SL "Venture Capital"

Jacqueline's REIT thread once again brings me back to investment groups -- what I consider to be a fundamental step for the SL economy AND the key "enabler" behind bigger projects -- bigger in size, ambition, and creative vision.

(note that I do _not_ say "better" -- but if LL wants its users to create the entertainment content that brings the world, a certain amount of scale is necessary)

What I envision is a group of people who:
1. pool RL money
2. receive and review SL business plans
3. invest in the creative/entrepreneurial people behind those plans
4. buy an ownership stake in the project and possibly receive dividends from project cash flows

Philip wrote once about the creation of an SL golf course. Personally, I don't see how this or any other huge project can take off without an investment group, because the investment amount would be high and the creative/build team would probably be far-flung geographically.

Right now the primary form of returns for investors would have to be "dividends" paid out in the form of profits (one would have to figure out who manages the cash flows). The normal exit in the RL is M&A, but it is hard to envision a robust merger and acquisition environment for exit strategies until the SL economy is much more advanced.

Now, since there is no in-world legal infrastructure, whose rules provide relative safety to RL investors (although not from bad investing decisions), how could we make this work. Philip talked about off-world agreements, but given that I would not have met, nor be near, my co-investors, it is difficult to see this being pragmatic.

Two questions:
Who else is interested in this idea?

In a virtual world, how does one solve the trust barrier, both between participants in the investing group, and between investors and the creative people they fund?

-- Forseti

I'm behind you and would love to see this take place 100%.

Group projects in SL have a very high entropic rate. That is, unless they have an extremely good binding force to keep them together (usually a strong leader, or core group of leaders), the project almost always collapses to the point of uselessness.

Furthermore, most projects in SL don't require any sort of venture capital, short of land.

No one trusts anyone else in SL when it comes to money. Except the Lindens, perhaps.

Land can be donated by the Lindens as per their Incubator program.

So, why would someone agree to take on a high-risk, monetary, time-consuming project with relative strangers, with little control over their artistic vision, when they could just knock on Uncle Linden's door and get some guaranteed land and a much more benevolent partner?

That is the question that needs to be answered satisfactorially.

LF

Well put LF. Thats not to say there is no place for VC, but you've certainly made a good point.

makes sense... it would have to be a sustainable attraction rather than a flash in the pan, and the investor group/entrepreneurial team would be motivated by returns to keep it going. If poor returns... kill project.

Tangent: speaking of biz lifecycles, here in NYC, nightclub owners often have 3 projects going... one new, hip place where the cool people are because no one knows about it yet, one money maker where the masses go to try to be with the cool people, and one dying club for which the cool people are long gone and the masses have come to realize it.

Well, at one level, sure because land is the primary expense on SL. That said, an investor group would be able to pay/motivate highly talented creatives/scripters/builders to work on the project.

This is probably true, although I can certainly think of a few I would trust. No many. But then, how to solve the trust problem is the biggest factor online... eBay has never been able to solve it, nor has any reputation system i've seen yet.


I need to learn more about this. But I think about Neverland -- here was an example where the project was temporary and the owners/creators were not able to be rewarded. The joy of creation and universal applaud is heady reward, I agree, but a volunteer-only model has its limitations.

All this said, you make really valid points Lordfly.

And the artist side of me loves the creativity, expression and individualism on SL. But human beings do great things in groups as well, and those groups typically need structure and motivation to be sustainable. The entrepreneur side of me wonders if SL can really grow to the level of LL's ambition without either creating content themselves or enabling a greater number of projects that really pull people in.

The 2 things that cost money for an enterprise in SL is land, and *labor*. There may be other things that need money (for example, if you're running a casino, you would want to have a cash buffer, in case someone wins a large jackpot), but those are the 2 biggies.

As to contracts, while they may not be enforceable, I think a good first step would be to *document* them, rather than act on simple verbal agreements.

Once contracts are documented to the point where it is well nigh impossible to forge them, the rest takes care of itself. The market will destroy people who make bad contracts. A sort of Merchant Law system of arbitration and rating will become inevitable.
SL Consumer Reports agencies will pop up everywhere.

This is something I have been thinking about a bit.

Maybe a no-mod scripted object, that two people can drop their notecards into, and if they confirm and the two cards match, it records their keys and the notecard.

I'm think before we could have Phil Linden's golf course, we'd have to have the physics in the game to hit a ball and control its positioning better than we have now, and have a less laggy game.

And before the society could be ready for investment groups, it would be good to see non-profit groups mature. What I mean is groups of players coming together to pool their resources for a group purchase of land, and to collectively put in their tier to maintain that land -- without going to the Lindens for grants, incubators, subsidies, etc.

When that can happen, and people can trust each other enough to see the advantage of group cooperation for a non-profit purpose, then they could probably be ready to graduate to for-profit activity.

In human history, people got together and hunted, then made campfires and ate their meals and painted their caves together. It was a while before the sold the caves at a profit and bought cliff dwellings : )

heh, true... i wonder what HAVOK 2 will bring



I suppose Lusk estates could be viewed as what you are looking for, and I bet there are more examples and will be more. I don't "own" my own land. Instead the estates trust owns it, run by good officers, and I contribute my tier.



