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Securitizing Happiness: Solving the World's Problems by Making Trillion-Dollar Markets for Individuals, Small Business, & Natural Resources
- Securitizing Happiness … or, How to Solve All the World’s Problems by Making Trillion-Dollar Markets for Individuals, Small Business, & Natural Resources Dave McClure (@DaveMcClure) TEDxShanghai - 06/15/09
- Can You Buy “Happiness”? <ul><li>Concepts </li></ul><ul><li>What is Money? What is Value? </li></ul><ul><li>The Un-Level Playing Field of “ Securitization ” </li></ul><ul><li>Money 2.0 & The Missing $T Asset Classes </li></ul><ul><li>The “Atomic Unit” of Happiness </li></ul><ul><li>Solutions </li></ul><ul><li>Capitalizing Small Business </li></ul><ul><li>Capitalizing Natural Resources </li></ul><ul><li>“ Hacking” Human Suffering thru Capital Markets Innovation, Prediction Markets, & Contests </li></ul>
- What is Money? What is Value? <ul><li>Money 0.0 = Barter = “Past Money” </li></ul><ul><ul><li>= Exchange of Goods & Services for “Value” </li></ul></ul><ul><li>Money 1.0 = Cash = “Present Money” </li></ul><ul><ul><li>Commodity money (rice, barley) </li></ul></ul><ul><ul><li>Representative money (gold, silver) </li></ul></ul><ul><ul><li>Fiat money (govt coins, paper, notes) </li></ul></ul><ul><li>Money 1.1 = M1.0 + Debt = “Near-Term Future Money” </li></ul><ul><ul><li>Secured lending (housing, automobile) </li></ul></ul><ul><ul><li>Unsecured lending (credit cards, microcredit) </li></ul></ul><ul><li>Money 1.5 = M1.1 + Securities = “Long-Term Future Money” </li></ul><ul><ul><li>Stocks, Bonds </li></ul></ul><ul><ul><li>Mortgages </li></ul></ul><ul><ul><li>Private Equity & VC </li></ul></ul><ul><ul><li>Derivatives </li></ul></ul><ul><li>What is Money 2.0 ? </li></ul><ul><ul><li>= All Possible Asset Classes </li></ul></ul><ul><ul><li>= Fn(“ Happiness ”) </li></ul></ul><ul><li>What is Value- able ? </li></ul><ul><ul><li>What do we value? </li></ul></ul><ul><ul><li>What can we value? </li></ul></ul>
- What Is “Securitization”? <ul><li>Securitization : the process of making an illiquid asset into a liquid asset, via financial engineering. </li></ul><ul><li>Securitization enables capital access & availability for items that have value, but were not previously accessible via capital markets. When this happens, a significant amount of new capital formation and economic activity becomes possible. </li></ul><ul><li>Examples : stocks, bonds, mortgage-backed securities. </li></ul>
- The Un-Level Playing Field of Securitization <ul><li>Securitized Entities & Asset Classes </li></ul><ul><li>Corporations (Stocks, Bonds) </li></ul><ul><li>Governments (Bonds, Central Banks) </li></ul><ul><li>Some Real Estate (Mortgages) </li></ul><ul><li>Some Derivatives (Weather, etc) </li></ul><ul><li>A Few Individuals (David Bowie, The Beatles, Michael Jackson) </li></ul><ul><li>Un -Securitized Entities & Asset Classes </li></ul><ul><li>Individuals = 6B people * life-time earnings/savings </li></ul><ul><li>Small Business = 20-50% of Worldwide GDP </li></ul><ul><li>Other Real Estate (Mortgages) </li></ul><ul><li>Natural Resources = ? </li></ul>
- Money 2.0 = The Missing $100T Asset Class <ul><li>Individual Futures = $X00T </li></ul><ul><ul><li>1 st world = 2B people * $25K * 40years * 10% savings = ~$200T? </li></ul></ul><ul><ul><li>2 nd world = 2B people * $2.5K * 30 years * 5% savings = $?T </li></ul></ul><ul><ul><li>3 rd world = 2B people * $250 * 20 years * 0% savings = $?T </li></ul></ul><ul><ul><li>Health & Education Derivatives </li></ul></ul><ul><li>Small Business </li></ul><ul><ul><li>Debt & Equity </li></ul></ul><ul><ul><li>20-50% of US GDP </li></ul></ul><ul><ul><li>50-80% of World GDP </li></ul></ul><ul><li>Natural Resources </li></ul><ul><ul><li>Air, Water, Land, Biodiversity, etc </li></ul></ul><ul><ul><li>How to Value? </li></ul></ul><ul><ul><ul><li>= based on some F(n) of “ Atomic Unit of Happiness ” (individual futures) </li></ul></ul></ul>
- The Atomic Unit of Happiness = Futures Markets for Individuals <ul><li>Q1: If we could provide health + education for every individual at birth, what is impact to lifetime GDP? 10x? 100X? </li></ul><ul><li>Q2: If you could invest in this asset class, what is the ROI? </li></ul><ul><li>Example: Big Pharma swap of AIDS drugs for upside in some derivative F (future earnings of Botswana) </li></ul><ul><li>Assertion : this is a $X00T asset class, with opportunity for substantial ROI over a 10-20 year period. </li></ul>
- Solutions for Happiness Let’s Start Hacking...
