nicholasdrake

re 2) that's a good point i didn't thikn of that and many countries may seek to nationalize big corporations to keep them based in the domestic country etc..

clearly i'm not arguing that there will be no companies in some countries and all the companies in other countries, but maybe just a more extreme version of what you already see now where most of the big technology companies are based in just two countries: usa and china... maybe you need only half of all the companies in the world to be global enough to serve the world from just one location/country to have extreme international inequality/differences in % unemployed etc.

the flaw in your reasoning i think is that there will be zero-sum fight to have the limited number of companies in your country so that you can tax those companies and support the massive number of unemployed people. there will be a race to the bottom in the automation regulation that you describe because companies will just move if they are not allowed to lower costs through more automation... thus i think the result is that some countries will have very high employment rates because all the high-skilled, unautomatable jobs are located there (e.g. the US) and some countries (e.g. spain?) will have really high unemployment... this will lead to extreme tensions internationally followed by god knows what..

we think equity>debt for students because a) in bad times your debt is lower (% of income vs flat payment) and b) longer time scale allows transfer consumption from middle-age to years immediately after graduation

re: western government interest rates that's probably true, the uk has lost a lot of money on their loans which have very nice terms & conditions.. the US market still has a large private loans component which we think we can beat (for reasons above). to be honest though we are probably thinking more about the developing world (india, china etc.) where student loan financing isn't as available (particularly true at a graduate level)

finally, the x-factor is on the investor side where we can allow investors to bet on industries without having to be on a specific company because the income stream of someone working in a given industry is a better long-term proxy than a company in that industry (particularly if it's a new industry)..

incl. obvious implications for ycombinators model with 10 minute interviews etc.

this could indirectly be a good way to reveal peoples biases (including angels) about what companies will be successful... it's especially interesting as it removes from the equation the one component that vcs/investors say is most important which is their feeling about how good the team is... if the stock exchange can accurately predict which companies are going to be successful without that information that has interesting implications for vcs approach in picking companies.

how do you track returns? how much money the companies raise? what the companies are valued at? isn't this dangerous because all angel investors including ron conway and pg say it's not about how much money you raise and that is a poor indicator of how successful your start-up is going to be...

obviously a fantasy league where you have to wait 10 years to see who actually wins and becomes a 10 billion company etc. isn't that much fun, but i can't figure out what short-term metrics that would work across different start-ups with different growth plans (i.e. some start-ups will focus on page views, others on sign-ups, others on transactions etc.)

nonetheless in addition to what you said i would point out one more advantage for students (probably the biggest one) which is repayments are dependent upon your situation (because it's a percentage of income) so if you're 'unlucky' and can't find a job or only a low-paying job you pay less - which is good if you are a risk-averse/poor student..

in terms of the cons, i actually think hte aggregated income streams are likely to be very stable.. despite it's equity structure we see it more as a fixed income product than a vc equity product (stable but lowish ~5% returns). the moral hazard is an interesting issue that we hadn't thought about much - i suspect the larger issue what not be in their university choice but rather their post university choices... currently faced with debts students would look to find a high paying job immediately, whereas with our instrument they might travle the world care free knowing they don't have to pay anything unless they get a job? in terms of becoming a tradable asset class that is very much a long-term potential. we could end up trying to be originators for asset backed securities but right now our thinking is it's better for us to actually invest the money ourselves and get returns ourselves. the opacity issue is interesting - opacity from whose perspective? it mihgt only be a problem if it's traded on markets right?

in terms of proving returns - at this stage we can collect data on graduate incomes and estimate returns but of course the proof will be in the pudding. our selection process for the students will almost entirely be delegated to the universities ie.. if you can get into the best university in india we'll fund you

i think the big positives which your analysis missed (and actually we're most excited about) is not the student side but the investor side in particular we think that long-run income streams are a much better proxy for country/industry success than betting on a specific company in that industry (what buffet calls trying to 'pick the winners'). for example suppose your bullish on chinese software as an industry... what is a better long-term bet? the very risky (although higher reward) vc bet of picking a particular chinese software company or sending 100 of the brightest chinese students to study computer science with the assumption that if the chinese software industry does well so will employees in that industry. furthermore, this will bring in a lot more capital to big risky capital-intensive projects and through tranching out the risk will enable much more investment and ultimatley innovation in our societies...

re: 2% yeah it may be without going into the numbers lol 2% requires average annual income to be 11x cost of university. in america if uni costs $30,000 that means we need incomes to be more than $300,000 which even with the fact we're hand picking the smartest students and the fact you have future economic growth (and inflation) over 35 years to help you out it doesn't seem like a good investment. in china though the cost of the best 4 year uniiversity (accomodation + tuition fees) ~$3,000-$4,000 so it seems very reasonable that average incomes coudl be 10x that (and we find that the data supports that)... obviously from an investors stand-point a higher than 2% interest rate is better but we're not sure how much students will accept so we're currently testing that (at the 2% level) with our chinese version of hte website and asking for interested students to email us..

