Ask HN: Is an Autonomy Fund a viable business model? • Hacker News Board

Re: Ask HN: Is an Autonomy Fund a viable business model?

#31

Post by carterschonwald » Sat, Apr 20, 2013, 6:05 AM UTC

Your return structure is wrong :-)

A successful growing business is never profitable, most / all the profit is reinvested in the business. There will per se be no investor return relatively speaking.

I recently saw an article this past week that suggests a better structure: the investment is a loan that is forgiven if the business folds.

This is actually better for both sides: the investor gets their money back with some fixed return if the biz succeeds, and the business doesn't have to pay it back if it fails.

Then it becomes a small tech business entrepreneurship Loan/ investment vehicle. In which case the pitch to the city is the their investing in furthering local biz growth in a way that has potential to have a multiplicative return for local industrial base.

Tl;dr no small privately held biz is ever truely profitable, structure it as a forgivable loan upon biz failure.

Re: Ask HN: Is an Autonomy Fund a viable business model?

#32

Post by otoburb » Sat, Apr 20, 2013, 9:21 AM UTC

mahyarm wrote: post #13

Copying my comment from here: https://news.ycombinator.com/item?id=5578223 --- How about Las Vegas? I've never been there but: 1) Cheap airfare, international destination 2) A Party Town, probably helps the gender balance in one aspect, people would like to visit you. 3) No Income Tax 4) Still close to the SF Bay Area 5) Never cold, barely rains (good or bad depending on your preferences) 6) Really cheap real estate.…

Vegas also has the distinction of being Tony Hsieh's experiment to revitalize the LV downtown core[1].

Autonomy Fund on the surface looks like a great fit with Tony's DowntownProject vision[2].

[1] http://www.forbes.com/sites/evankirkpatrick/2013/02/13/lesso...

[2] http://downtownproject.com/

Re: Ask HN: Is an Autonomy Fund a viable business model?

#33

Post by otoburb » Sat, Apr 20, 2013, 9:27 AM UTC

codewright wrote: post #30

mblakele wrote: post #27

Earlier quoted context omitted.

But doesn't it cost more than $125k to pay a $125k salary? I've been told that it's about 1:1 if typical benefits are involved. So a $125k salary costs $250k.

Not sure why you'd think benefits are involved here. And a $125k salary does not cost $250k.

It would be great if an HR director could weigh in on how much a $125K salary might cost in total compensation with a "standard benefit package" range for a technologist/programmer/engineer role.

The only other data point is from the Bureau of Labor Statistics Employer Costs for Employee Compensation (BLS ECEC) where it shows at the bottom that benefits accounted for around 30% of total compensation and 70% going to wages & salary[1]. On average, this means that a $125K salary would cost a company $179K overall.

[1] http://www.bls.gov/news.release/ecec.nr0.htm

Re: Ask HN: Is an Autonomy Fund a viable business model?

#34

Post by otoburb » Sat, Apr 20, 2013, 9:30 AM UTC

michaelochurch wrote: post #19

julespitt wrote: post #17

Earlier quoted context omitted.

I don't think cities or towns have either the money to invest nor the knowhow to administer such a thing. I think it would likely have to be investor-led, preferably wealthy technologists, who would then shop it around to local governments.

Hmm. That may be right. But I think something real is here, especially now that I've added in the teaching factor. Do you know anyone who'd be able to look at this idea as a potential principal? My email is michael.o.church at gmail.

Tony Hsieh might be a good fit given his vision with Downtown Project (http://downtownproject.com/).

Re: Ask HN: Is an Autonomy Fund a viable business model?

#35

Post by otoburb » Sat, Apr 20, 2013, 9:43 AM UTC

michaelochurch wrote: post #11

codewright wrote: post #10

Earlier quoted context omitted.

I don't think Pittsburgh has the funding to do it. You're looking at a budget of ~$450mm. I think the funding, rather than the locale, is the blocker here.

How much money do you think it'll take? I'm thinking single-digit millions per year. First class would be about 28 people. So that's $3.5 million per year. Salary plus tech budget is $125,000. That's half-decent but not great, and by design. I'm looking for entrepreneurs, not salarymen (who'd command $150-250k at the level I'm looking to hire). It's not the extreme low salary of bootstrapping (negative including busi…

Assuming total compensation of $200K, 1:1 private/public funds, cohort of 28 gives a yearly burn of $5.6M ($2.3M for the local municipal to raise) for, say, 5 years = $28M (3yrs = ~17M) during (or hopefully after) which they want to see a payout coming directly from the AF's revenues.

