If the project is funded at a valuation of $5, it wouldn’t necessarily receive $5 – it would receive whatever percentage of $5 the investor bought equity in. So if the investor bought 80%, the project would receive $4; if the investor bought 20%, the project would receive $1. If Alice didn’t think she could put the extra dollar on top of the first four to use, then she presumably wouldn’t sell more than $4 worth of equity, or 80%, because the purpose of selling equity is to receive cash upfront to cover your immediate costs.
(Almost everything about impact markets has a venture-capital equivalent – for example, if an investor valued your company at $10 million, you might sell them 10% equity for $1 million – you wouldn’t actually sell them all $10 million worth if $1 million gave you enough runway.)
On Manifund itself, the UI doesn’t actually provide an option to overfund a project beyond its maximum goal, but theoretically this isn’t impossible. But there’s not much of an incentive for a project founder to take that funding, unless they’re more pessimistic about their project’s valuation than investors are; otherwise, it’s better for them to hold onto the equity. (And if the founder is signaling pessimism in their own valuation, then an investor might be unwise to offer to overfund in the first place.)
So if project-doers don’t sell all of their equity, do they get retroactive funding for the rest, or just moral credit for altruistic surplus? The former seems very bad to me. To illustrate:
Alice has an idea for a project that would predictably [produce $10 worth of impact / retrospectively be worth $10 to funders]. She needs $1 to fund it. Under normal funding, she’d be funded and there’d be a surplus worth $9 of funder money. In the impact market, she can decline to sell equity (e.g. by setting the price above $10 and supplying the $1 costs herself) and get $10 retroactive funding later, capturing all of the surplus.
They’d get retroactive funding for the rest, yes. When you say it seems very bad, do you mean because then LTFF (for example) has less money to spend on other things, compared to the case where they just gave the founder a (normal, non-retroactive) grant for the estimated cost of the project?
Yes. Rather than spending $1 on a project worth $10, the funder is spending $10 on the project — so the funder’s goals aren’t advanced. (Modulo that the retroactive-funding-recipients might donate their money in ways that advance the funder’s goals.)
Related, not sure: maybe it’s OK if the funder retroactively gives something like cost ÷ ex-ante-P(success). What eliminates the surplus is if the funder retroactively gives ex-post-value.
Edit: no, this mechanism doesn’t work. See this comment.
If the project is funded at a valuation of $5, it wouldn’t necessarily receive $5 – it would receive whatever percentage of $5 the investor bought equity in. So if the investor bought 80%, the project would receive $4; if the investor bought 20%, the project would receive $1. If Alice didn’t think she could put the extra dollar on top of the first four to use, then she presumably wouldn’t sell more than $4 worth of equity, or 80%, because the purpose of selling equity is to receive cash upfront to cover your immediate costs.
(Almost everything about impact markets has a venture-capital equivalent – for example, if an investor valued your company at $10 million, you might sell them 10% equity for $1 million – you wouldn’t actually sell them all $10 million worth if $1 million gave you enough runway.)
On Manifund itself, the UI doesn’t actually provide an option to overfund a project beyond its maximum goal, but theoretically this isn’t impossible. But there’s not much of an incentive for a project founder to take that funding, unless they’re more pessimistic about their project’s valuation than investors are; otherwise, it’s better for them to hold onto the equity. (And if the founder is signaling pessimism in their own valuation, then an investor might be unwise to offer to overfund in the first place.)
Does that answer your question?
Thanks.
So if project-doers don’t sell all of their equity, do they get retroactive funding for the rest, or just moral credit for altruistic surplus? The former seems very bad to me. To illustrate:
Alice has an idea for a project that would predictably [produce $10 worth of impact / retrospectively be worth $10 to funders]. She needs $1 to fund it. Under normal funding, she’d be funded and there’d be a surplus worth $9 of funder money. In the impact market, she can decline to sell equity (e.g. by setting the price above $10 and supplying the $1 costs herself) and get $10 retroactive funding later, capturing all of the surplus.
The latter… might work, I’ll think about it.
They’d get retroactive funding for the rest, yes. When you say it seems very bad, do you mean because then LTFF (for example) has less money to spend on other things, compared to the case where they just gave the founder a (normal, non-retroactive) grant for the estimated cost of the project?
Yes. Rather than spending $1 on a project worth $10, the funder is spending $10 on the project — so the funder’s goals aren’t advanced. (Modulo that the retroactive-funding-recipients might donate their money in ways that advance the funder’s goals.)
Related, not sure: maybe it’s OK if the funder retroactively gives something like cost ÷ ex-ante-P(success). What eliminates the surplus is if the funder retroactively gives ex-post-value.
Edit: no, this mechanism doesn’t work. See this comment.