i think it doesn't work in the uk because financing is readily available and cheap. in the us the story is a little different where if you don't qualify for free tuition (which the poorest students do) there can still be a credit constraining aspect to university choice... i think mbas and masters could be a real opportunity as you point out, because masters/mbas are more optional but can lead to a big iincrease in income for the student.

haha yeah we've reworked the who we are section, no point trying to be modest lol!!

haha yeah i forgot about that, i suppose adding my facebook just makes things worst right lol?

well this is kinda random but my best friend and i are looking to apply to yc, our idea is 'A new asset class: Human capital. By paying for a students university education who in return give back a percentage of their annual income (probably developing world) we allow investors to make long-term bets on specific industries and countries.

Anyway our first draft of our yc application is here , it will be great if you can take a look and give some feedback... https://news.ycombinator.com/item?id=9224487

crucially this would also allow investors to take some of the sunk cost risk out of funding a start-up which is the employees wages..

actually my friend and i are applying this summer batch of yc with an alternative to student debt financing of university... student equity.. from the student side it helps in 2 ways 1. taxes high income earners more, low income earners less (remember when you start uni you don't know for sure which group you will be in) 2. allows you to transfer future income from your middle-age when your income is higher to when you have just graduated (and income is lower)..

debt in comparison punishes procrastination of payment with interest payments.. it would be great to get your feedback if you have teh chance.. we've posted our draft of our yc application here https://news.ycombinator.com/item?id=9224487 thanks!

what brings u to hn? u a programmer?

u may very well be right that a higher percentage of income for a shorter period of time makes sense (or if it is lifetime income allow some buyout clause) - the big advantage of the lifetime aspect is you can basically trade future long-term consumption when you're income is higher to get higher consumption now when you're income is lower... it also allows a transfer from people who make lots of money to those who make less (when you apply to university you don't know which group you will be in)...

your feedback is really helpful, if you have time please take a look at our yc app https://news.ycombinator.com/item?id=9224487, if it seems that we haven't done our research/holes in our thinking we defintley want to know now!! thanks so much!

the main reason for choosing china is because university is much cheaper there relative to incomes. the key equation is

Lp = xu

where L=lifetime income y=number of years working u= total cost of university, x = return to investor e.g. x=4 means you invest $1 and you get $4 (compound interest therefore over the assumed 35 years is x^(1/35)) p = contracted percentage of income... y = number of years

you can re-arrange this to

dividing both sides by y you can re-arrange to find the ratio of annual income (l=L/y) to total cost of tuition fees.

l/u = x/(yp)

what you find is that even for a relatively modest return, let's say x=8 (i.e. a 35 year compound interest rate of 6.1%), if p=0.02, y=35 u need average annual income l to be a whopping 11.4x the cost of university, which is u is assumed at a modest $20,000 then income needs to be $200,000+...

this makes us feel like it's not possible in the developed world, univeristy is just too expensive, however the best universities in the developing world are very cheap (by western standards). e.g. the best university in china (arguably) is tsinghua university where a four year education costs just $3,000/4,000 (tuition and accomodation)... we think that given we are hand-picking the brightest students in china in subjects that we think will be lucrative, plus the fact that over 35 years you have a lot of economic growth to help you out it's not unreasonable to assume average lifetime income could be at a $40,000+ order of magnitude...

in terms of the 'shares' issue, i don't think that would work for all the reasons you raise... really you would probably need to actually have it treated as a completely new asset class... three potenial examples of how it could work are a) taxation because an individual is liable to pay their taxes and these are often a percentage of income rather than a flat fee and b) a form of security e.g. think about how abs contracts were built on the income streams from mortgage payments c) mortgages themselves, there the income stream is securitized by the underlying asset the house - in our case the secruity would be the income stream itself.

i think the refinancing poitn is very interesting to consider, we actually thought we might start off (to get proof of immediate returns) by actually offering students with loan debt who have already graduated a chance to convert that into our 'human capital' the thought process being is that loan debt punishes you for not paying a lot immediately (as the interest builds up), whereas our contract because it's over a working lifetime's income stream means you can basically trade future consumption (when your income is much higher) for current consumption.

our main observation is that in the developing world there are a lot of people who are credit-constrained when it comes to going to university. we think this doesn't make sense and so we hope to change that.

to be clear btw, our 5% rate is % of income, not % of interest on debt... plus we think 2% can work in china (for the reasons given above).