Short Title:

This proposal is mainly about funding and in particular funding for technoprenuers. The system provides a competitive and open market process and a government funded matching facility to solicit public interests, as follows:

Summary of Funding/Matching System:

The general focus of this funding system is to solicit public investments first to be later matched by the Government. This main feature distinguishing this system from others is that it provides an one stop soliciting vehicle for start-ups by allowing limited market participation to be considered first by the investing public, which may be supplemented later by the government. This promotes healthy open competition and secondary government funding sources.

A public investor is defined as a person with ordinary knowledge pertaining to the subject matter of investment and some knowledge within a specific technology. For every dollar the public investor contributed, the government can match up to a max of two (2) times. Say a public investor invest $ 1000 (for example), the government has the prerogative to fund anything from $ 1000 to $ 2000 but no less than $ 1000. Public investors can only invest up to a max of $ 1000 per share under one single entity. The number of shares open is dependent on the funding being sought by the technopreneur, say if the amount sought is $ 5000, then the maximum open to the public is only 5 shares of $ 1000 each. Shares can be broken down to smaller denomination where desirable. The government is allowed to take up any remainder not already taken up by said investors. The government can propose to the proponent to increase said funding subject to agreement with the proponent but only for the government’s portion.

We also envisage non monetary (which is common in academic projects) contribution from alternative investors such as in man hours or in terms of equipment which they can specify in terms of equivalent monetary value. Alternative investor is defined as investors contributing non monetary investments subject to agreement with proponent. Alternatively, proponent may propose such contribution outright instead of monetary contribution.

The Mechanism:

The mechanism for this open framework is by way of a web enabled system being used to display the technopreneur’s requirements and proposal. This is to say, each technopreneur wishing to consider funding can post their requirements and their respective business plans on this website which is then approved by the authorities before being displayed over the network. Approval is only sought for authentication and not on the merit of the proposal. Technopreneurs are encouraged to state succinctly their own personal contributions. There is no maximum or minimum contribution here in terms of equity percentage limitation. Obviously, if the proponent is only willing to contribute say $ 50 in order to solicit $ 50 K then one is unlikely to see many interests from the public investors no matter how attractive the proposal is on paper. This self-exercise is useful as a tool to gauge the proponent’s overall commitment. Such contributions can be in both monetary or/and non-monetary. A step of verification of said personal contribution or commitment is required before the commencement of the project where third parties including the government’s committed funds can be released. The technopreneur or proponent is free to provide scope of experience and relevant academic backgrounds if applicable. To ensure fairness, the technopreneur’s personal details are concealed until after the funding period is closed and is only accessible by those who have committed to the process. To ensure quick turnover, one can have this funding process 4 times a year by providing 3 months of opportunity per selection.

The Rating System:

In addition to the above, another distinguishing feature is of a rating system to be supported by a number of advisors made up of possibly paid consultants to provide feedback and votes on the submitted proposals. Any feedback provided must be clearly visible to all users and proponent must respond to in an openly fashion.

This initial rating is done by said advisors as the first step of the overall assessment of the proposal. Advisors are hired on a random basis and should be divided into academicians, member of parliaments and business professionals. The identities of these advisors are secret and they can only sit through a maximum of 2 rounds of funding within a 5 years period.

This rating process will form the primary consideration to qualify the government’s participation. For example to illustrate this mechanism, say these advisers have vetted the available projects on line and indicated their rating for project A as 10, project B as 6 and project C as 1 (10 being the most promising) then, the next step is for the governmental component to decide the same. The governmental component will consist again of several departments qualified to assess the project. Say Project A is a medical type of solution to cure certain diseases, then naturally the dept of Health should be selected and an officer appointed to vet the project and so on. The dept of Finance will naturally be involved since the project requires funding inputs as well so it is well settled that in most cases this dept will be involved in all cases. Assuming both dept of Finance and dept of Health have considered Project A to be viable and accordingly placed their rating as say 5 from Dept of Health and 9 from Dept of Finance, then the average is 7 out of a possible 10. Then according to our formula, the government should fund this project in the ratio of 1.7 times for every $ the public investors will invest but only for the remaining portion. The formula here is simply the 10 from advisers and 7 from both Departments being added up and divided by 10. To qualify as a PASS at least a 5 must be reached.

Each dept should have their own criteria internal for their own purposes. The government’s funding portion can carry other conditions such as conversion to debt or cashing out clauses as proposed by the Finance Dept from time to time subject to agreement with said proponent. To be consistent, this funding portion must not represent more than 15 percent of the total equity pro-rata at any one time irregardless of the amount being sought but for up to a max of $ 250,000 per proposal.

It is preferable that government officers involved in this process be rewarded in accordance to a performance-based system, such that it reflects their decision-making skills. Similarly, advisers that are accurate in their predictions will be invited again.
 

Appeal and Feedback process:
 

In the case where investors are committed but the government cum advisors component scored less than 4 or below, the proponent can appeal for a reconsideration. In applying for reconsideration which is a payable event, the advisors and government depts however must provide reasons for their respective decision and upon receiving them, the proponent can rebut by providing evidence. This is a one and final appeal, which must be observed by the heads of said relevant depts. Oral arguments may be presented in lieu.

