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Re: [decentralization] Re: Open Corporations

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  • chris cook
    I m just in the process of putting together an Open Corporation for a UK project. Let s call it the Monster Corporation. The Monster Corporation will – like
    Message 1 of 11 , Feb 11 8:03 AM
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      I'm just in the process of putting together an Open Corporation for a UK
      project. Let's call it the Monster Corporation.

      The Monster Corporation will � like Camelot (the UK National Lottery
      consortium) be a �Market Service Provider� (�MSP�) consortium of the
      various providers of technology, communications, systems integration and so
      on.

      The consortium members, whether individuals,SME's or BigCo's will be
      shareholders in the Monster Corporation. However, this entity would not
      have a set share capital but would be limited by guarantee.

      These shares would not have a nominal value at the outset, but, as in a
      partnership, would represent a proportion of the value of the Corporation.

      Despite the mutuality/partnership this �Open Corporation� may nevertheless
      raise working capital without losing control by selling shares forward and
      repurchasing them through �Repo� agreements.

      Default on the Repo means the lender becomes an owner, and gains control.

      Debt becomes equity traded forward.

      And the Monster Corporation is therefore neither �For Profit� nor �Mutual�
      but rather �For Value�.

      Shares are infinitely divisible. My initial one half of the Monster
      Corporation starts also as 500/1000 th's or 5m/10 millionths.

      Probably end up as a couple of thousandths after the Monster Corp is
      complete, but I don't care if the value of the Monster Corporation is worth
      billions in value added by all the partner/member/shareholders working
      together.

      Governance is an interesting bit. Not too difficult now, but should be
      interesting going forward.

      And financial reporting. Has to be completely open in my view. Anyone can
      view the books real-time.

      What do you think, Todd?

      IMHO Capitalism took a wrong turn 300 years ago.

      Time to put it right.


      Chris Cook







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    • Todd Boyle
      That is an interesting top-down sort of view. What does it mean in plain english to the target investor? In other words. I am an SME. I have customers,
      Message 2 of 11 , Feb 11 10:21 AM
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        That is an interesting top-down sort of view. What does it mean in
        plain english to the target investor?

        In other words. I am an SME. I have customers, suppliers and a
        business process that I execute.

        Why would I invest in the Monster? I presume this is like an online
        service where I upload my business data archives for the last year
        or two, and begin operating from the host instead of my local system.
        Is that right?

        I would like to focus on the most simple and obvious, physical
        architecture first, and its benefits to me the SME. We will then
        talk about the new risks and costs it imposes, and whether the
        Monster is a good value proposition for me,

        Thanks
        TOdd

        At 08:03 AM 2/11/02, chris cook wrote:
        >I'm just in the process of putting together an Open Corporation for a UK
        >project. Let's call it the Monster Corporation.
        >
        >The Monster Corporation will ­ like Camelot (the UK National Lottery
        >consortium) be a “Market Service Provider” (“MSP”) consortium of the
        >various providers of technology, communications, systems integration and so
        >on.
        >
        >The consortium members, whether individuals,SME's or BigCo's will be
        >shareholders in the Monster Corporation. However, this entity would not
        >have a set share capital but would be limited by guarantee.
        >
        >These shares would not have a nominal value at the outset, but, as in a
        >partnership, would represent a proportion of the value of the Corporation.
      • chris cook
        Sorry Todd. Big-time confusion. The Monster Corporation will be the first example of a new form of Open Corporate - probably in legal form a Limited
        Message 3 of 11 , Feb 11 1:52 PM
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          Sorry Todd. Big-time confusion.

          The Monster Corporation will be the first example of a new form of "Open"
          Corporate - probably in legal form a Limited Liability Partnership (possible
          in the UK since last year)

          But whereas with either a UK company limited by shares or one limited by
          guarantee you have to go along with all the UK Companies Act stuff (miles of
          it) in the case of an LLP you write some DIY legal code to create something
          a bit cooler.

          And you do it by creating infinitely divisible shares which are then
          tradeable between members of the LLP or to whoever (if you allow more
          members in).

