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The topic of the night was as follows:

How should one best structure investments/contributions to ventures which could simultaneously present the possibility (but no guarantee) of greatly improving the lives of others, and returning a profit to those who initiate it?

  1. Charitable donation. No equity or profit ever to be returned. Any positive cash flows to be reinvested.
  2. Equity investment. All profits returning to shareholder, who can determine exactly how/where/whether profits are reinvested or consumed.
  3. Some hybrid. Some limited returns to shareholder targeted, (eg original equity but no profit or interest) but other profits mandated to be reinvested.

We determined a few important facts

First, a hot Sydney night is best cooled by iced cider.

Second, and I think we all agreed on this, governments, nonprofits, and for profits all produce goods and services that people want.  Their distinction is largely a function of tax benefits, and in the minds of the population, but in terms of the services delivered, it is nearly inconsequential. For an example of a government producing a good see Petrobras or Saudi Aramco (which we all forgot the name of).

Thirdly, before starting any venture we need to evaluate the following variables:

  1. Something that approximates the standard net present value calculation
    1. What is the good of the enterprise for the individual (a reasonable proxy for this could be their willingness to pay)
    2. How many individuals will it help per year
    3. How many years into the future is it likely to continue
    4. What probability should we use to adjust the distant ‘goods of the enterprise’ (from a.) for the potential of war/exogenous shocks common to every enterprise
  2. Organizational structure: the entirety of the above needs to be discounted by the following factors
    1. The probability that a given structure is more likely to get the requisite funding to start examples:
      1. Nonprofits may be more likely to attract small numbers of donations from individuals and some institutional/governmental grants (likely a large number of individuals multiplied by a small amount)
      2. For profit entities are more likely to receive large cash infusions from Angel investors/VCs/large Corporates with expertise (a small number of entities multiplied by the large amount)
    2. If a for profit: the probability that the ostensible purpose of the organization will have a deleterious effect on the owners. Logic:
      1. Selfishness is dependable, but it is the root of much of the ill in the world.  If we enshrine profit maximization for the owners (in this case selfishness), as the primary purpose of the organization, then the owners may lose sight of the mission of 1.a.
    3. If a nonprofit/coop or other structure.  What is the probability that this structure will be too sclerotic to adjust and achieve the purpose in 1.a

In total (please forgive the notation, just substituting in the bullets above as variables)  

select the org that maximizes this equation=(Σ(((1.1)*(1.2)-cost))/(1+1.4)^1.c)*2.1*(2.2 or 2.3)

Some of the members of the league are faithful to their ‘he who misses, pays’ pledge.

Interesting Stuff I have read since the Last Post

Finance/Investing

  • Interesting article from Bob Shiller about how to spot a bubble
  • I delivered the material here to the MEAFA folks at Sydney Uni.  It is about how to mount query/reduce, and start to analyze large relational databases
  • The Aussie government should meet this guy, who owns 6 properties, and his broker who owns 16. His personal willingness to leverage himself to the eyeballs is driving up housing prices.

MISC

$14.8B That’s how much Google Australia consumer benefitted from Google. Pretty amazing when most people have never received a Google bill…

Please, tell me what you thought before reading this, and let me know if this changed your mind.





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