Issuing stock to cover development costs... comments?

Hi,

I don't know yet if I would actually do this, I'm just thinking aloud here and looking for feedback.

I have a largeish project I'd like to get off the ground (the Sun Realm Online, a biofeedback game. See link in sig line for details.) I'm going to need some land, as well as efforts by a bunch of different people: scripters, artists, builders, etc. I have some $L stashed for the effort, but not enough to really get things going. Some people have expressed interest in helping. Right now I'm not sure if the project will ever break even, much less make money (even $L), but I'm hoping that it will, and if so, I'd like to be able to compensate the folks who help to get it going and keep it running.

So I'm considering creating a private stock issue. Say, 1000 shares, voting stock with dividends. I was thinking I'd actually create objects to hold the stock certificates, no modify, no copy, with unique serial numbers. I'd like to have the certificates email a note to a server once a week so I know who's currently holding the stock, or on sale/transfer, if that's possible. (Can a script run from inside someone's inventory, or does it have to be at least an attachment on an avatar?) I'd have a voting system set up on a website (or possibly in a group poll, but then I'd have to calculate stock weights by hand) for major decisions to be made in the project. If we ever cleared a profit, I'd distribute dividends per share held. The idea would be to use them as part of the compensation for people who help build the game, as well as a guaranteed form of participation in major decisions on the project. Some of this help might include actual USD capital to get the land, etc. Other shares would go to people who make lasting contributions to the project, e.g. helping to develop scripting packages and tutorials, constructing major buildings, creating main general-use textures or music/sounds.

I suppose we'd also need a board to handle most of the operational decisions, though I'd like not to make this any more complex than it is already.

I have only a general acquaintance with stock issues, boards, etc. (I've owned some stock, I've been on the board of a very small non-profit), so I'm sure there are some holes in this scheme that I'm missing. For example, I'm not sure what the legal ramifications in RL might be, if any. I'm not sure if the SL corporation I'm implying should retain a majority share of the stock and if so, how that would get voted (by the board?) and what would happen to its dividends. I'm also not sure if a group can stand in for a corporation... can a group hold $L as well as land? How about objects? How does the $L get paid out of a group, if it can hold them to begin with? Votes by the Board? Should we create a "bank" avatar, or use GOM or something?

Heck, I'm not even sure how much to compensate myself for trying to run the project. Or maybe I should be looking for someone who really understands how this works and hire them.

I'm in the process of trying to write a project proposal for viewing by the main participants in this effort, and I'd like to include what kind of compensation we can offer. So if anyone has suggestions, I'd be happy to hear them.

Thanks,

neko

This idea has been proposed before. It has always failed because there is nothing preventing you from collecting everyone's money then running.

I think I have to agree there. What development costs are you talking about? I spent a few thousand to have one item developed, but I paid for that with the sales of items that didn't cost me anything to make.

But, if you're serious, post all your real world info, like name address phone & drivers license on a web site someplace. That way everyone knows you are legit and can annoy the hell out of you if you try anything goofy. Not that I'm sayin' you would, but who's gonna give money to someone when they don't know who they are?

Posting my real world info is a fair requirement.

I'm not mostly looking for USD, or even $L, in this case. It's more a matter of trying to figure out how to compensate people (e.g. builders, scripters) who might be willing to help build something, even knowing there may not be much in it for them, but really deserve a cut if it turns out to make money. But the trust factor is still there -- someone could invest a lot of time and effort, and theoretically I could lie about how profitable the thing has become and refuse to pay up, even if it makes money hand over fist. (I wouldn't, but you folks have no reasonable way of knowing that.) Or make a bunch of changes later that made people who had helped build the thing upset. Recent history has provided some examples of that, perhaps.

The other alternatives are (not exclusively): a) sell subscriptions in advance of the game being complete or b) look for capital investment by someone who likes the vision and has the upfront cash/lindens. (The owners of the biofeedback technology meet the first requirement, but not the second, AFAIK. At least, they didn't before the holidays.) In that case I could compensate contributors up front.

I was originally looking for more of an employee-owned/user-owned, coop kind of solution. Stock is kind of formal for that sort of environment, but I figured since we wouldn't all see each other every day, it might be best to be a bit more formal about it. And it would help manage the fact that I know we're going to have project turnover.

Anyone have experience with managing a coop? Suggestions?

neko

In addition to the perennial cost of land, I have some external server work that will need to be done (XML-RPC stuff), scripting to receive the XML-RPC data and react to it, and some texture and building stuff. It's actually mostly stuff that I know how to do myself, but I don't have time to do all of it, and there are people around who are better at a lot of it than I am. I have friends who are interested in helping, but at some point I think this thing may make some profit, and I need to figure out up front how to share it out.

neko

Find a way to sell the game subscriptions/memberships through a 3rd-party website. Contact someone like Nexus Nash or Adam Zaius to see if it's possible to do business with them; form an exclusive contract with them that all game subscriptions/items in your contract will have to be bought through their vendors or on their website. Ask them to make arrangements for sales data for this merchant account to be publicly viewable, instead of only viewable by the merchant. Unless it's too hard for them to do, they'd probably be happy to accommodate you, because people will have to register at their website; it will drive up traffic for them, plus whatever commissions they get from vendor sales. Other than the exclusive arrangement for sale of items/subscriptions, find some way to keep each other "at arm's length" business-wise, and avoid any appearance of impropriety.

Since all subscriptions would be bought from them, there would be a 3rd-party examiner of records.

