The challenge of a hedging model

Giff Constable startups

A couple days ago, I wrote about entrepreneurship and some level of partial hedging.

Actually solving that challenge is, of course, enormously difficult. So much so, that I think it might only really be doable when companies are just starting out, and the equity is worthless.

I can see it working in a startup studio that creates its own companies from scratch, like Betaworks or Science. I think it would be very hard to do with random startups. Theoretically one could create a fund, and multiple founders could join the fund, taking a piece of ownership by contributing a piece of ownership. However, I haven’t thought through tax implications, and there are obvious and big information inefficiencies that would cause trouble (trust, quality of teams, quality of ideas, etc) and it would be non-trivial to solve for dilution.

If anyone has brainstormed on a structure, it would be fun to look at. Maybe one day when I am less busy, I’ll ponder it more.