On October 10, 2015, the financial/economic education website Storm of Beta (www.StormofBeta.com) published an extensive interview with me.
The interview is here https://stormofbeta.files.wordpress.com/2015/10/a-penny-for-your-stocks-karl-sjogren.pdf
Storm of Beta is a website that focuses on financial and economic insights. Its “penny for your thoughts” series covers insights into behavioral finance and its implications and applications to financial markets. That focus brought The Fairshare Model to the attention of Storm of Beta, as it is nothing if not an application of behavioral finance to the public venture capital market..
The September 24, 2015 update to the draft of The Fairshare Model book adds three chapters that discuss concerns that have been raised about equity crowdfunding. The principal focus is fraud, overvaluation and business failure. Particular attention is focused on the cause of failure and a common cause of it–management.
Other objections discussed as well such as unethical sales practices and the sensibility that is expressed as “why don’t we simply rely on VCs to meet the needs of young companies?”
See the resources tab!
On May 28, 2015, I made a presentation on the Fairshare Model to the NewFinance Meetup group in San Francisco. The slide deck is under the Resources tab.
When I made my October 2014 presentation (slide deck under Resources as well), I had just one chapter posted online–what is chapter two in the May draft.
Now, fourteen chapters are online! Therefore, this latest slide deck has more to summarize. In particular, chapter ten on the Tao of the Fairshare Model (my favorite) and chapter five, Target Companies for the Fairshare Model.
The draft of the Fairshare Model adds Section III, which is comprised of four chapters on valuation:
- Chap. 11: Concepts
- Chap. 12: Calculating
- Chap. 13: Evaluating
- Chap. 14: Disclosure
What is the FinTech Book? http://thefintechbook.com/
It is the 1st globally crowd-sourced book on FINTECH which will compile the insights and stories of the FINTECH community. [And the Fairshare Model is a candidate for inclusion]
Why is it important?
To date there only exits a fragmented source of knowledge on the Sector. This is reflected by the fact that the FINTECH sector is both recent in its development and wide in its scope. Therefore crowd-sourcing its content appears the best way to create a comprehensive book on the sector.
Who is the Audience:
Unlike other tech sectors the FINTECH industry will impact every one either directly or indirectly. Indeed if before finance was “needed by all but benefited a few” the FINTECH sector is now changing this by bringing back value to retail and institutional clients.
The FINTECH book aims to become an educational and inspiring piece of work targeted to entrepreneurs, financial institutions, decision makers, investors and consumers.
How does the Crowd-source process work?
There is a 5 step process for authors and the community spanning from March until July 2015.
- Authors – Pitch their ideas by submitting via e-mail an initial 300 word article to the editors before the 30 April 2015.
- Authors – Define their ideas by choosing one of the pre-selected topics.
- Community – Throughout May the community can select the initial articles they wish to see in the FINTECH book
See Fairshare Model abstract https://medium.com/the-fintech-book/the-fairshare-model-90943089ae59
- Authors – Selected authors must expand on their initial articles to have a 2,000 word chapter by the 30 July 2015.
- Authors – Non selected authors will have their details and topic acknowledge in a special chapter.
The editors will then compile and edit the work ahead of the publication of the Book, due November 2015.
The March 8, 2015 update adds two chapters. Chapter ten explores the potential for cooperation–cooperation within a company’s micro-networks of shareholders, employees, customers and suppliers–to provide a tool for competition. Chapter ten explains the Tao of the Fairshare Model. This is my favorite chapter and it will pride grist for thought for anyone with an interest is the defining characteristics of capital structures.
Here’s how chapter ten ends:
This chapter concludes Section II, which began by examining a range of ideas about two macro-economic concerns that provide context for the Fairshare Model—economic growth and income inequality. It then considered how the ability to cooperate creates might offer diverse ways to address these twin challenges and how Fairshare Model promotes this. This chapter identified two structural elements that determine how a capital structure allocates uncertainty in an equity financing, something that will inform the discussion about economic growth, income inequality and equity crowdfunding. It also presented the most remarkable aspect of the Fairshare Model—it provides venture-stage companies a reason to offer public investors a low valuation. As a consequence, the model enables a well-performing team to create more wealth for themselves than if they use a conventional model and to create competitive advantage when it comes to managing human capital.
The tao of the Fairshare Model is clear—it is to balance the interests of entrepreneurial companies and public investors.
This section has been broad in content and philosophical perspective. Section III returns to narrower micro-economic matters, issues that come into play when venture-stage companies raise venture capital in a public offering—valuation, fraud and failure.
The exposure draft uploaded Jan. 29, 2015 moves the discussion about the Fairshare Model to a macro-economic level. The first two chapters in Section II deal with how the model fits into the on-going debate about how to spur economic growth, job creation and address growing income inequality.
All are topical subjects. Although the Fairshare Model is not designed to address any of them, they provide a macro-economic context for the micro-economic matters that were discussed in the first six chapters that comprise Section I.
I’ll add two more chapters to Section II in the weeks ahead. One will deal with the potential for the ability to cooperate to be a competitive differentiator in the decades ahead and the other will deal with philosophic matters.
By the end of February, I’ll start Section III, which will lead off with chapters on valuation.
A new exposure draft of my book-in-progress is available in the Resources section. Two new chapters have been added, bringing the total to six. Chapter five will be of particular interest because it describes five types of companies that may adopt the Fairshare Model and illustrates scenarios for Performance Stock conversion.
I am grateful to those who comment on my book-in-progress. This crowdvetting process is very helpful to me on many levels.
Under the Resources tab is new draft material from my book-in-progress about the Fairshare Model.
There are three chapters for you to contemplate and respond to (I hope).
Chapter four, in particular will be of interest to anyone with securities expertise.
The Fundamental Problem: Valuation
Praise aside, a conventional capital structure has a fundamental problem, an Achilles’ heel. At the time of an equity financing, it requires the issuer and investors to set a value for future performance. For venture stage companies, this is hard to do in a rational manner.
You can test this assertion even if you are a novice about capital structures and valuation. When you meet someone who raised money for a company or who has invested in one, ask “What was the valuation?” Follow that question with “Why did that make sense?”
Chances are that you will see uncertainty and anxiety play across their face. Why? It could be that they don’t know what the valuation is. Perhaps, they know the number but not how to calculate it. Most certainly, they don’t know how to evaluate it, or, they are not confident that it makes sense.
I’m have about two-thirds of my book about the Fairshare Model drafted.
Under the Resources tab, the first chapter is available for download. If you have a comment, challenge or suggestion, I’d love to know what it is. Please send any to me at firstname.lastname@example.org