Edited to add: Doing this would also take the work off of your hands for managing vendors/ selling accounts, and visibility on a 3rd-party website = advertising.

Are you talking about *selling* stock or just issuing it as compensation, Neko?

Selling stock has apparently failed in the past, as people will not tire of pointing out -- though the past is not a predictor. But if you're just thinking of issuing stock as potential compensation you might be able to work that, though I'd suggest keeping your scheme pretty simple. It sounds like the people who have signed up to help you are ready to volunteer their services, so anything you can give them in the way of potential compensation would be icing. If that's the case, maybe you just want to keep it *really* simple and just give them some money now and then out of your game-related income, based on your own judgment call, and not worry about stock issues, etc. Also, hooking up with a 3rd-party vendor as suggested above, doesn't sound like a bad idea.

SL is so rich with possibilities that I think we all (I know I do) get the idea that we should take advantage of things that we don't really need to undertake in order to get our projects off the ground. It's hard enough to get a big thing going without also trying to add on a complex financial infrastructure. Maybe the simple approach is best. That said, I'd be fascinated to know what comes of both parts of your plan. Good luck!

Hey, I'm interested in learning more about this...drop me an IM and I'll get back to you.

Excellent advice! Thank you.


My original post was vague about this. I confess I'd thought of both. But my main interest is in issuing it as compensation, and as a way of defining who has a "vested interest" in the venture. Selling it to raise capital is a sideline idea at best, and since others have tried this and it hasn't worked out, I don't see any need to go there.

Thanks to everyone for the feedback. This is a great community. Kingey, I'll IM you when I get a chance -- a lot going on in RL this weekend, but I'll probably be logged in at some point. The website below has a working email link to me, if you have an idea you'd like to put to me, or questions you'd like to ask. I can also be emailed through the boards here, or through an IM in SL.

Thanks again,

neko

Neko et al.
SL == RL.
There is nothing preventing you from setting up a RL corporation to buy and develop land for profit. In fact, this is how it should be done.
As for coming up with some SL-specific "stock" model... please dont reinvent the wheel.
Ultimately, SL is just a bunch of computers lying around in a colo. It is no different from the web, it has always been meant to be a 3D web, and in fact it runs on the same back-end software: Apache web servers and Squid proxies.
And whatever you do, get a lawyer.

A few reasons why this won't work. One has already been mentioned -- the inherent issue with accountability. Who are you? Where are you from? Where is my money? yada yada yada.

Second, you need to get a loan, not issue securities. Why offer anyone a piece of the company now. If you can get away with a loan and your idea takes off THEN issue stocks and use some of the proceeds from that sale to pay down the loan debt.

Plus, how do you value the company. If I said, OK I want in and I will buy 100 shares, how would you determine the value for something that doesn't exist? if you said $10/share, how would I know how you came to that number.If you are in business and come to me and say, " Hey, we're doing $1000/mo in business and the group (company) has also bought 4096sm of land in a sim going for $6/sm," I can get a feel for how much 1/1000th of the company is worth.

One purpose of issuing stocks and bonds is for growth but there is also a component of day-to-day operations included. Fortunately, this is not really an issue for us here in SL.
I'm assuming you have no track record for doing this type of offering online so a bond would be out of the question since we don't know how to rate your ability or capcity to pay back the bond plus interest.

Well, actually that is just semantics because basically you are looking for a cash loan which a bond technically is. So, my advice is to find someone or a group who will loan you the money you need. Present them with a business plan and who knows, you may get some takers. Be prepared to share personal information that they will want to (hopefully) verify. If I was to get involved with this type of transaction I would execute a legally binding contract.

Your project does sound interesting and I wish you luck.

my impression is that people are contributing value in the form of service (scripting, building, etc) and you want a way to value their contribution in the case that the operation becomes profitable or worth something (someone wants to buy it).

The limiting factor in SL is usually the lack of legal protection, and the impracticality of doing RL legal work for in-world activities. However, if you and your team trust each other and you simply want to be fair with how you distribute proceeds, then nothing should stop you.

You need a way to calculate the "contribution" of each member. This could be done based on an agreed-upon billing rate (even though no money is actually given) and the number of hours contributed (again, honor code here). Or some other vehicle. You keep a record of the total contribution of each person and calculate "ownership based on that. You will have to come to agreement with them on how *your* ownership is calculated, or if it is fixed.

Creating a security (i.e. a stock) might be overkill here, nor do i know why the security would change hands especially given that profits are a low probability here.

If you are all just doing this for the love of the project, and want a way to reward people if upside is actually seen, I would keep the structure friendly and less legalistic.

Example (arbitrary hourly rates)
You invest $10,000 to start project (seed capital)
You: $100L an hour, 10 hours ($1000 total)
Beginner texturer: $10L an hour, 20 hours ($200 total)
Advanced scripter: $1000L an hour, 1 hour ($1000 total)

You own $11,000 of $12,200 = 90%
Beginner owns 200 of 12,200 = 2%
Scripter owns 1000 of 12,200 = 8%



anyway, just an idea...

Oddly enough, I do have a RL lawyer interested who might be willing to do the work on speculation, but I think Forseti has the right approach for the problem I'm trying to solve. You're right, there's no real reason for the partial ownership to be transferrable, unless I suppose someone asked for that especially. Sometimes I get distracted by complexity and overlook the simplest, most logical solution.

Thanks for all the continuing suggestions, everyone. Hopefully I'll have some kind of demo within the next couple of weeks and I can finalize the proposed plan and start to see who's really interested in getting involved at this point, so we can get going on actually building.

neko