IPshareguy’s blog

A social planner I am not.

But I do believe I am a forward-thinking, albeit pragmatic, optimistic.

For many Americans, the down-sizing of our economy is painful.  It appears to many as though the promise of a better future through hard work has been spirited away, and replaced by a financial reality of bad news and turmoil.  Talk to anyone who interacts with the average Joe.  Job loss bring rising debt brings foreclosure.

Now, I am for economic incentives, and for the stimulus package to help folks avoid foreclosure.  The Bush administration did the first bank bail-out woefully wrong, and I called and wrote to Paulson's office to suggest a way to use that bailout as a carrot, not a stick.  The banks should have been offered a sliding scale investment based on the interest rate THEY loan at.  The lower their interest rates, and the more money they loan, the larger the amount of funds available to them.  Instead, the next Monday, Paulson told the world he had shoved the bail-out down the throats of major, arbitrarily chosen banks, including those who didn't need or want it, with a penalty at the end of the year in the form of increased interest to pay back the loan they didn't want.  All stick, no carrot.

That meeting must have felt like a scene from a Quentin Tarantino movie: too surreal to earn bona fide suspended disbelief, but you can't take your eyes off of it anyway.

Anyway, those days are gone, and now we have a new era.  Of uncertainty.  Such is life.  I am hopeful, and optimistic.  Why?  Because where there is uncertainty, there is the possibility of getting it right.  Do we need bailouts and stimulus packages?  Yes, like a patient bleeding to death needs to stop bleeding.  The underlying causes have to be treated once the patient is stabilized... if the patient can be stabilized.

There is a broader discussion here that involves globalization.  Ideas like class warfare, and economic justice, they both start from the position of anger, settling scores, right vs. wrong.  I think they are, for the most part, a waste of time because they describe an analogy of what's really going on.  What's really, really happening is the modernization of the third world, the emergence of major economies in relatively small countries, a growth of the middle class in the rest of the world, a shrinking of the middle class in the US... all as a necessary and natural process of the technologization of everything we do, see, eat, hear, think.    Globalization isn't good, or bad... it's just happening.

Now, the old US economic model of a super-rich upperclass living on the labors of a satisfied middle class will be updated, because it has to.  Change is inevitable.  But we have some say in that.  And we can caste the differences as 'economic justice' and play Robin Hood.  Or, we can harness the momentum from that change.  Smart investors see opportunities in momentum.  As the rest of the world's middle class grows, as the standard of living of our brothers and sisters in other countries increases, even as our undergoes a necessary adjustment, we can panic, and run about, or pretend that a 30% drop in our standard of living is insufferable (it isn't), or, we can choose to stay calm, and cool-headed, and think about the financial institutions that are likely to make us not only successful in the long-run, but also successful in helping bring about an end to human suffering due to exorbitant profit-taking.

I contend that we want a world where every dollar, euro, or yen earned for our time and labor is earned well. The world we do not want in ten years is a recapitulation of the 1980's in emerging markets.

An IP Share Market would help make the entire process of futurization of the goods, products and services brought forward more efficient, and less wasteful.  If the consuming and investing public weighs in on and drives forward the goods, products and services they want, then the companies are extremely well-informed, lean enough to produce what is needed and wanted, and the wasteful practice of planned obsolescene can be replaced by company's being responsive to the stated needs and wants of the public.    We can achieve what some call 'economic justice' - where the masses engage in profit-sharing, not just the corporate elite - through an IP Share Market.  Ethical business practices can be enforced by mass investment.  We need a buy-in not only from the companies, but also from the middle-class.   The brainpower of the middle-class is underutilized; we are capable of consuming increasing amounts of information.  The million-dollar question is whether the average Joe will be willing to participate?

The profit motive is a powerful motive, so, as the IP Share Market is set up, the investor should have every opportunity to cash out.  For example, early investors of successful IP will, based on the market value of the IP Shares they own, accumulate wealth.  The listing company should be expected to offer to buy those shares at market value when the product goes to market in cash, or in company stock of equal value.  The individual investor should also be offered a percentage of the profits (royalties) from the sales of the products they helped drive to market, with options as dividends that increase the value of the shares, or as cash into the investor's account.  It has been suggested to me by one Pharma exec that the companies should have a one-time offering of a fixed number of shares (say, 1 million shares) combined with royalties to provide antidilution protection.

This transition to investment into the IP owned by a company would provide a gradual buffering against the gyrations of globalization, and provide everyone involved with a common interest in the success of the entire enterprise.  Everything would hinge on the performance (and therefore reputation) of the company's ability to choose good IP to list, the success of the translational R&D, and the successful marketing of the product, goods, or services offered.

Given the surprising amount of positive direct feedback from people who know a lot more about business finance than I do, I believe I have touched a nerve with the IP Share Market concept.  I hope I hit the funny bone and that it tickles everyone into action.

Your thoughts, feedback, and ideas are welcome.

There are numerous stakeholder positions to be consider when pondering the IP Share Market.  It may be best to begin by contrasting the IP Share Market concept with that of Idea Futures or Prediction Markets, where the public may place bets on specific ideas.

