professional who feels comfortable with taking the risk of turning 10,000 into 10,000,000 in less than 10 years, knowing that the principal may be lost, is the prime target market.

The Value of Private Venues, Part 2. VC's and Angels are Still Thinking Industrial Age

The world, VC's and Angels included, are still thinking Industrial Age. They are still thinking that ideas are 'a dime a dozen' and that investment capital is scarce. However, and this is beyond any doubt, 82% annual returns will bring far more money to the table than 30% returns.

Of equal importance are the much smaller equity requirements that allow many more people to sit at the table. If the ante is $1,000,000 very few people can sit there. If the ante is $10,000, there could easily be a hundred times more, perhaps a thousand times more people in the deal. Eventually a growing number of people will understand that this is not a few 'flash in the pan' private equity killings but rather a fundamental change in the financial relationships. If an aspiring entrepreneur lacks capital contribution or is not an experienced manager or the business plan has 'problems', rather than being a reason to throw the PPO in the trash, it will be viewed as a problem to be solved.

With 70%+ returns available, the cash will continue to flood to the private equity market. Now two things will happen. First, the competition for PPO's will drive up start-up share values. Second, because very large returns justify larger risks, the private equity market will become more risk tolerant in an effort to get their funds fully invested. What will ensue will be a kind of 'PPO bubble'. Whether it will become as extreme as the .com or real estate bubble is not yet clear. However, the real winners are clearly going to be those who get started before these two dynamics overcome the market.

The Value of Private Venues, Part 1. The Intelligent Visionary

We are now up to 24 members of The Future 101 and the private venues. They are an extraordinary group to say the least. Many of them are scary smart. All of them are visionary, to be sure. The intelligent visionary sees the enormous potential in The Future 101. They see it as a dozen interrelated events that 'hang together logically.' That makes them apprehend it substantially differently than the vast majority who simply see them as twelve more guesses.

While entrepreneurs, creatives, technologists and visionaries are important to the ultimate success of our endeavor, right now we are mostly working to build a group of modest, but aggressive investors. I keep saying this and I keep being surprised that most people are not thunderstruck by it. But here it goes again, because, well, its very important.

In the Industrial Age, companies typically had 23% returns on their book value and when they went public, they had a Price to Book multiple of about 3. In the Information Age companies typically have 67% returns and Price to Book multiples of around 12. This may sound like dry and technical esoterica, but the implications are stupendous.

Suppose there is a ten year old Industrial Age company that has grown at its equity constrained rate and it now has a Market Cap of $1,000,000,000. We can work the above ratios backward and conclude that the start-up capital was $42 million. That is solidly in the Venture Capital range and a major financing event. Furthermore, the return, without later round financing is not all that great. This is one of the reasons why, in the Industrial Age, not many start-ups got financed and why the financiers took such a large piece of the pie. It explains the VC's preoccupation with exit strategies.

Now, let's look at a ten year old, billion dollar market cap Information Age company that grew at its equity constrained rate. When we work those numbers backward we discover that the start-up capital was about $500 thousand. That is a 'friends and family' Reg D offering and not newsworthy for the financial press. The rate of return that can be sustained is so great that the investors do not need to take a lion's share of the equity in order to find the deal attractive.

Let's suppose you put $10,000 into such a deal and take 0.4% of the equity. This imputes a market value that leaves the entrepreneur(s) with 80% of the equity. After ten years, your investment will have increased in value to $4 million. This is not $10 million and I will explain the difference in The Future 101 premium site. It is, however, an 82% annual return.