Will there be capital markets for equity in people?


I recently read the entertaining science fiction novel The Unincorporated Man by brothers Dani and Eytan Kollin. The premise is that several hundred years in the future everyone is incorporated at birth, with the government owning 5% and parents 20%. People trade equity in themselves for their education and development, then spend their life trying to earn back majority ownership so they can control their lives. Into this world an entrepreneur of today who underwent cryogenic freezing is revived, and refuses to cede ownership of himself.

This is not a new idea. In 1995 aspiring British actress Caroline Ilana, trying to fund her attendance at acting school, established a corporation with herself as the sole asset, giving shareholders 10% of her earnings. Andrew Lloyd Webber, Ben Elton, Julie Christie and many other celebrities she approached bought shares.

In their 1998 book Blur, Stan Davis and Chris Meyer wrote about the blurring line between being a laborer and a capitalist, resulting in the securitization of individuals.

Over the next decade it’s safe to predict that Wall Street will devise new instruments to develop, measure, evaluate, and reward the knowledge and experience of individuals. He or she will be the investment vehicles of the twenty-first century just as small companies were in the twentieth and large ones in the nineteenth.

While over a decade later those forecasts have not come to fruition, others are trying to implement these models. Thrust Fund comprises three young social entrepreneurs, each of them valuing their future earnings at $10 million, and seeking to sell 3-6% of their personal equity for that share of their earnings for life.

The attention they have garnered may lead others to emulate them if they are successful. Many young people would leap at a chance to get cash in hand. Potential investors may be more circumspect for most of them.

It is unlikely that highly liquid marketplaces for personal equity will emerge, at least until there are standardized contracts for selling personal equity, that have been shown to be enforceable by law, preferably across jurisdictions. However in the shorter-term there could well be enough transactions for valuation criteria for individuals to emerge.

This would be a strong driver of the reputation economy, where reputation measures would be probably the most accurate indicators of the value of personal equity.

Building on my capital markets background (notably a good while ago working as Global Director – Capital Markets at Thomson Financial) I’ve long talked about how new capital markets are likely to emerge, particularly for non-listed companies in knowledge-intensive industries. A decreasing proportion of value creation in the economy is in stockmarket-traded companies. Investors seek new opportunities.

Let’s see whether and how fast the capital markets for personal equity develop.

  • This is a fascinating topic. In 2007 I started to work on the concept of “Social Capital Value” aggregated by individuals and demonstrating it as a personal asset. This was in part inspired by French sociologist Pierre Bourdieu and the 2001 World Bank Report about Social Capital. The World Bank discovered that highly connected and socially interacting societies are more likely to return the loans than those countries who are less social.
    Transforming social skills into social assets is one way to build an equity like position. And while it’s not very likely that there is an stock exchange for personal equity, I guess we are on the verge to be more conscious about social and personal equity than ever before.
    With all that said, there may actually develop something that could be viewed as a personal equity market – and if it is not a trading market, it could become a key value indicator like credit scores or other scores.

  • Hi Axel, yes totally agree.
    This is very close to the idea of reputation measures – we will have more evidence for how good we are at creating value in a networked economy.

  • Hi Ross,
    I commented on this post on twitter:
    “I expect people more likely to trade equity for coaching/training rather than $, then invstmnt is directly related to the asset”
    and you responded:
    “that makes a lot of sense – definite alignment of interests – tho trainers wd want ST payment so need financial vehicles”
    After mulling this over for a couple weeks I think I want to argue that investors in search of short term liquidity are fundamentally not the right type for this potential market. Some investments are naturally amenable to secondary trading and therefore to providing short term liquidity. These are primarily investments in assets that are relatively easily valued, that minimize principle/agency problems, and that therefore have little correlation between valuation and the level/quality of investor oversight or active management.
    It seems to me that equity positions in individual future earnings fail all three tests. I would expect these markets to act much like the VC/angel markets, where active involvement and long term investment is the expectation and valuation is made largely on the basis of future business potential assuming the investor’s long term support.
    In your post you state:
    “A decreasing proportion of value creation in the economy is in stockmarket-traded companies.”
    I fully agree with this claim and I think in large part this trend must be due to the three factors I mentioned above:
    -Decreasing transparency of future earnings
    -Increasing relevance of principle/agency problems
    -Increasing benefits of effective active investor management
    I would be very interested to see you expand on your take whenever you get around to thinking about this again.

  • Gregory, thanks for sharing your thoughts on this – very interesting.
    On the shift away from publicly traded equity first, these are good points, though one other important factor is simply that in a deconstructed economy smaller companies represent a larger share of the economy.
    On the personal equity front, your logic is sound and you may well be right. However it could create a lot of value if an investor were prepared to pay upfront for a share of an individual’s future earnings, thus enabling the trade for training and development. Perhaps a combined role of coach and investor could emerge, though that investor would still be prepared to pay for training for the individual they’ve invested in.
    This is going to take a while to pan out if it ever does, so we’ll have a bit of time to mull over these fascinating issues 🙂

  • Thanks for the response. I definitely look forward to seeing if and how this potentially develops…