          The Monster will therefore be Monster Corporation LLP.

          So it starts up with a great idea to replace the National Lottery and �200.

          Day One there's me and my co-founder each with one half-share worth �100.

          I need �10K to do a proof of concept.I convince you to put in �10k (valuing
          the idea @�30k) and me and my partner agree that you get one share.

          My partner and I agree with Joe Coder to write the code, and convince him to
          do it for pizza, beers and a share.

          So we now have a Proof of Concept and �5k left after we pay the lawyers.

          We convince four BigCo's that this is the "Next Monster Idea" and they like
          the business plan enough that they want in as partners to provide the
          services necessary to operate the replacement to the Uk Lottery.

          The BigCo's become partners in the LLP at a valuation of �10m, and we issue
          4,999,996 new shares "worth" �2.00 each.

          The BigCo's put in �2m each, either cash or resource, in exchange for 1m
          shares.

          I now have 5% of the Monster Corporation.

          The Corporation sets up and operates the next generation lottery utility
          business with a secure cash flow.

          The �50m Monster Corporation needs to do so is obtained by creating another
          5 million shares which we sell forward to GreedBank at �10.00/share with an
          agreement to repurchase them five years from now, or more likely to
          repurchase 1 million/year for five years.

          This is the Repo agreement.

          If MonsterCorporation defaults, then the shares vest in GreedBank, and they
          get control.

          The point is that the people creating the Value own AND control the Open
          Corporation at all times.

          And that is something that has never yet in the history of either Capitalism
          or Communism yet been done.

          I think that you can take the Open Corporation and do just about anything
          with it.

          But first you have to write the legal code governing who gets what and who
          calls the shots and what happens in the event of disputes and so on. That's
          what I've just started on.



          Chris






          >From: Todd Boyle <tboyle@...>
          >Reply-To: decentralization@yahoogroups.com
          >To: decentralization@yahoogroups.com
          >Subject: Re: [decentralization] Re: Open Corporations
          >Date: Mon, 11 Feb 2002 10:21:28 -0800
          >
          >That is an interesting top-down sort of view. What does it mean in
          >plain english to the target investor?
          >
          >In other words. I am an SME. I have customers, suppliers and a
          >business process that I execute.
          >
          >Why would I invest in the Monster? I presume this is like an online
          >service where I upload my business data archives for the last year
          >or two, and begin operating from the host instead of my local system.
          >Is that right?
          >
          >I would like to focus on the most simple and obvious, physical
          >architecture first, and its benefits to me the SME. We will then
          >talk about the new risks and costs it imposes, and whether the
          >Monster is a good value proposition for me,
          >
          >Thanks
          >TOdd
          >
          >At 08:03 AM 2/11/02, chris cook wrote:
          > >I'm just in the process of putting together an Open Corporation for a UK
          > >project. Let's call it the Monster Corporation.
          > >
          > >The Monster Corporation will � like Camelot (the UK National Lottery
          > >consortium) be a �Market Service Provider� (�MSP�) consortium of the
          > >various providers of technology, communications, systems integration and
          >so
          > >on.
          > >
          > >The consortium members, whether individuals,SME's or BigCo's will be
          > >shareholders in the Monster Corporation. However, this entity would not
          > >have a set share capital but would be limited by guarantee.
          > >
          > >These shares would not have a nominal value at the outset, but, as in a
          > >partnership, would represent a proportion of the value of the
          >Corporation.
          >
          >
          >
          >
          >To unsubscribe from this group, send an email to:
          >decentralization-unsubscribe@egroups.com
          >
          >
          >
          >Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
          >
          >


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          Join the world�s largest e-mail service with MSN Hotmail.
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        • Michael Bauer
          I think Todd was not completely confused. His questions are legitimite in general. Any business must understand the value proposition for becoming a
          Message 4 of 11 , Feb 11 9:40 PM
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            I think Todd was not completely confused. His questions are legitimite in
            general. Any business must understand the value proposition for becoming
            a stakeholder in an open corporation. You specifically outline the
            proposition for companies in Monster Corporation. If you were proposing
            an open corporation along the lines that Todd was inferring from your
            original post, then yes, those are the kinds of value proposition
            questions that would have to be answered. I'm working on similar
            propositions for my open consulting corporation.

