Popular Equity

The seed stage simplifies venture funding rounds. There are no complicated, time-pressured negotiations. Investors can invest any amount whenever they like, and will be well-represented in final ownership. At the end of the seed stage, the venture owns 80% of the venture, the starting valuation is determined by the open market of investors, and the venture starts getting access to the seed capital. 

By including goodwill as a success measure, many types of ventures, including nonprofits, get access to seed capital and can now be supported by their own equity. Successful nonprofits can become self-sustaining, with their own endowment in the form of a growing market valuation. 

Popular Equity motivates a new class of ventures: growth-oriented nonprofits.

With popular equity, everyone has access to initial VC funding rounds. There are no worries about missing out on special treatment, or deals that are only available to a select few. 

Investors also now have upside potential with a new class of equities that includes traditional nonprofits, and semi-nonprofits that primarily generate goodwill through their own creations: musicians, artists, writers, scientists, etc. Investors can make money by investing directly in things that people value.

When ventures that generate goodwill also generate more cash that sets up win, win, win dynamics that help the planet. Imagine your nonprofit figures out a helpful and healthy way to fix homelessness, or feed more people, or do whatever you value. Investors notice and that seed capital becomes immediate cash to help make your venture more successful. That helps the people you're helping (win, win), and it helps investors (win, win, win).

But maybe more importantly it also helps to get more people thinking creatively about other ventures that might also generate goodwill that investors will value. What would you do, if you were graduating from college, and you knew you could generate huge amounts of equity for your venture by doing something you and investors value? Clearly on the margin, with Popular Equity, more people would choose to do things that help others, if they didn't feel the need to first become independently wealthy.

As long as there are sufficient investors that value goodwill, there will be a market to support equity for it. The trick is remembering that money is an abstract tool, that makes it easy to trade things, and easy to keep score. The things with real value: like feeding and helping each other and the planet are concrete. We dreamed up the idea of abstract money to describe the value of real things. It's the real things that have real value that we assign an astract value with money. With an equity market we can figure out the value of anything that generates goodwill.

Investment in both stages is open to anyone at any amount. During the seed stage, investment in the venture becomes seed capital. At the end of the seed stage, the venture holds 80% of the equity ownership, and the investors hold 20%. With enough investor interest, the venture moves to the open market stage where investors can trade, and the valuation changes as the market is made. During the open market stage, when there are buy orders that can't be aligned with sell orders, those buy orders have the option to become additional seed capital that increases the market valuation, while diluting existing investors.

It's similar in most ways, but the most fundamental difference are:

(1) Ventures define their own measures of success. Those measures might not include generating future profits for shareholders, and can include generating goodwill and positive influence.

(2) Ownership and trading is fundamentally public. This discourages abuse, and fosters community support mechanisms.

Details of the equity market are different in several ways to support two main goals: 

(1) Simplify the typical VC process to be open initial investment from anyone at any amount, and at any time (seed stage).

(2) Enable efficient valuations of potentially thinly-traded equities.

The rest of the details here and below are one example of a possible implementation. It's intended to show how the entire system can work without explicit VC negotiations, while still accepting additional seed capital after during open investing.

Those goals lead to a few possible differences in market mechanics:

(1) Instead of shares, there are only dollar amounts and percent ownership. That way we don't need fractional shares to support investment at any amount, and we can support essentially continuous dilution (and share splits) for new seed capital (during the seed stage, and the open market stage).

(2) Instead of continuous trading, all investment in a venture clears monthly to start (in both seed and open market stages). Everyone investing during that clearance gets the same deal.

(3) Ownership of the venture at the end of the seed stage is proportional to the amount invested, discounted by the time it was invested at a rate of 3% / month (two years is 50%). Early investors are taking more risk, and get more ownership for the same investment.

(4) Additional seed capital during the open market stage adds to the total market valuation of the venture, and dilutes the ownership of existing investors. To generate upside for existing investors after dilution, additional seed capital is discounted 20% (to 80% of its value) when determining the fraction of ownership. 

For more descriptions and examples see: more details and the FAQ.