Capitalism Project--Intentionally Proving the Point

Capitalism Project – People who believe in the power of capitalism coming together to make a difference.

There is a huge opportunity that Katrina has put before us. It’s one that always exists, but it is now in sharp relief. That opportunity is to see the difference capitalism makes versus the difference the welfare state makes.

My idea is to create a “Capitalism Project” where businesses (especially manufacturing businesses) are created, and their contribution is tracked. Their contribution consists of the presence of the business itself, the return to the investors, the number of jobs created, the amount of taxes paid both by the corporation and the individual, etc.

These businesses can be anywhere, but we will specifically target putting at least the manufacturing in the Gulf Coast region, not only to help rebuild it, but also because it would be foolish not to also take advantage of the government programs that will be established to aid this kind of activity. Proving that those types of programs are more effective than government handouts will be an additional win for the project.

There are different levels at which people can invest in businesses. To maximize return, and to create the largest impact possible, I recommend that the investment be made at the ground floor. I’m talking about literally supporting (partnering with) the entrepreneur/inventor at the very beginning. At this level the largest difference can be made for the smallest investment, and the return on investment is multiples of the investment as the company moves to a second round of funding.

My goal would be to find entrepreneur/inventors that hold Patents on their products. The Patent gives us confidence that the product is both unique and protected. Obviously, beyond that, someone, or a committee of people, would have to look at the product (and business plan) to decide if it has high potential. There are literally thousands of entrepreneurs in this position.

The biggest problem for these entrepreneur/inventors is getting their product from the original idea to a level where they can raise large amounts of capital, sell their company to a larger competitor, or can begin production and sales if the amount of capital needed to begin manufacturing isn’t terribly high. This amount (I’ll refer to it as the “bridge amount” because it is the bridge between the idea and the ultimate potential) is generally small. The bridge amount may be just enough to build a final prototype, do product testing, or perhaps do some test marketing.

Teaming with the entrepreneur at this level gives the provider of the capital (in this case, us) a high level of ownership for a relatively small investment. When the company is ready for the next level of financing, this small investment can be extracted at multiples of the original. This is a common practice, most often done by family members, individuals, or small groups of investors. It is at this level that investors make the most money from a successful company.

The idea of the Capitalism Project would be to collect funds (details on this to come, it’s been researched… suffice it to say that the world provides the opportunity needed) and invest at the “bridge” level in as many companies as possible. These companies would be shepherded to the next level of funding, at which point we would cash out, and turn the money to investment in more opportunities. Turning the money at the return rates that are common at this level of investment can create enormous wealth relatively quickly, particularly since the amount of time needed to bring the company through the period in it’s growth that we are talking about is relatively short. Most of the time lag for entrepreneurs/inventors at this level is trying to raise funds, usually from people who may be willing to invest, but only AFTER the entrepreneur has gone through this bridge period, which is when they really need the funding.

Example of potential return: $100,000 is invested at a dime per share. We’d get 1,000,000 shares. Say the IPO goes at $1. That’s a 10x return, resulting in $1,000,000. Say 5 more companies are then funded at $200,000 per company. Assume 2 out of 5 fail (to be conservative). We’re left with (assuming our ownership is purchased at a dime in every case, which is typical) 6 million shares. Say the IPOs or buyouts go at an average of $0.75 per share. That’s $4.5 million on an original investment of $100,000 after two turns. Now imagine that the original amount was $1,000,000 and we worked with 3 or 4 (or more) companies.

Remember: we’re working at the beginning, as partners because we’ll find these people early in their process, not as part of an IPO.

Obviously, those of us who put money into the project stand to make a very large return for ourselves, along with the good that will be done by creating successful businesses. And, we will make part of the program tracking the good that is done for the general economy as a result.

The money would be raised from ordinary people... people who believe in capitalism and the project... not requiring a large investment from any one individual (though people could do that if they wanted). Again, this has been researched and it's possible. Even small investments could result in very large returns after many turns. In the example above, an investment of $100 would be returning, after two turns, $4,500. $1,000 would return $45,000 after 2 turns.

More to come…