            I think these kinds of questions can be answered in the by-laws of an open
            corporation. I'm trying to work on such a template to go along with the
            things I outlined in http://www.michaelbauer.com/open-corporations.html -
            recently updated after some exposure on the FSB list.

            On Mon, 11 Feb 2002, chris cook wrote:

            > Sorry Todd. Big-time confusion.
            >
            > The Monster Corporation will be the first example of a new form of "Open"
            > Corporate - probably in legal form a Limited Liability Partnership (possible
            > in the UK since last year)
            >
            > But whereas with either a UK company limited by shares or one limited by
            > guarantee you have to go along with all the UK Companies Act stuff (miles of
            > it) in the case of an LLP you write some DIY legal code to create something
            > a bit cooler.
            >
            > And you do it by creating infinitely divisible shares which are then
            > tradeable between members of the LLP or to whoever (if you allow more
            > members in).
            >
            > The Monster will therefore be Monster Corporation LLP.
            >
            > So it starts up with a great idea to replace the National Lottery and £200.
            >
            > Day One there's me and my co-founder each with one half-share worth £100.
            >
            > I need £10K to do a proof of concept.I convince you to put in £10k (valuing
            > the idea @£30k) and me and my partner agree that you get one share.
            >
            > My partner and I agree with Joe Coder to write the code, and convince him to
            > do it for pizza, beers and a share.
            >
            > So we now have a Proof of Concept and £5k left after we pay the lawyers.
            >
            > We convince four BigCo's that this is the "Next Monster Idea" and they like
            > the business plan enough that they want in as partners to provide the
            > services necessary to operate the replacement to the Uk Lottery.
            >
            > The BigCo's become partners in the LLP at a valuation of £10m, and we issue
            > 4,999,996 new shares "worth" £2.00 each.
            >
            > The BigCo's put in £2m each, either cash or resource, in exchange for 1m
            > shares.
            >
            > I now have 5% of the Monster Corporation.
            >
            > The Corporation sets up and operates the next generation lottery utility
            > business with a secure cash flow.
            >
            > The £50m Monster Corporation needs to do so is obtained by creating another
            > 5 million shares which we sell forward to GreedBank at £10.00/share with an
            > agreement to repurchase them five years from now, or more likely to
            > repurchase 1 million/year for five years.
            >
            > This is the Repo agreement.
            >
            > If MonsterCorporation defaults, then the shares vest in GreedBank, and they
            > get control.
            >
            > The point is that the people creating the Value own AND control the Open
            > Corporation at all times.
            >
            > And that is something that has never yet in the history of either Capitalism
            > or Communism yet been done.
            >
            > I think that you can take the Open Corporation and do just about anything
            > with it.
            >
            > But first you have to write the legal code governing who gets what and who
            > calls the shots and what happens in the event of disputes and so on. That's
            > what I've just started on.
            >
            >
            >
            > Chris
            >
            >
            >
            >
            >
            >
            > >From: Todd Boyle <tboyle@...>
            > >Reply-To: decentralization@yahoogroups.com
            > >To: decentralization@yahoogroups.com
            > >Subject: Re: [decentralization] Re: Open Corporations
            > >Date: Mon, 11 Feb 2002 10:21:28 -0800
            > >
            > >That is an interesting top-down sort of view. What does it mean in
            > >plain english to the target investor?
            > >
            > >In other words. I am an SME. I have customers, suppliers and a
            > >business process that I execute.
            > >
            > >Why would I invest in the Monster? I presume this is like an online
            > >service where I upload my business data archives for the last year
            > >or two, and begin operating from the host instead of my local system.
            > >Is that right?
            > >
            > >I would like to focus on the most simple and obvious, physical
            > >architecture first, and its benefits to me the SME. We will then
            > >talk about the new risks and costs it imposes, and whether the
            > >Monster is a good value proposition for me,
            > >
            > >Thanks
            > >TOdd
            > >
            > >At 08:03 AM 2/11/02, chris cook wrote:
            > > >I'm just in the process of putting together an Open Corporation for a UK
            > > >project. Let's call it the Monster Corporation.
            > > >
            > > >The Monster Corporation will ­ like Camelot (the UK National Lottery
            > > >consortium) be a “Market Service Provider” (“MSP”) consortium of the
            > > >various providers of technology, communications, systems integration and
            > >so
            > > >on.
            > > >
            > > >The consortium members, whether individuals,SME's or BigCo's will be
            > > >shareholders in the Monster Corporation. However, this entity would not
            > > >have a set share capital but would be limited by guarantee.
            > > >
            > > >These shares would not have a nominal value at the outset, but, as in a
            > > >partnership, would represent a proportion of the value of the
            > >Corporation.
            > >
            > >
            > >
            > >
            > >To unsubscribe from this group, send an email to:
            > >decentralization-unsubscribe@egroups.com
            > >
            > >
            > >
            > >Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
            > >
            > >
            >
            >
            > _________________________________________________________________
            > Join the world’s largest e-mail service with MSN Hotmail.
            > http://www.hotmail.com
            >
            >
            > To unsubscribe from this group, send an email to:
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            >
            >
            >
            > Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
            >
            >