- Capitalizing Small Business Equity <ul><li>Capital Access (Debt, Equity ) </li></ul><ul><li>Valuation Metrics, Automation </li></ul><ul><ul><li>see Startup Metrics 101 </li></ul></ul><ul><li>Back-End Liquidity, Secondary Markets </li></ul><ul><ul><li>“ Fannie Mae for Small Business Equity” </li></ul></ul><ul><li>Trick1 : Small Business GSE in CA/NY? </li></ul><ul><ul><li>CA funding from STRS, PERS </li></ul></ul><ul><ul><li>=$250B funds (20% CA, 10% in PE/VC = $5B) </li></ul></ul><ul><li>Trick2 : Real Estate Hack for 3 rd -world SME </li></ul><ul><ul><li>Invest in both [really cheap] land + business </li></ul></ul><ul><ul><li>Sell land if biz goes up in value = synthetic liquidity </li></ul></ul>
- Capitalizing Natural Resources <ul><li>Clean Air = A Better Kyoto </li></ul><ul><li>Clean Water = No More Mercury </li></ul><ul><li>Land = No More Dumping </li></ul><ul><li>Biodiversity </li></ul><ul><li>Other Derivatives </li></ul>
- Hacking Human Suffering thru Capital Markets Innovation, Prediction Markets, & Contests <ul><li>Create & Securitize “ SpaceX ”-style Contests for: </li></ul><ul><ul><li>Cancer </li></ul></ul><ul><ul><li>AIDS </li></ul></ul><ul><ul><li>Malaria </li></ul></ul><ul><ul><li>Tuberculosis </li></ul></ul><ul><ul><li>Others? </li></ul></ul><ul><li>Use Prediction Markets to Jumpstart Valuation </li></ul><ul><li>Use Foundations to Fund/Back “New” Asset Classes </li></ul><ul><li>Use Contests to Jumpstart Liquidity </li></ul><ul><li>(Rinse/Repeat/Re-Value) </li></ul>
- Related Books & Posts <ul><li>Books That Will Change Your Mind, Your World: </li></ul><ul><li>Guns, Germs & Steel, Jared Diamond </li></ul><ul><li>The Mystery of Capital, Hernando de Soto </li></ul><ul><li>Banker to the Poor, Muhammad Yunus </li></ul><ul><li>Related Posts (500 Hats blog, Microfinance & Social Entrepreneurship): </li></ul><ul><li>Securitizing Happiness : Solving the World’s Problems by Making Markets for Individuals, Small Business, & Natural Resources </li></ul><ul><li>Real Estate as Synthetic Liquidity Hack for Small Business equity </li></ul><ul><li>Ex. Scenario for Securitizing Individuals (Pharma/Botswana swap) </li></ul><ul><li>Inspiration & Capital Markets Heroes: </li></ul><ul><li>Soros </li></ul><ul><li>Milken </li></ul><ul><li>Gates, Buffett </li></ul><ul><li>Omidyar, Skoll, Google.org </li></ul>
Also, I'd highly recommend The New Financial Order: Risk in the 21st Century (by Robert Shiller).
Last, if you're not familiar with it, I should mention Jed Emerson's work on how in the philanthropic world, using one's endowment in alignment with mission only makes sense - it may be the most powerful tool at a non-profit's disposal.
I do agree that sometimes the best way to value intangible assets is to understand the risks they mitigate.
Does this mean you'll be at Social Capital 09? (#SoCap09)
just like with companies, there is no need to float 100% of the market cap. many companies only float 10-40% of their market cap. similarly if we created market structures for individuals, you could regulate the market so that only a limited % of a person's capital is available at any particular age. (perhaps only 10% at birth, another 10% as a teenager or young adult, larger amounts once in the workforce). in any case, those who squander the amounts will be dealt with by the market, and moral hazard can effectiely be handled via filtering for other behaviors such as education, work history, etc in the same way that FICO scores work.
Second, there is no reason you have to do this at the individual level. most likely, it will first occur in larger aggregated groups -- based on either geography, education, or other group characteristics. as with the housing market, it is important to aggregate enough individual sample points to reduce risk.
of course it's possible that market excess & poor financial reporting / crappy auditing will produce poor outcomes -- but the current financial crisis is not an indictment of the entire subprime market and/or mortgage market / stock market. don't throw the baby out with the bath water just because some idiots packaged a bunch of crappy subprime mortgages and Moody's said they were AAA. you can't assume that financial markets suck just because of poor execution / conflicted ratings agencies. these are obviously issues to be addressed, but they are not structural failures of the concept, rather of the last ten years of execution.
so if you want to put your savings in a mattress and hide your head in the sand, that's fine you're welcome to do so... on the other hand, if you'd like to help solve the problem economic innovation & financial pioneering is probably the best avenue to a solution.
personally i don't think we're running out of suckers... that market is never short.