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The New Human Marketplace

Markets that let you invest in people are blossoming. But they're about much more than just getting paid.


You can now invest in a piece of Arian Foster, seen here taking on the Tennessee Titans in Week 2 of the 2013 NFL season.(Houston Texans)

Let's say you are thinking about getting a vasectomy. It's by no means an easy decision to make: Sure, you may not want to have offspring right now, but who knows how you'll feel in five or 10 years. In August 2008, Mike Merrill was facing just this progeny conundrum. So he did what every American in a science-fiction writer's capitalist dystopia would do: He ran it by his personal board of shareholders.

It may sound completely crazy, but the kind of sci-fi market innovation that Mike Merrill started dabbling in when he offered up 100,000 shares in himself in 2008 is actually catching on.


Take Fantex, the company which announced this month that it would sell stocks that will ideally mirror the performance of NFL running back Arian Foster. For that arrangement, Foster received $10 million from Fantex in exchange for 20 percent of his future earnings. Unlike Merrill's shareholders, people invested in Fantex would not have any say in what the running back does with his life. Arian Foster, Fantex hopes, is just the start.

But this new human marketplace isn't just about entertainment or one-offs. A new company led by a former Google executive is trying to use the investor model to create a million new businesses, created by a million new entrepreneurs, funded by multitudes of investors. That company, Upstart, allows investors to buy a percentage of the future income of a young entrepreneur-in-waiting (or "upstart") in exchange for an up-front investment.

The way the system works, an upstart has the option of offering up a 5-year or 10-year agreement with investors. Upstart's proprietary formula figures out how much a piece of each upstart is worth—based on, among other things, academic records and job history. (Note to eugenists: Race isn't factored.) From there, it operates much like Kickstarter: You get a little background on who the upstart is, what the person's short-term goals are, and what pie-in-the-sky goal that person carries. And, of course, how much money the person is hoping to raise. Eight to 12 backers per upstart is the ideal, although some upstarts have more than 40. The average backer, in an Upstart-recommended bid to diversify, funds 5 to 10 upstarts. Investors are paid by the month, based on the upstart's earnings for that month.


Arian Foster is giving up 20 percent of his future earnings to Fantex. (Houston Texans)

So far, 170 people—from craft-brew dreamers to cybersecurity developers—have been published on Upstart's website and are either funded or ready for investment. That's out of thousands of people who have applied, the vast majority of whom don't meet the company's standards. Investors are biting: There are 250 backers, and a total of $2.5 million in transactions and 1,200 unique offers from backer to upstart.

"Upstart was founded by an observation that there's a lot of people early in their career that lack for access to capital," says CEO Dave Girouard. As Girouard sees it, the "choice pallet" for recent college grads to fund their new start-ups was "pretty bare," and needed some improving.

He has a point. These aren't boom times for young 20-somethings. According to the New York Fed, the unemployment rate for 22-year-olds leaped from 4.5 percent in 2000 to 10.3 percent between 2009 and 2011. Nearly half of recent college graduates are working in a job that doesn't actually require a college degree, according to a January study from the Center for College Affordability & Productivity. College graduates from the class of 2013 had an average of $35,200 in debt.


But Upstart isn't all angel investors and bubblegum. There is something inherently uncomfortable about wealthy investors—some of whom may chose to be anonymous (although upstarts get final approval of all backers)—buying the future income of hopeful, but unsure, entrepreneurs. Especially if that income winds up being much lower than any upstart dreamed of. If an upstart's plans fall through, it doesn't feel too great for a percentage of her meager income to still be owed to well-off investors.

Upstart tries to guard against this by creating unique individual thresholds at which point an upstart wouldn't have to pay a percentage of their income. So, for instance, if an upstart is making something near minimum wage annually, she wouldn't have to make a repayment for that year. In exchange, additional years—up to five—are added onto the end of an agreement. So a 10-year agreement with some down years could extend to 15 years, or a 5-year deal could go to 10.

But this kind of setup can get even more ethically hazy with something like Fantex's Arian Foster series, where, as Reuters' Felix Salmon points out, you have predominantly wealthy white men buying pieces of a black man's future. And in a physically grueling sport like football, the historical parallels aren't too cheery.

Arian Foster's been struggling with a hamstring injury since the Fantex news broke. (Houston Texans)

But the real benefit of the human market isn't necessarily in the money, either for investors or the human investments. As Mike Merrill puts it, the true value is in the decision-making engine that the market creates.

Merrill's example is extreme. Since 2008, he has put mightily personal decisions to his mass of shareholders on his exchange site, KMikeyM. "Basically, my rule is, anything I would normally ask my friends for advice for, I'd go to the shareholders and ask questions there," Merrill says. Some of what Merrill puts up for a vote is a bit tongue-in-cheek, playing on the idea of being Mr. Capitalism—which is why he registered as a Republican (while still endorsing President Obama in 2012) and for some time exclusively wore Brooks Brothers clothing.

But there are also plenty of decisions that impact Merrill's life in a real way. Growing a "winter mustache" was voted down in the fall of 2008. A 735-day relationship renewal agreement was approved in June. Perhaps most spookily, in January 2012 Merrill's shareholders overwhelmingly voted to split his $100,000 life-insurance policy in the event of his death.

Which raises a question: Could Mike Merrill's shareholders vote for him to commit suicide? Merrill says the question comes up every now and then, but if it was ever actually voted on and approved, he wouldn't obey. "I ultimately choose what goes up for a vote," Merrill says, and he's beholden to his shareholders just "as much as I want my share prices to be high." Presumably, if Merrill disobeyed an edict from his shareholders, his share price (now hovering around $9) would tumble. It's not in anyone's true economic interest to vote to kill Merrill.

With no market failures, Merrill's experience as a publicly-traded person has been mostly positive. And it actually serves as a strong example for prospective upstarts.

Take a big recent example from Mike Merrill's decision-making engine. This March, he posed a question to his shareholders: Should he quit his day job to start his own business? Merrill himself wasn't so sure of the idea, as it obviously takes quite a big leap to leave your job and go out on your own. But the shareholders overwhelmingly approved of the move; only one person with one share voted against it.

In that way, the market serves as more than a quirky way to raise money (Merrill says he's made no personal profit, but share price has slowly climbed over time). The shareholders' decision on Merrill's career move was a "huge boost of confidence," and it made it easier for him to actually leave his job. Just with one quick post on KMikeyM, Merrill had the kind of massive support network for an emotionally tough decision that most people would kill for.

Upstart aims to get in on some of this. While no Upstart investors are going to be voting on the personal lives of their investments, the company has a built in a kind of social network for backers to interact with upstarts. Upstart CEO Dave Girouard thinks this is really what will make his company succeed. "If you surveyed upstarts ... almost to a person, they will say, 'the money's fine, but what is really valuable here is the support I get from my backers.'" This makes some intuitive sense. Upstart's investors have the kind of brains that start-up hopefuls would love to pick. They count, among other high-profile names, multiple Google executives in their ranks. Peter Thiel, Eric Schmidt, and Marc Benioff have put nearly $6 million into the company itself.

Girouard's assessment makes Upstart seem a bit more like Merrill's decision-making engine and less like a tool of blood-hungry billionaires. "We were never intended to be a new-fangled bank," Girouard says, "but really a network of people who are engaged in and interested in each other's success."

It's too early to say that Upstart will be successful, or if publicly-traded people like Mike Merrill and his shareholders are really a model for a new kind of market-based community. But the interest is there. It's just a matter now of the market's idealism not spiraling into Philip K. Dick's nightmares.

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