A straightforward funding mechanism that rewards innovators and risk-takers while remaining sensitive to the social impact of new technologies and their reliance on their user’s network effects.
With Reasonable, founders and investors are rewarded for their efforts and the risk they are exposed to but don’t hold perpetual ownership of the company they help create.
Instead, they commit to transitioning the company to be owned and governed by its users and other stakeholders in the long-term.
Reasonable recognizes the unique talent, grit, and abilities of entrepreneurs and the exposure of investors to potential losses, but don’t succumb to making them eternal kings of the spaces they help create.
It’s not only a matter of ethics. It’s simply what makes sense giving the scale and impact of new technologies and their reliance on the network effects provided by their users.
Reasonable projects are started by one or more founders and investors just like any other startup. However, instead of receiving equity rights, founders and investors receive debt obligations and governance rights, to be paid out of the future profits of the project.
Once these obligations are paid, founders and investors loose economic and governance rights in the project, transferring these to the project “community”.
The key question becomes determining the size of the debt obligation: if too big, Reasonable is one-to-one equivalent to an equity-based model, which proofs that equity = infinite rights. If too small, investors might not have enough incentives to risk their assets (talent, time, or capital) on the project.
Reasonable stands somewhere between standard equity-based projects with legally enforced infinite rights and open-source projects without any legally enforced rights.
One important feature of Reasonable projects, as opposed to open-source ones, is that they must include a business model to pay back the investors. A model that will then remain available to the “community” even after the investors leave, creating a new type of projects that are neither non-profit foundations nor for-profit corporations. Let’s call this with-profit collectively governed platforms.
Debt should be proportional to the value provided by the investors, increased by a “risk factor” that depends on the project risk: the likelihood that the project will not be successful and will default on its debt obligations.
The best and most innovative projects are usually started by out-of-the-norm individuals who are able to see something others can't, and who have the talent, courage, commitment, and stubbornness to explore the territory on their own.
They are free to set their own risk multiplier. To do so they have a couple of instruments:
The effectiveness of the third point depends on the type of project, but public awareness of the impact of technology and the risks of having its control monopolized by a single opaque entity is increasing fast.