            --
            --------------------------------------------------------------------------
            Michael Bauer me@... http://www.michaelbauer.com
          • aswarbrick@swasch.com
            Followers of this thread might be interested in http://www.xgroove.net/
            Message 5 of 11 , Feb 12 7:21 AM
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              Followers of this thread might be interested in http://www.xgroove.net/
            • Jeff Bone
              ... Two comments. (1) For the most part, the structure you ve described is equivalent to existing corporate structures. For all intents and purposes, in an
              Message 6 of 11 , Feb 12 7:30 AM
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                chris cook wrote:

                > The £50m Monster Corporation needs to do so is obtained by creating another
                > 5 million shares which we sell forward to GreedBank at £10.00/share with an
                > agreement to repurchase them five years from now, or more likely to
                > repurchase 1 million/year for five years.
                >
                > This is the Repo agreement.
                >
                > If MonsterCorporation defaults, then the shares vest in GreedBank, and they
                > get control.

                Two comments.

                (1) For the most part, the structure you've described is equivalent to existing
                corporate structures. For all intents and purposes, in an American S or C corp
                for example, shares are "infinitely divisible." (They can be split or combined
                as many times as you want.) They are also "infinitely dilutable." (New shares
                in aggregate can be created.) The board is typically authorized to issue up to
                a certain number of shares, defined in the various corporate documents, and the
                shareholders can further authorize the board to issue more shares at any point
                in the future. The effect is the same, with the added bonus that the
                shareholders have an expectation of and mechanism for controlling the amount by
                which they can be diluted through issuance of new shares.

                (2) If I am GreedBank, I have no interest in your deal for two reasons. (a)
                You are collateralizing a loan with shares which, if you default, are most
                likely worthless to me. I suppose I could salvage value through an IP fire sale
                if you go tits up, but why would I want to take that risk. (b) Where's my
                upside? If you hit it big, what do I get for having taken the risk and funded
                your deal? Interest? Forget that, I can take on a lot less risk and generate
                interest. No, if I'm going to put my money at this kind of risk, then I want a
                piece of the action.

                Like most proposals I've heard along these lines (and a few I made myself before
                I'd played both the entrepreneur and investor sides of the table :-) this
                overvalues innovation and undervalues capital. It takes both to tango.

                jb
              • Eric M. Hopper
                ... I might be, if the URL worked. WHOIS shows the domain as registered, but DNS won t resolve it. If I got directly to the nameservers it lists in the WHOIS
                Message 7 of 11 , Feb 12 7:41 AM
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                  On Tue, Feb 12, 2002 at 03:21:57PM +0000, aswarbrick@... wrote:
                  >
                  > Followers of this thread might be interested in
                  > http://www.xgroove.net/

                  I might be, if the URL worked. WHOIS shows the domain as
                  registered, but DNS won't resolve it. If I got directly to the
                  nameservers it lists in the WHOIS record, they can give me an IP, but
                  entering that IP directly into my browser doesn't work.

