In the Arcology system, how are startup companies encouraged and financed?

  • How do you motivate entrepreneurs risk starting a company?
  • How do you motivate venture capitalists to fund them?

Startup, Finance and Rewards

  • Since DCs have no shares, classical venture capital needs to be modified. 
  • A DC can never sell a stake of itself to anyone in return for funding. 
    • Call warrants cannot be issued
    • Equity and mezzanine financing are off the table
    • IPOs are forever off the table. 
    • There would be no stock markets for DCs
  • However, debt based financing is still possible
  • DCs can issue bonds.
  • Revenue based financing is possible
  • Startup Finance could be achieved via a ‘bond ladder’, where the investors are incented to invest through excellent returns. 
  • Bonds or cash bonuses can also be awarded at any time to any employee. Salaries can be set by the executive or (for the officers) by the board. Thus top talent can be attracted without stock or stock options grants.
  • Since DCs would appear quite alien to existing banks, they would probably be unable to get conventional funding until they’re big with a proven track record. So we’ll need workarounds
    • They might still be able to borrow against collateral if the company has any.
    • Many DCs would start small, not needing much capital to get going: engineering and legal firms, small retail or service industries such as pet grooming or bike shops etc…
    • As those DCs become profitable, they could elect to invest in DC based financial institutions (basically credit unions) dedicated to helping other DCs get off the ground through loans and VC. 
    • The guild could also opt to impose a tax to create such VCs and financial institutions. (this would take some careful thought)
    • It would take time, but the DC network could ultimately become self funding.
    • Once DCs become a regular, established part of the economy, conventional banks may elect to learn about them and learn how to lend to them.

VC bond-ladder Example

  • A tech startup gets started. 
  • The founders issue 10x bonds to themselves that vest in 5 years. This is the ‘founders’ interest. 
    • Beside holding this bond, and any other bonds later awarded to them by the company, founders would be just the same as any other worker.
  • The founders then approach investors and offer them a larger number of 10x bonds in exchange for startup funding. (seed round)
  • When it’s time to do series A, more bonds are issued, with lower multipliers than the earlier bonds, but may more of them. 
    • Income from Series A can be used to pay out the seed bonds, or the holders of seed bonds can elect to convert their bonds to series B bonds of equal value, thus deferring their reward into the future.
  • This ladder can continue, until the corporation is profitable, by which point the bonds issued would be of much lower risk with much lower rates of return.
  • For many years, the profits of the company must service the bonds, but eventually. When they are finally paid off, the workers will be left owning the company in full.