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Financing science-based entrepreneurs from government backed equity guarantee funds, an idea.
If a science-based entrepreneur needed funding for the development of a new idea which might lead to the creation of a breakthrough scientific and technological advancement capable of revolutionising the way we lead our lives and of driving prosperity and social well-being, how best might this be structured?
The answer might be by way of investment in a note obligation issued by the young scientist which, pursuing a strategy of ‘investing in the person not the project’ could be converted on a deferred basis in the future, on a pick and mix basis, into slices of the intellectual property rights that they develop and which look promising or into a share of the equity they acquire in one or more spin off companies set up to commercialise their discoveries when their commercial prospects can be assessed and more readily valued than might be have been the case at the outset when the funding was actually required.
If the investor never does convert the benefit of the note obligation into IPR rights or spin off shares but the young genius is successful in other ways – for example, if they become a high earning investment banker or captain of industry – then, investment having been made in the person rather than in the project, the contract with the young genius might oblige them to make deferred return payments to the investor equal to, say 50% (fifty percent) of any capital gains that they make, excluding gains on their primary residence or within any recognised pension scheme, up to the aggregate conversion value of the notes notes held by the investor which have not been converted into IPR Rights or spin off shares. There would be no obligation to make return payments from annual earnings.
Which investors might want to make Young Genius investments?
Given the early stage nature of such investments, a nation state government that might otherwise consider providing grant funding to a young genius might do well to consider establishing a fund that raises capital from high net worth investors with the support of its own guarantee to underwrite a proportion of any losses that are recognised after the fund has been in existence for ten years.
That guarantee might be awarded on a reverse auction basis to the high net worth private investor group willing to put up the most private sector capital in return for the lowest level of guarantee support.
As there there would be no obligation to pay out under the guarantee for ten years, the nation state can pursue a ‘wait and see’ strategy as to when to start provisioning for potential losses, should this become necessary.
In this way, the purchasing power of public money allocated for investment in deep science would be multiplied many times over, as a guarantee structure is always far more cost effective than the provision of grant aid. Most importantly, private money will have been levered in from high net worth investors (who are at risk as to losses not covered by the guarantee) and put to work at an earlier and riskier stage of investment.
A proposed application form for young genius funding is downloadable HERE