Is This The Future of Investing?
The landscape of financial investing has entered a new arena. One that goes beyond stocks, mutual funds, real estate and companies. You can now add one new area to your portfolio that will truly help in your effort to diversify.
‘People’ are the new investment vehicle.
In a manner that reflects more of Silicon Valley than Wall Street, we are seeing the emergence of companies that offer opportunities for investors to purchase pieces of future earnings of people’s careers. This is enabling people who may or may not be able to obtain capital through other means to receive money to further their professional aspirations.
A Catalyst for Careers
The best example of this is Upstart, a Caliornia-based company that is providing young, smart and motivated people with access to capital to reach their entrepreneurial and professional dreams. You invest money now to help them reach their goals. In return, you get a portion of their earnings within five to 10 years.
Recipients of this capital can use the funds in countless ways to further their professional ambitions. This can range from using the money to attend an important industry-conference or using it to buy equipment for their business.
Why is this important? Because existing capital models don’t always align with the path or trajectory of the person. Bank loans, grants or scholarships aren’t always available and don’t necessarily provide the proper value-to-cost ratio for ambitious young professionals.
Some of the early stories are inspiring and noteworthy to say the least, potentially setting the stage for continued growth in this investment area. Furthermore, beyond the simple capital that is provided, investors are inherently incentivized to provide mentorship, guidance and networking introductions, all things that will increase the likelihood of a successful investment.
As someone who appreciates and is excited by anything that spurs entrepreneurship, I can only think of positive things with regards to the efforts of initiatives like Upstart. However, this trend is spilling over in areas beyond careers.
From Entrepreneurs to Athletes
More recently, the opportunity to invest in athletes has become headline news, particularly in the world of professional football.
To be clear, we aren’t talking about fantasy football cash-leagues. We are talking about investing in athletes.
A company called Fantex Holdings has gained attention after it announced that investors can get a piece of the Houston Texans’ famous running back, Arian Foster. In exchange for a piece of his future earnings, Mr. Foster is receiving $10 million.
Some reports give credit to the athlete, instead of the investors, for recognizing and capitalizing on the opportunity.
Despite the initial angst caused by the thought of giving a multi-millionaire athlete more millions of dollars, think of the potential positive outcomes. First, fans-turned-investors will now be more incentivized to consider the long-term health of the player instead of short-term goals (such as fantasy football points). Second, athletes will be more inclined to care about their public image and off-the-field behavior.
For example, athletes who receive investment money will have more people to be accountable to, beyond coaches and endorsement companies. The threat of stock sell-offs may act as a deterrent for better behavior. This won’t hold true for all players but may serve as a new tool for player’s business acumen, a subject matter that players are often known for anything but.
Will This Last?
I hope so. Providing people with increased access to capital can lead to so many great things, particularly for those individuals who may not have had access otherwise.
After all, the proliferation of crowdfunding platforms like Kickstarter and Indiegogo are indicators of a growing market acceptance to new forms of financial utilization. Why can’t this extend from companies and products to people? It can.
While the average retiree or Wall Street day-trader may not view this as an optimal profit-maximizing vehicle, others may see this as a way to help others while helping themselves. If the money that is currently held up in your stock brokerage account can help a 20-something entrepreneur reach success, why not have the option to take that bet?
Evidence shows that Americans have an increasing distrust of Wall Street and traditional investment routes. Innovative methods of capital investment can yield entrepreneurship, a change in the way we view athletics, in addition to a potential reaction by Wall Street to find more attractive ways to compete by making traditional investing more trustworthy.
Yes, there is the opportunity that fraud and malicious activity will occur. But platforms like Upstart and others will be tasked with mitigating these risks, if not for no other reason than self-preservation.
With that said, have you been convinced to move the money from your mattress into these new markets? If so, will you put your money on the entrepreneur or the fan favorite? This ecosystem will be an interesting one to watch.