Crikey, I hope it doesn't take that long.

Pooling money with people on the internet whom I don't know very very very well? Giving somebody venture capital without ability to sue that person? No thanks!

My personal experience with playing venture capitalist in SL is that either the venture fails and investor is idiot to pay the bill. Or it succeeds and your partner runs with the project, dumping the "lazy" and no longer needed investor, at most paying you back your original investment.

As much as I wish I could invest and give people opportunities, without legal contracts and ability to enforce them I am not going do it again. I rather invest in my own projects now and subcontract talented people.

The greatest motivator for people to see a project through to it's completion is money. When it's the project participants own money being spent on tier fees and land costs the project moves along. I have seen many requests for support for large projects. The golf course was one such idea. A few of us stepped up and said we would purchase the sim and support the project as soon as we have something to look at (golf club, golf ball, one hole). I was told by several to purchase the land THEN they would put something together. Needless to say, there is no golf course yet. Others expect investors to wait 3-4 months to see a final product...at $195 per month sim rental plus $980 USD purchase price I refuse to even consider such projects anymore. Alot of people have big ideas for projects but think the only way to accomplish them is to have 1-2-3 sims worth of land to start. Why not build each module on smaller plots THEN approach LL or private investors for money. Any project I can think of can be somewhat modular until it is time for final placement. I have noticed that all of the people who really have the ability to finish a large project have found means to do so.

Anshe, I agree with you. As an investor, I would not put forth money unless I had protection or a LOT of trust in the people I would be backing. The system in place currently does not have the fundamental ingrediants to make it work. But part of this dialogue is to discuss what we might need in order to make it work.

Schwanson, I also agree with you. A good entrepreneur gets a small trusted team of the most talented people possible, and bootstraps the early stages. You don't need to own 2-3 sims to "alpha" or even "beta" a project. The entire team needs to be motivated, and you need a good leader that keeps everyone working together and moving forward.

I also think there is basic lack of understanding within community why some investor should get profit out of successful project. After, all, investor did not spend all her time building the project. So once the project runs and is successful, why give money to that "parasite"? The original risk taken and value of prefinancing is generally forgotten or overlooked by, I would say, vast majority of people. All most people see is monthly tier fee that must be paid. Even things like depreciation of land (as sim gets older, land prices fall) not to mention somebody get paid for original risk taken is far far far far beyond comprehension of most people in SL community, especially of many of those who are builders.

I also fully agree with Schwanson. Many people have big dream and think big sim and many prims complete the project. But they don't understand that realizing one big dream also means much work, spending time on details and little frustrating problems. Only few stay when the real work starts and follow through and those people also usually don't start their projects by asking for sims.

Two things might help improve things:
1) Contracts and contract enforcement
2) An agency or system that makes hiring people easier, to fill roles in (commercial) projects. As is now, I have money, project ideas and much work for people to do. I also had some succesful hires/contracting, but too often I just waste my time with people who have big mouth one day and loose interest soon after.

Great points Schwan and Anshe!

I personally have a lot of ideas that I'd like to put together, but can't really build myself(... yet) But I need ppl who I know will really put in the time and effort. I really think a strongly coded contract verification system would help a lot.

The ability to sue would become a natural outgrowth of that. The court systems would develop as private, in world, competing for-profit enterprises I think. Kind of like arbitrators in RL.

It could also lead to secure banks in SL.

But you would need a way to prove that you signed off on something.

As I contemplate the above points, it is becoming obvious to me that SL does not have *nor will have* the necessary infrastructure in place to assure solid joint investment ventures in the short term.

As long as blind trust is required to undertake joint ventures, I doubt many will consider the risk/reward outcome probability worth taking.

Just my .02

no, I agree with you. Not ready yet for it. Could it get there? maybe.

Private-sector arbitration is an interesting spin, but then you'd still need some leverage hanging over the parties to motivate them to accept arbitration, wouldn't you? In RL it is huge legal fees among other things, such as discretion/reputation.

BTW Anshe -- agree with your posts. Curious to see if someone invests the time to become a "talent broker" for creatives on SL. An automated market system wouldn't really work -- people want to have other people filter. My guess (and yours, I would venture) is that finding "quality, dependable" people will remain word of mouth for a while.

This is someting I've been thinking about too...I even have the beginings of a scripted contract system that I've started (although it's unfinished and temporarily on the back burner in favor of assorted christmas projects). I can show it to anyone from this thread who asks.

Circumstances allowing (things may happen in the near future that would be good for me in RL and be good for SL but not allow me to do this particular project), I'd certianly like the idea of being Second Life's first independant arbitor.

The idea of contract law enforced by the players brings up a big problem though: enforcing them. Someone who breaks a contract will not likely be trusted by anyone else, fair enough, but what can you do if there are damages (unpaid money, unfinished work, etc.) involved? In SL, it would be hard to hold a person liable for breach of contract because there's currently no way to enforce concequences if they do.