                  Have fun (if at all possible),
                  --
                  "It does me no injury for my neighbor to say there are twenty gods or no God.
                  It neither picks my pocket nor breaks my leg." --- Thomas Jefferson
                  "Go to Heaven for the climate, Hell for the company." -- Mark Twain
                  -- Eric Hopper (hopper@... http://www.omnifarious.org/~hopper) --
                • aswarbrick@swasch.com
                  Works for me - does anyone else have same problem.
                  Message 8 of 11 , Feb 12 8:19 AM
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                    Works for me - does anyone else have same problem.
                    >
                    > > Followers of this thread might be interested in
                    > > http://www.xgroove.net/

                    > I might be, if the URL worked. WHOIS shows the domain as
                    > registered, but DNS won't resolve it. If I got directly to the
                    > nameservers it lists in the WHOIS record, they can give me an IP, but
                    > entering that IP directly into my browser doesn't work.
                  • Brad Codd
                    Doesn t work for me either. Perhaps it s a new site... if so, it could take up to a week to propogate all the DNS servers around the world. What s the ip
                    Message 9 of 11 , Feb 12 8:29 AM
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                      Doesn't work for me either. Perhaps it's a new site... if so, it could take
                      up to a week to propogate all the DNS servers around the world.

                      What's the ip address?

                      -----Original Message-----
                      From: aswarbrick@... [mailto:aswarbrick@...]
                      Sent: Tuesday, February 12, 2002 8:20 AM
                      To: decentralization@yahoogroups.com
                      Subject: Re: [decentralization] Re: Open Corporations



                      Works for me - does anyone else have same problem.
                      >
                      > > Followers of this thread might be interested in
                      > > http://www.xgroove.net/

                      > I might be, if the URL worked. WHOIS shows the domain as
                      > registered, but DNS won't resolve it. If I got directly to the
                      > nameservers it lists in the WHOIS record, they can give me an IP, but
                      > entering that IP directly into my browser doesn't work.


                      To unsubscribe from this group, send an email to:
                      decentralization-unsubscribe@egroups.com



                      Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
                    • chris cook
                      ... Not quite. I failed adequately to explain the key point. At the time I sell forward to GreedBank there are three elements to the forward price. One is the
                      Message 10 of 11 , Feb 12 11:22 AM
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                        >From: Jeff Bone <jbone@...>
                        >>(1) For the most part, the structure you've described is equivalent to
                        >>existing
                        >corporate structures. For all intents and purposes, in an American S or C
                        >corp
                        >for example, shares are "infinitely divisible." (They can be split or
                        >combined
                        >as many times as you want.) They are also "infinitely dilutable." (New
                        >shares
                        >in aggregate can be created.) The board is typically authorized to issue
                        >up to
                        >a certain number of shares, defined in the various corporate documents, and
                        >the
                        >shareholders can further authorize the board to issue more shares at any
                        >point
                        >in the future. The effect is the same, with the added bonus that the
                        >shareholders have an expectation of and mechanism for controlling the
                        >amount by
                        >which they can be diluted through issuance of new shares.

                        >(2) If I am GreedBank, I have no interest in your deal for two reasons.
                        >(a)
                        >You are collateralizing a loan with shares which, if you default, are most
                        >likely worthless to me. I suppose I could salvage value through an IP fire
                        >sale
                        >if you go tits up, but why would I want to take that risk. (b) Where's my
                        >upside? If you hit it big, what do I get for having taken the risk and
                        >funded
                        >your deal? Interest? Forget that, I can take on a lot less risk and
                        >generate
                        >interest.

                        Not quite.

                        I failed adequately to explain the key point.

                        At the time I sell forward to GreedBank there are three elements to the
                        forward price.

