Micro Investments – A Long Term Outlook

SpaceX

I have just read Elon Musk by Ashlee Vance.  Of course like everyone else i had heard of Musk but didn’t really know the story of how he got to where he is.  The first thing that strikes me is that he is 6 years older than I am yet he is worth approximately $12bn and all is self made. Hmmmmmm……I must try harder!

The second thing that struck me is Musk makes long term bets and they’re very, very big bets.  He is currently the CEO of Tesla Motors, Space X and the Chairman of Solar City.

Musk made is first lot of cash with Zip2, a kind of cross between Yelp and Google maps as we know today, that netted $22m but most went into the second project which tuned into Paypal.  Ebay bought Paypal in 2002 for $1.4bn (a lot in stock).  Musk took home $160m from that deal at age 31.  Musk began working on Space X ideas in 2001 and in 2004 became the largest shareholder in Tesla.

So, Space X began 14 years ago and Tesla 11 years ago.  Tesla is listed but SpaceX is privately owned and still raises cash.  Musk has a long term vision and goal and is not wavering from it, the colonisation of Mars (I am not joking and nor is he) but also he is passionate about clean technology and energy.  This strikes me as a) the most obvious way to run a business in that it must be directly linked to your passion and b) the nature of the long term bets goes against the very nature of VC’s an the Silicon Valley ideology we seem to be adopting in the UK,

There is a paradox though.  Typically many investors want short (ish) term results and returns, they’re not into a 10 year ROI.  Yet by the same token the founder / CEO etc  maybe has a longer term vision and thus won’t realise full returns for years and so can’t raise enough cash to get started or keep going.  It’s very, very rare (although it does happen) for a business to do a deal in three years (or less) from founding and return x10 or more for investors, in fact many businesses rarely get to transaction stage.  So how can a founder raise enough cash to begin with?  Musk only managed to get his real passions off the ground post the PayPal deal.  Could he have raised the $100m he ploughed into these projects before getting started?  doubtful even for him and impossible for someone with no track record.

What if though, there was an investment business which took longer term views ?  what if that business raised cash from the millions of people around the world ? A platform based investment model.  Lets say there are 100,000 people each with £1,000 and they’re prepared to place that into an investment vehicle.  Lets call it Micro Investments.  So, Micro Investments asks the 100,000 people to transfer £1,000 each.  Micro Investments now has a £100,000,000 investment fund.  The model is a bit like a cross between Kickstarter and a traditional investment house.

Micro Investments then invests anywhere between £250,000 and £1,000,000 in any given business.So the investments range from between 100 to 400 to manage and these investments deemed longer term i.e.:  those that invested are not expecting a return for 10 years.  If you invested £1,000 into a banks savings account you’d be lucky to pull out £1,500 in 10 years even with compound interest.  The returns on Micro Investments might be £0 and/or one might lose their money.  But suppose that £100m turned into £1bn over 10 years through successful businesses?  that would realise a x10 return for the investors in the first place, all taking home £10,000.

One could argue there are businesses which do this, those investment houses etc but they don’t on such a small ‘Micro’ scale, typically one must invest thousands at the outset and there are fees etc…I suppose though, the real insight is that in order to undertake profound change then long term investment is required and long term outlooks are difficult to come by these days.

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