punctuative! by Matt Winn

"The Exit Fund" - Risk Management for Risk Takers

EXIT, originally uploaded by nicecalder

It was in conversation last night with my favorite painter that I recalled a 2005 Wired article on a retirement planning innovation for upcoming artists. The piece covered entrepreneur Moti Shniberg who reasoned that artists could use a diversification tool to ensure some level of financial stability. Wired sums up his scheme as follows:

The idea was simple: Create a pension plan for artists by gathering a collection of their works and gradually selling them off to build a cash account. Over the course of their careers, some artists would succeed wildly; most would fail miserably. By spreading that risk of failure among a large pool of artists, Shniberg figured he could provide financial security to a group of workers unaccustomed to a safety net.

Shniberg titled his organization the Artist Pension Trust and has successfully launched programs in cities across the globe, including Beijing, Berlin, London, Los Angeles, Mexico City, Mumbai, and New York. The group is a clear success.

It stands to reason, I thought in discussing this trust, that a similar organization could do wonders for the entrepreneurial community. Individuals take enormous financial risk without “a hedge” in starting their ventures. What if, at an early stage, they could pool risk - each of many contribute a small chunk of equity to a partnership that would manage the collective interests? Most stakes (presumably) will be worth little or nothing, but a few (again, presumably) will become valuable and offer distributions to the whole lot.

Premier venture firms tend to offer “CEO funds” to their successful entrepreneurs which enable them to participate via co-investment in the VC business of diversification. Such funds enable those who have already “hit the Powerball” to keep on winning. First-time entrepreneurs, and even serial ones who have not yet found success, have no such instrument.

The difficulty here is setting up a selection committee and administrative team that will select promising entrepreneurs and convince them of the value proposition - essentially, that other promising entrepreneurs will join the fold. I bet it can be done. If the above sparked your interest, send me a line. I’d call it the Exit Fund.