                        One is the benchmark cost of money over time; two is the risk premium;
                        (together comprising "interest"); three is the expected/forecast growth in
                        value in the company.

                        What GreedBank gets in this model (and why it goes for the deal) is at least
                        some of the actual increase in value in the company.

                        MonsterCo of course has done its projections and reckons that actual growth
                        will take them way over the forward sale price.

                        The problem with all current corporate entities is that there is a
                        discontinuity between equity and debt: creating very well documented
                        conflicts.

                        In the Open Corporate equity and debt are connected by time.

                        And I believe that this could represent an innovation potentially quite
                        radical in its effects.


                        Chris Cook












                        No, if I'm going to put my money at this kind of risk, then I want a
                        >piece of the action.
                        >
                        >Like most proposals I've heard along these lines (and a few I made myself
                        >before
                        >I'd played both the entrepreneur and investor sides of the table :-) this
                        >overvalues innovation and undervalues capital. It takes both to tango.
                        >
                        >jb
                        >
                        >
                        >
                        >
                        >
                        >To unsubscribe from this group, send an email to:
                        >decentralization-unsubscribe@egroups.com
                        >
                        >
                        >
                        >Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
                        >
                        >


                        _________________________________________________________________
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                      • Jeff Bone
                        ... It won t go for the deal, because there s no reason for it to settle for just some of the value increase when a traditional equity investment gives it
                        Message 11 of 11 , Feb 13 9:53 AM
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                          chris cook wrote:

                          > One is the benchmark cost of money over time; two is the risk premium;
                          > (together comprising "interest"); three is the expected/forecast growth in
                          > value in the company.
                          >
                          > What GreedBank gets in this model (and why it goes for the deal) is at least
                          > some of the actual increase in value in the company.

                          It won't go for the deal, because there's no reason for it to settle for just
                          some of the value increase when a traditional equity investment gives it
                          unbounded participation in that increase. It's completely unclear to me why
                          this would be attractive to GreedBank over a straight equity investment with
                          unlimited participation in upside in an anticipated future liquid market for the
                          equity. The proposal is great for the innovator, bad for the capital investor
                          relative to other existing alternatives.

                          Other thoughts:

                          Given the repurchase agreement, the liquidity for the company is constrained and
                          its value is ultimately bounded. Assuming --- big assumption --- that GreedBank
                          can sell those shares before repurchase to BigBank or some other party, the free
                          value of those shares can / will never go above the price defined by the
                          repurchase agreement. The maximum external value of the company is fixed to the
                          sum of all the externally-held shares of the company, regardless of any other
                          economic measures of the company's performance; the maximum participation of
                          any single investor in value increase of the company is limited by whatever is
                          put in the repurchase agreement.

                          Despite the vague statements about debt and equity, it doesn't appear to me that
                          the "discontinuity between equity and debt" is the problem you're really trying
                          to solve. To me, it looks as though you are trying to find a way to bring
                          capital into the company without permanently surrendering ownership of the
                          company / participation in upside. A better way to do this might be to sell
                          cash-covered time-based derivatives on the underlying equity, much as we do
                          today in traditional options / futures markets. Those instruments have
                          well-understood mechanics. But you've got to have the cash to cover the
                          positions if you don't want to surrender equity, so this probably isn't
                          available to smaller private companies in the first place. Or, conversely, if
                          you're willing to surrender the equity if you fail to build a cash position
                          sufficient to cover your futures, then perhaps you don't need that much cash to
                          start.

                          ----

                          Your original concept might work in a market --- such as existed in 1998-1999
                          --- where capital was desperately chasing innovation. In such an environment,
                          some select few innovators might have enough leverage to bring in capital while
                          bounding the investors' participation in upside. I think those days are gone
                          for a very long time --- even when the market comes back, the capital markets
                          will continue to err on the side of traditional / conservative for a long while,
                          as they got burned before when they didn't. (All that seed-stage money invested
                          as debt, buh-buy!)

                          "He who has the gold makes the rules."

                          jb
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