Hack:
SV Dream Makers, Accelerating Innovation and Job Creation

sv Dream Makers Pay-It-Forward Investment Fund

Our Solution Is Radical: GIVE EARLY STAGE FUNDING AWAY

The idea is to get more start-ups and new businesses launched in the first place with a chance of getting the business going. The odds of winning are in favor of this radical idea.

Early Stage Micro and Matching Grants: We believe that a hand up is not a hand out. We are betting and playing the good odds that commendable and motivated entrepreneurs (who are supported by an Entrepreneurial Innovation Community) will be successful. We believe that the return on these grants will be exponential and that asking for collateral is only an impediment to the significant upside in job creation and the potential return of a “pay-it-forward” reciprocal contribution. This is not a loan, but a higher promise to reinvest their own prosperity in other entrepreneurs through this Investment Fund. 

• Micro Grants of $10K: If we give away $10K, we increase the likelihood that a SMB will get to “new employer” status and quicker. Job creation is just the beginning of a return on investment. 

• Matching Grants Up to $50K: If the entrepreneur can raise some cash, it shows that entrepreneur is CONNECTED to friends and family and community. This entrepreneur is more likely to succeed, e.g. has more resources than a lone wolf.

The Odds:  We play the numbers. 1/3 of “new employers” will last 10 years[1]. So for every three grants of $10K, one could easily “pay-it-forward.”

The Return Is Threefold: 

1. All recipients will promise, in a written contract, to “pay-it-forward” in each of these three ways– whether they      succeed in launching the business and hiring workers or not.
1. Make a sliding scale suggested contribution to the sv Dream Makers Pay-It-Forward Investment Fund.
2. Garner additional investments for the Investment Fund from others.
3. Participate in sv Dream Makers Innovation Initiatives.
2. The effect to the tax coffers of the government. One new job represents $40 to 70K of income to an individual, which is $10K to 20K in taxes per year.
3. General spending by those with the new jobs boosts the economy overall.

Radical Solution Validation:

The effect of just one a job created by one entrepreneur or small business is a very basic and conservative way to validate our radical solution. We assumed a grant of $10K would jumpstart the addition of 1 employee @ $40K per year. We used government statistics on the survival rate of new firms to calculate the cash flow generated from one job per firm over a ten-year period from 10 entrepreneurs or small businesses. The total investment is $100K or $10K per firm.

[1] What is the survival rate for new firms?  Source: U.S Dept. of Commerce, Census Bureau, Business Dynamics Statistics; U.S. Dept of Labor, Bureau of Labor Statistics, BED.8.  Seven out of 10 “new employer firms” survive at least 2 years, half at least 5 years, a third at least 10 years, and a quarter stay in business 15 years or more.

Cash Flow Model: 

IRR/YR Approach:

The return on the initial investment varies based on the assumed positive cash flows in future years. With optimistic cash flows as shown in the following chart, the Internal Rate of Return per year (IRR/YR) on the original $100,000 investment is 274.18%. We also show several IRR/Y percentages at lower assumed levels of future cash flows. For example, at only one-fourth of our levels of future cash flows, the IRR/YR is still 60.01%. If the investor only sees one-tenth of our projected future cash flows, the IRR/YR is still positive at 15.02%! 

Discounted Cash Flow Approach:

Another way to view the investment calculates the Net Present Value of the total cash flows at various Discounted Rates of Return. Because investments of this type include more risk than treasury notes or money market investments, investors expect to receive a higher percentage return on their investment. For example, we show the Net Present Value of an original investment of $100,000 at a high return rate of 25% to be a positive $658,803. Using a more moderate target return rate of 10%, the Net Present Value of the same investment rises to $1,079,454. We include Net Present Values at other target rates of return for reference. 

 A Radical Job Creation Game: Create jobs via American dreamers by giving them access to micro capital, spreading prosperity and creating jobs now. Without creating any new bureaucracies—the sv Dream Maker Community provides the structure and support-- we can accelerate the engine of job creation in the most efficient way known: small business. Over half of the jobs in the US are from SMB between 10 and 99 employees. We can play winning numbers without bias and without prejudicial requirements.

Versus…The Venture Capitalist Game: VC’s use the same math as most sales organizations; They expect to get 80% of their revenues from 20% of their clients.  But, those 20% have to be “BIG” winners and the reality is that many businesses can be financially successful, hire large numbers of people, be in business many years, and never reach revenues in the billions. 

According to the AngelBlog Venture Capital Funds—How the Math Works by Basil Peters, “A minimum ’respectable’ return for a VC fund is 20% per year. This is set by the expectations of the investors in VC funds, the relative risk levels compared to other investment classes, and the performance achieved by other Venture Capital fund managers.

“Another way to look at this is that a ten-year Venture Capital fund needs to repay investors six times (6x) their investment. This means that those two “winner” investments have to make a 30x return (on average) to provide the Venture Capital fund a 20% compound return--and that’s just to generate a minimum respectable return.”

“Radical” Selection Criteria Detail:

 How to decide who gets the money:

•  Rigorously gender-, race-, ethnicity-, and age-neutral standardized application/Business Plan to avoid natural hard-wired human bias to be more favorable to people who look like themselves[2].
• Weight it towards any motivated and credible entrepreneur who agrees to be mentored.  We are looking for energetic, people who that don’t need to be encouraged to see or seek the American Dream. (The success of sv Dream Makers will make this pool of people grow!) 
• References would be done within blind process guidelines so identity would not be skewed. Innovators’ support system and participation in the sv Dream Makers Community is essentially their “collateral.”

[2]Blink –the power of thinking without thinking by Malcolm Gladwell gives a relevant example of blind auditions in symphony orchestras that rendered a very different result than when judges could see the musician auditioning.  Result accelerated diversity in makeup and better orchestras.

Source of Funds:

• Entrepreneurs and small business repaying their grant by paying it forward to benefit other entrepreneurs and small      business.
• Contributions from others in the sv Dream Makers community—to pay forward for unrelated good turns they have received--not just entrepreneurs who benefited. A way to participate in an innovation culture.
• Crowd funding as the word gets out through social media and other online communities.
• A safe and cost effective way for large enterprises to invest in innovation and through the sv Dream Makers Community to help shape it—without having to wait until the start-ups have more of a "proven product and customer base." By being part of the Entrepreneurial Innovation Community, these large enterprises would be more likely to have access to additional investment opportunities as these entrepreneurs developed. And by having their own people work closely with independent entrepreneurs, the Enterprise’s own entrepreneurial culture will be stimulated.
• An easy, affordable way for Angels and Venture Capitalists to screen and shape potential investment opportunities, much  as large enterprises would. Essentially their “farm team.”
• Joint ventures with Universities
• Small Business Administration
• Others