Contrast IP Share Market (Investing) to Prediction Markets (Gambling)
In Idea Futures and Prediction Markets, people place bets that a specific statement will come true, usually by a particular date.  They can gamble money for or against, and the value of an idea is a function of the expected payoff.   Examples are Foresight Exchange or the Iowa Electronic Market.

As opposed to Idea Futures and Prediction Markets, shareholders would actually own a percentage of the IP, so they are more vested in the outcome of their investment.  Futures trading has pushed forward some sectors with revenue (such as the Oil Futures), but, I contend, because it is betting, not investing, the prices are volatile and subject to outside influences who might bring the valuation down toward other agendas.

The IP Share Market model changes the mindset from a game (gambling) to serious work (investment) with shared interest and profit.  This difference would seem to orient everyone's motivation toward positive momentum, and not merely place bets for (or against) a proposed idea. 

Contrast IP Share Market (Investing) to Special Purpose Entities
There exists a mechanism for companies to isolated the appearance of risk by creating spin-off, Special Purpose Entities (SPE's).  However, due to Enron and other fiascos.  SPEs involve sole interest by one company, or shared interest by partnering companies.   Since 12/03, SPEs must be consolidated by the primary beneficiary anyway, owing to FIN 46.  By contrast, the IP Share Market would appear more nimble.

Reasons For an IP Share Market
There is a lot at stake for doing this right; specifically, in terms of the challenges, the reasons for include

• Unlocking Mountains of IP without losing it
• Generating Revenue for Translational R&D
• Efficiency: Making Every R&D Dollar Count
• New Models for Collaboration

There is also a lot at stake for companies who participate; they can earn a reputation as a lister (offeror) whose IP generates good ROI, or a poor reputation if their IP does not yield returns. Thus, there is intense motive for honesty in the listing and the pricing of shares at the IPO.

Pros of an IP Share Market
There are numerous possible benefits to society adopting an investment market for driving intellectual property.  Let me be clear, as I envision the market, the IP Share Market would be

• Open and free to use by IP Share Listers (Offerors)
• Profit-generating per transaction
• Regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA)
• A privately held firm.

The benefits to the Offerors, as I see them, include (but are not limited to):

• Valuation of IP
• Market Research
• Semi-Democratization of Priorities
• Increased Liquidity
• Resources for Development
• Improved Product Delivery
• Marketing

The benefits to the investor, as I see them, include

• Risk Management

Let’s say I have $5000 to invest in Company X. I can invest $2500 in the promising IP from Company X.  If that IP does well, I can further invest $2500 in Company X.  If the IP does not do well, I only lose a certain $2500.

• Diversified Investment Opportunities
• Siloized Investment Risk
• Greater Return on Investment
• Decreased Product Cost
• Improved Healthcare/Better Drugs
• Improved Standard of Living

An investor may focus risk in one highly promising piece of IP, or they might spread the risk among many possibly good pieces of IP.

Cons of an IP Share Market

The Cons, as them, to the offeror, include:

• Cost of Listing (I propose Listing is free)
  
• Exposing IP
• Creating Informing Competitors

• Risk of Misleading prospectus (aka “lying”)

I would be keenly very interested in your thoughts/comments/questions.  Suggest your own Pros and Cons!  Let's have a dialog.  Please feel free to start a thread. (Please identify yourself by your line of work.  Which stakeholder position(s) are you representing?

• Inventor/Researcher
• Individual Investor
• Venture Capitalist
• CEO
• CIO
• Board Executive
• Trade Regulatory Commissioner
  
• Retailer
• Health Care Provider
• Consumer

I'm looking forward to hearing from you!

By invitation of the Editor-in-Chief, IP Share Guy has published the first article formally introducing the IP Share Market concept (see "Time for an IP Share Market?" The Scientist, Feb 2009).

Registered readers may rank the article (one to five stars) and leave comments on the The Scientist's web version.  Printed copy due in stores Feb 20th.

Imagine a future in which individual investors make informed choices about how their investment is used.  Imagine if the best ideas could be brought to the fore not merely by market forces and competition, but, instead, by popular demand measured by investment dollars targeted to drive a product to market.

That's the essence of the IP Share Market concept.

I envision this future, and have made a serious proposal to all the stakeholders involved - from the CEO to the day trader to federal regulators - in this month's issue of The Scientist.

Where is the payoff - the ROI, in business terms - of the molecular biology revolution?  How many good, and great ideas have been stifled due to bad politics within firms and companies?  How many decisions have been made to not underwrite the critical final stages of bringing a product to market, for want of dollars for R&D?

The IP Share Market concept is not just for pharma.  What about renewable energy?  The price of renewable energy surely would drop to highly competitive prices if the R&D costs were paid, in real time, for the capital made available by investment in the best ideas.

When you think about it, an IP Share Market would democratize the decision-making regardless the go/no go decisions on potential products.  Importantly, it would require clear communication by the researcher or engineer to the public on the merits of the concept.

Let's build the best of all possible better futures with this new model for doing business.

Contact us re: business opportunities for building the IP Share Market.