RDVP Finance SIG (10/15/2004)

Recognizing that a number of our projects share a common theme in innovative uses of financial technology, we had an impromptu meeting on Friday. Although this is something that Greg, Margarita, and I had threatened to do, the precipitating agent was Dave McClure, until recently a Director of Marketing at PayPal, and the man behind their Developer Network. Greg invited him to campus, and he joined Greg, me, Mans, and Helen in outlining some of our topics of interest in this arena. This organizational meeting was fairly free-flowing, as we set the context for future meetings.

The proposed topics included:

1. Equity Funding for Ventures that don't fit the traditional VC Mold (aka "Micro-VC")

What sources of capital exist for social ventures that have demonstrated success on a small scale and are ready to expand but require $500K - $2M? What about for-profits that have more modest capital requirements than typical VC investments but also don't have the promise of an IPO liquidity event? Related issues:

• Understanding current US government offerings: SBA loan guarantees , SBIC (Small Business Investment Corp, private for-profit), Specialized SBIC (SSBIC's)
  
• Investigating appropriate metrics for describing investment opportunities
  
• Investment criteria used by venture capitalists (quanitfying and locating proxies)
  
• Creating a (secondary) market for such investments
  
• Bundling financial and real-estate investments
  

2. Securitizing output of a community

Investments made to improve the infrastructure of a community may not be directly tied to the success of any single company or individual. Is there a way to create financial incentives to make this type of investment? Could the value of the property itself somehow be included?

3. Microcredit

Microcredit has been shown an effective tool of poverty alleviation. What's the best approach to make it available to many more people? Increasing the number of borrowers at existing MFI's? Starting new MFI's following the traditional model (but perhaps with greater technology support and capability)? Bypassing the traditional MFI industry all together with a financial services provider like VISA or PayPal? Can the weekly visits from loan officers be eliminated or is it an essential part of the recipe?

4. Economic system for "surplus economy"

Most of the marketplace rules are based on the assumption of scarcity: buyers compete for scarce goods; producers buy scarce resources to make their goods; competition among suppliers drives down costs, which benefits consumers. While these assumptions hold for physical goods, they don't hold for other types: information or social goods. With marginal cost of unit production being essentially zero, "everyone" can have a copy. People can afford to have a copy of different versions. Social capital works similarly: using one's social capital to benefit one project doesn't necessarily decrease it relative to a second project. What new mechanisms, metrics, incentives work in this space? How do you account for contributions? Does the notion of a complementary currency fit in this space? What's the right mechanism for exchange to appropriately reward the creator? How can society encourage collaboration and building on ideas of others to solve big problems faster?

5. Accelerating digital market place startups

There's a fairly common set of requirements for setting up a new e-business. Is there a bundled set of tools that could enable the startup to focus on its unique IP, knowing that it has adequate systems in place to handle: web site shopping experience, online marketing, accounting, recruiting, lead/sales force management, bug tracking, web conferencing, personnel reviews, etc.

6. Global market access for the marginalized

Hundreds of millions of people could benefit from the ability to broadcast their goods to a broader (global) audience. While such global market places exist (e.g., eBay, alibaba, Froogle) they have fairly high hurdles for participation (credit card, checking account, reliable network connection and computer). What could be done to improve access to these market places? Can an individual with just a cell phone list goods for sale and complete transactions?

7. Education financing

Education is one of the largest investments that an individual makes. In the US there are student loans to cover some of the cost. But what if financial institutions made equity investments instead of debt investments? Rather than getting a fixed payback, the funder receives a percentage of, say, adjusted gross income, with each tax return that the borrower files. Mans said that Sweden uses a similar system. Dave recommended looking at MyRichUncle.com.

8. Remittances

Money sent across international borders, from individual to individual, are a major piece of many economies (e.g., $16B to Mexico, second largest source of foreign capital). The entrenched players charge high fees. How can the system be reinvented to provide a better deal to customers and use some of the excess to create a system of risk capital for these economies? Dave recommended looking at Payko.com.

We also talked a bit about some of the challenges in a payment system, such as

• Fraud prevention
  
• Transaction identification and auditing
  
• Reputation / reliability reporting for participants
  

We decided to target Weekly meetings, Fridays @ 10 AM (I think?) focused on one topic.