Investing in Humans, But Mostly the Ones With Startup Ideas
Pacific Standard’s Kyle Chayka has a piece today looking at a handful of new startups that give investors the opportunity to “invest” in a person in exchange for some of their future earnings:
Companies like Upstart, Pave, and Lumni are acting like Kickstarter platforms for people instead of businesses or products. Through them, it’s possible to invest in a human being, funding their education or professional development and getting a cut of their future profits in return.
The investment structure is based on the concept of human capital, or the intangibles like knowledge, creativity, and personality that combine to form a worker’s ability to produce profitable labor in the current economy, particularly in the post-industrial context of the United States. Politicians often talk about investing in human capital—building better schools and community institutions to build better workers and promote economic growth. But these businesses are making the phrase literal, turning people into profit.
Of the existing start-ups in this space, Upstart is the most like Kickstarter. Accredited investors can pick among potential individual investees, who pitch themselves with short written blurbs and resume samples.
This kind of “investing” is more likely to happen with recent graduates with ideas for businesses but no money to start them, than say someone like me who simply wanted to work in journalism after I graduated from college.
Upstart, which was founded by ex-Google employees, does more than invest in people—the backers also act as mentors.
From a USA Today story last year about the company:
Adam Steege, a 27 year-old who studied mechanical engineering at Columbia University, raised $60,000 on Upstart from backers including former surgeon David Silverman. Steege is using the money to fund his start-up Agile EndoSurgery, which is developing new laparoscopic surgical devices.
The money will support the company and pay Steege a salary while he looks for series A funding. Steege’s 26 backers on Upstart also signed up to mentor him, which includes introducing him to potential business partners and other potential investors.
If a business takes off, investors can see as much as a 15 percent return on their investment, and returns are capped: For a 10-year contract, “entrepreneurs never have to pay more than five times the amount they raised through Upstart.”
Chayka points out that these businesses have been compared to indentured servitude, “giving young people in the post-crash economy the chance to indenture themselves to patrons in the investor class,” but Chayka sees it more like an apprenticeship: “A young worker would enter into a partnership with an established company, working for them while learning a trade, and be supported with room and board or a nominal salary in return.”
In any case, these “human capital” startups seem to mostly be funding young people with other startup ideas. This is just VC/angel investing in another form. Would these investors give money to a young teacher? Or me, at 21, who headed to D.C. to become a reporter? Would they see some potential in our careers and want to be a part of that? Given that teachers and reporters don’t make a ton of money, it seems unlikely.
Photo: Sterling College