The result of this appeal must be posted on this website. In cases where there is no public investors then reconsideration will not be entertained unless such project falls into community type of proposals wherein such cases will be reconsidered on a case-by-case basis. Such cases will only be opened to appeal if supported by at least 3 other non governmental organizations providing written support for such proposals.
 

The Conversion Mechanism:
 

Recognizing high risk, high reward problem, our solution here is to provide the option for the investors to "exit" the project by converting it to unsecured debt or loan instrument. This is a one time offer exercisable at any time during the proposed period of the project and is not reversible. To maintain some reward/risk structure, we further proposed that such exit or conversion be made such as that on conversion its equity value to debt will be reduced by a discounted factor of say 45 % for every $ invested. The proponent can set this value during the solicitation period. Upon conversion, the proponent shall be personally indebted to those public investors who have contributed monetary value only. For example, say $ 100 is converted with a discount of 45 %, the debt would have a face value of $ 55 only. No interest is payable and the debt must be fully discharged within 7 years from date of conversion. No conversion is applicable for investors contributing non-monetary values nor is it applicable to the government’s funded portion.
 

The Intellectual Property Issue:

In proposing an open system such as this where transparency is paramount, intellectual properties will be exposed. However, the intellectual property game is one of a double edge sword. Exposure means others will not be able to claim they are the first inventors and will naturally defeat any patent application subsequent by others even if it is only an electronic publication. In the US, the patent system uses the first inventor ruling rather than first to file which means the applicant can still file an application even though it has been exposed within a one year period prior to said exposure as long as it has not been sold anywhere in the US. However, if this is a main concern, then the proponent for a project whom he believes to contain significant patentable subject matter may resort to a provisional application first which cost less than $ 500. We do not believe this to be a burden to most entrepreneurs here as a provisional application, which provides priority claimable within a year from the date of submission, need not have any examinable claims in the provisional stage.

In summary, the benefits of this proposition are as summarized below;

Our proposal actually integrates both angel investors and governmental backing requirements as well as the public investors detailed in our investor participation and rating mechanism above. As mentioned the government’s actual funding is secondary after the primary public investors. However, the government’s participation and openness are structurally important in our proposal;

Public and government participation means all proposals are properly vetted by those within the inner circle and beyond in the field. Technology as one can appreciate should be open so that the best methods or practice can be openly challenged and adopted. Such feedback is actually useful for the inexperienced proponent. In particular many such technologies are built on previous arts rather than new break-through hence such improvement must be openly quantifiable. An open system also minimizes chances of duplication.

It also encourages entrepreneurs with mere ideas to understand how the intellectual properties game is being played by forcing them to understand how to apply and protect their own IPs as well as to respect others; An idea is generally not patentable and without understanding how the IP game is being played, one is not able to protect ones business or to propagate it later which defeats the purpose of initial funding and efforts.

The system is more competitive than those closed systems since all parties have the same information to analyze at an instance of time. This system ensures no secret negotiations or favoritism. Furthermore, the government should be active in investing in technologically budding companies around the world by adding one consideration such as that they have to relocate or use local workers as a means to transfer knowledge which ever is applicable.

This system can also set the stage for other non technological platform (such as for movie industry, small business ) as it broadly follows similar principles and the source code for this web enterprise should be open source to allow others to provide significant input to better it.

This system provides accountability for all stakeholders including investors and government participation at all levels. For example, stakeholders such as the public will not be deprived of opportunities to invest in viable proposals either by monetary or non-monetary means. Said public will also have the expert advice of others clearly summarized online for them to make their own analysis. In the preferred embodiment, the proponent will need to provide milestones of stated completion before the next scheduled funds can be released which can be monitored online. Such monitoring role will ensure protection to the investing public and preferably, said monitoring entity is paid a fee.

This fund raising method is more flexible and can accommodate monetary and non monetary funding where the latter might open up direct relationships needed in areas such as marketing and services which are not easily quantifiable particularly at start-up stages.

Our conversion mechanism is an important feature to afford some base return to said public investors. It is aimed to diminish some of their concerns in investing with new start-ups and hopefully without adding undue pressure on the proponent. We do not favor a system where the investors are without any recourse at all or one that will seek to delay such efforts. We did not include non-monetary contributors in this mechanism because we believed their contributions are linked to their performances and hence they have more control over the overall success of the project in co-operation with the proponent than the first money contributors. We further hold the view that the government’s expert decision must be convincing and hence providing the safety net of an option to convert would dilute said decision in the eyes of the investing public.

This funding method also provides an opportunity for ministerial officers to leverage their scientific and technology experiences with one of investments currently the premise of venture capitalist or bankers. Such exercise will provide valuable experiences not only benefiting local enterprises but also for vetting other governmental projects.

As for education institutions and more particularly students and lecturers, this system provides an alternative to tap the equity market to test their ideas and opportunities which means would be entrepreneurs will be provided a first hand exposure to the demands of the business world.

The minimum setup cost for this open funding system is less than $ 300 K at the present commercial rate and the maintenance cost can be secured within the price range of $ 8 K to $ 16 K a year which is not a burden else this is equivalent to having 3 developers with 2-3 years of experience working on this project for 4 months if developed in-house. We believed most Ministries would be able to sustain this cost, singularly or in cooperation with others at the operational stage later.
 

Copyright (c) 2003-April-13

Chris Kwan

Managing Director

Ecorpnu Pty Ltd