You mentioned 37.5% earlier, but the city would probably expect you to model this in such a way that X% will be duds, so their return will most likely be much lower than 37.5%. 10x-100x VC-istan-like hits should not be banked on given the sole purpose of the Autonomy Fund is to create medium-growth companies (10%-40% p.a. growth rates).

Perhaps factor in a legal, HR, accounting, IT and facilities teams for AF-backed individuals (i.e. backend G&A organizational infrastructure) @ 10-15% and your baseline burn rate should be adjusted accordingly. Let's say $6.5M per year, of which $3.25M comes from municipal/state/federal public funding.

Re: Ask HN: Is an Autonomy Fund a viable business model?

#36

Post by alexjeffrey » Sat, Apr 20, 2013, 9:45 AM UTC

S4M wrote: post #21

michaelochurch wrote: post #20

Earlier quoted context omitted.

Very good points. Thanks so much. I welcome disagreement because, without it, my ideas would stay in a raw crappy form. So... here are my thoughts. My end goal is for this to congeal into something like an open-allocation environment, but one that exists across companies to some extent. I feel like if we bring OA to the external market, we'll force the hands of employers who will have to improve conditions if they wa…

I am not sure I get your second paragraph, but it seems to me that you want to build some kind of consulting company owned by top coders. Your offer would be to offer programming services, that only very competent programmers could do. My guess for such services would be: ultra scalable web apps, or creation of DSLs - it has to be something very advanced in order not to compete with the numerous consulting companies…

I think you might be barking up the wrong tree here - OP's plan is to create an investment fund that focusses on long-term investment in talented people, rather than the VC approach of investing in "whatever facebook/twitter/google might buy to acquihire the founders".

Re: Ask HN: Is an Autonomy Fund a viable business model?

#37

Post by alexjeffrey » Sat, Apr 20, 2013, 9:58 AM UTC

I love this idea but the idea of tying it to your locality seems a little exclusionary for no reason. Granted, I am biased as I am based in the UK, but I can't think of any major problems with organising this through teleconferences?

Re: Ask HN: Is an Autonomy Fund a viable business model?

#38

Post by activus » Sat, Apr 20, 2013, 2:57 PM UTC

Great idea. I'd actually submit Rochester, NY as a candidate (I'm from there, but live in Seattle now). The property taxes are high, but the cost of living is very low, power is very cheap, land is cheap and there is RIT and University of Rochester right there pumping out fantastic engineers (an hour away is University of Buffalo, not quite as good, but has a few gems). I know a few people doing startups there (it's tough because of funding, but these guys self fund). It's also not too far from Boston / NYC if you needed to grab people from there.

Re: Ask HN: Is an Autonomy Fund a viable business model?

#39

Post by usea » Sat, Apr 20, 2013, 3:22 PM UTC

carterschonwald wrote: post #31

Your return structure is wrong :-) A successful growing business is never profitable, most / all the profit is reinvested in the business. There will per se be no investor return relatively speaking. I recently saw an article this past week that suggests a better structure: the investment is a loan that is forgiven if the business folds. This is actually better for both sides: the investor gets their money back with…

In my company, profit sharing is 1/3 employees, 1/3 owners, 1/3 goes directly back into the company for investment. However, sometimes the company needs money to repair some equipment or whatever, and that comes out of the revenue (before profits). So the business needs come first obviously, but when times are good the employees are treated very well. This works best in companies where the employees can have a direct affect on short-term profits.

Re: Ask HN: Is an Autonomy Fund a viable business model?

#40

Post by carterschonwald » Sat, Apr 20, 2013, 4:39 PM UTC

usea wrote: post #39

carterschonwald wrote: post #31

Your return structure is wrong :-) A successful growing business is never profitable, most / all the profit is reinvested in the business. There will per se be no investor return relatively speaking. I recently saw an article this past week that suggests a better structure: the investment is a loan that is forgiven if the business folds. This is actually better for both sides: the investor gets their money back with…

In my company, profit sharing is 1/3 employees, 1/3 owners, 1/3 goes directly back into the company for investment. However, sometimes the company needs money to repair some equipment or whatever, and that comes out of the revenue (before profits). So the business needs come first obviously, but when times are good the employees are treated very well. This works best in companies where the employees can have a direct…

Yes I agree with that. But profit sharing with employees is per se taken from revenue left over after operating costs and such, profits are what you distribute to share holders.

I agree with what you're saying, I'm mainly quibbling with the language of the structure of the proposed investment instrument. It would be very easy to do some Hollywood style accounting so that the business owner and employees all get a fraction of gross revenue after costs, but any investor would get zilch for all time.

I know little of accounting, but I know that much :-)

(This is of course orthogonal to the ethical / moral dimensions)