Shareholders, Value and CryptoMarkets

The joint stock company idea is brilliant for pooling capital. Investors can buy risk, but limit their overall potential liability. This way of doing projects (for originally they were more projects than permanent businesses) made a lot of very expensive things possible. Like the exploration and settlement of the new world. States acting alone would not have done it.

But is it perfect? Of course not. Like any and all human inventions, it was designed to solve a problem — how to better pool capital. The nice protections that we give investors to do this mean nothing if pooling capital is not the problem at hand. What am I talking about? Well, it may be more important to share ideas and partner. It may be more important to build a team. It may be more important to learn about the market. And pooling capital might be the easy part, for example, via crowd funding. In these situations, we should not expect that the corporate form of doing business is optimal.

Why be concerned? I am concerned because I am interested in a problem other than how to pool capital. I am interested in how people find and develop new ideas for adding value. How can we reduce the risk of failure? Throwing money at this process is not the answer. We know that. How? Just consider the failure rate of VC funded projects. Successful VC’s accept a failure rate of way over 50%. They only “hit a home run” every now and then. Does that mean that these home run projects are the only great ideas out there? No. It means that those great ideas are the ones that needed capital to get off the ground.

So how do we address this problem? How do we empower folks to generate more and better value added project ideas? The best thinking so far is that some sort of pooling tool is needed where we get more idea exchanges of ideas. Steve Johnson and Matt Ridley argue that these exchanges will fuel development of more refined concepts. So far so good. But how do we develop incentives for pooling? Good question. We are not there yet.

But the answer will be something along the lines of how the joint stock company solved the problem of pooling capital. It lowered the risk so that more people sought the rewards. I think that block chains might be useful here — as a tool to create a secure record of where ideas come from (lowering the risk of ideas being stolen) and a less costly why of generating micro-rewards for ideas that have value.

That’s right. We are thinking beyond crypto-currency here. Beyond bitcoin to create a new sort of marketplace.


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