Ask HN: Is an Autonomy Fund a viable business model?
It’ll encourage mid-growth companies. See: bit.ly/16guxvy. I want this thing to generate some Real Technology, and focus on hard problems instead of social media bullshit optimized for instant results. It’s for the mid-risk 10-40%/year growth range that’s underserved by existing finance.
An Autonomy Fund’s like so: engineers get a base salary (say $125k) and the investors get a percentage (say 37.5%) of any profits they make. What do they work on? Whatever they want. Their own projects. Consulting. Startups. The fund owns part of it, but they have full autonomy over what they do.
One idea here is self-organization. If two teams decide to work together and pool resources, they can. Since they're collectives of autonomous individuals, they don't need to worry about the (morale-killing) processes of merging HR structures and org charts. They just pull together and work.
Who’d fund it? I think local governments might. (Am I right? Or off the mark?) It creates jobs, supports local businesses, and may build the next Facebook.
I see this as the ultimate symbiosis between cities and tech. They want to make their cities tech hubs instead of having all the action go to star cities. We’d vet programmers, something a non-programmer can't (cf. Design Paradox).
I'd aim for top-5% “10Xers”, with initial class size ~28 and a 2-year initial runway ($7 million). If the pilot succeeded, then similar funds could be launched all over the world, and there might be a business in setting cities up with their own Autonomy Funds.
Is this something that:
(a) local governments would support, and
(b) a substantial number of top-5% people would join, even if it meant moving to a small city (~50-250k inhabitants)?
45 comments
[ 70.1 ms ] story [ 1566 ms ] threadTop engineers aren't that way when a company takes 100% of the proceeds and a boss takes all the credit; but this is still allowing engineers to get a 62.5% cut.
The trust issue is why local governments might be the best place to start:
(a) they know they're not technologists and can't evaluate 10x programmers. I can. I think I can either (i) establish that I can, or (ii) bring someone more established and better than I am to do the vetting.
(b) even if they fail, much of the money goes back into the city, which means it's not totally spilled on the floor. Fail case: those tech bozos made fools of themselves, but they ate at local restaurants for a couple years.
It wouldn't only be local investors. I don't want short-term investors in this, though. I'd take a Buffett-esque approach of having the share price around $50,000. Value investors only, because talent takes time to ripen.
The key is to find a city on the cusp of making a serious decision to pursue becoming a tech hub. Google Fiber could be an incentive, or it might make them complacent, who knows? Maybe Provo? You can't really aim too small, small towns have serious conservative budgets and for good reason.
Austin would be nice, I'm not sure how insecure they feel about their status as a tech city compared to NYC and SF. What I can tell you for sure is that they are seriously affordable. You can trivially get a house for less than $200k in a decent neighborhood. That they're already competing for the tech city thing is a bonus.
Google Fiber in Austin could end up bringing in some fresh blood, even if it doesn't make that much of a difference on its own.
Austin has a $3.1 billion budget, which makes this more feasible for them than a sub-$1bn budget city. $25mm planning and development budget.
https://assets.austintexas.gov/budget/12-13/downloads/Vol_I_...
See here to see their job development efforts.
Anything involving as much money as this does is going to have be sold as a job development play. I don't know if that argument can be made yet or not, I'd need to discuss it.
Disclaimer: I'm headed to Austin as soon as I'm freed up in my consulting work to do a startup.
It's definitely a job development play. These engineers are going to be founding companies that, if successful, are going to employ large numbers of people.
I find it pretty hard to function in typical management structures, though I work better with teams/some sort of external visibility (my personal projects tend to gather dust too easily, though I'm working on improving this). The concept of an incubator-like environment for collaborating on ideas without the extreme focus on growth would be a perfect fit for people like me.
As for choice of initial tech hub, my vote goes to Pittsburgh. The population size is [roughly] what you're going for at ~300K. The housing market here is great. It already has a tech-friendly local government. Plus Carnegie Mellon is here, ready to feed top young CS talent directly into the autonomous positions.
For what it's worth Pittsburgh was also voted as the most livable city in the U.S. a couple years ago [1]. I might be biased since I live/work in Pittsburgh and take CS classes at CMU, but by that same token it also means I'm speaking with first-hand experience.
[1] http://www.marketplace.org/topics/life/news-brief/its-offici...
Do you think the local government would invest?
As I work on the idea, I'm starting to realize that it needs to involve public and private investment. The problem seems to be to convince investors that we can audit the programmers. I'd probably need to hire a well-known programmer as, at least, an advisor. Even if he didn't want to make the decisions and conduct the interviews, it'd be huge to have his name on the letter.
The cities where I see the best odds of this taking shape are: Austin, Pittsburgh, Madison, and Portland. Apologies if I missed one; there are plenty of other good places, but those are the 4 that would be the big targets.
I agree that one city is just a start. The concept needs a pilot, but ultimately the goal isn't to make one specific city a new Silicon Valley (if that happens, I've failed) but to encourage more equidistribution of talent and, as a nice side effect, also squeeze out the real estate assholes (who take advantage of the fact that our career needs force us to crowd into expensive cities).
Once it's going multi-city, though, I'd need someone else to run it. I could be the lion for a couple years, but eventually I'd want to get back into code.
I think the funding, rather than the locale, is the blocker here.
Salary plus tech budget is $125,000. That's half-decent but not great, and by design. I'm looking for entrepreneurs, not salarymen (who'd command $150-250k at the level I'm looking to hire). It's not the extreme low salary of bootstrapping (negative including business expenses) but it's not cozy either. That's sort of what I'm aiming for: a middle path between might-fuck-up-your-family-life-bootstrapping and not-really-an-entrepreneur-VC-funded-salaryman.
I'm also thinking that it would be useful to find private investment with 1:1 matching. So local governments would only have to kick in half the initial funding requirement
The only other data point is from the Bureau of Labor Statistics Employer Costs for Employee Compensation (BLS ECEC) where it shows at the bottom that benefits accounted for around 30% of total compensation and 70% going to wages & salary[1]. On average, this means that a $125K salary would cost a company $179K overall.
[1] http://www.bls.gov/news.release/ecec.nr0.htm
[1] Ex-CTO
Those ratios are for average salaries, not $125k salaries.
You mentioned 37.5% earlier, but the city would probably expect you to model this in such a way that X% will be duds, so their return will most likely be much lower than 37.5%. 10x-100x VC-istan-like hits should not be banked on given the sole purpose of the Autonomy Fund is to create medium-growth companies (10%-40% p.a. growth rates).
Perhaps factor in a legal, HR, accounting, IT and facilities teams for AF-backed individuals (i.e. backend G&A organizational infrastructure) @ 10-15% and your baseline burn rate should be adjusted accordingly. Let's say $6.5M per year, of which $3.25M comes from municipal/state/federal public funding.
So, maybe don't depend on local governments.
Now, public school students are getting after-school coursework with "Silicon [V]alley technology entrepreneurs". These aren't techies getting thrown a bunch of local money to build their careers; they're getting thrown local money to build businesses and teaching students how programming works in "the real world"
So then, there's a great service provided that is of use to the community even if the startups flop.
Do you know anyone who'd be able to look at this idea as a potential principal? My email is michael.o.church at gmail.
Now, how many students would you be able to handle per mentor? I agree that teaching is part of leadership, but few team leaders have had to teach a 100 people at the same time. Maybe 30 per mentor?
Of course, after a year or two the senior students could help as mentors.
Who would join? Since it's a club, students will expect it to be fun. Granted, there are sports, band, cheerleading, etc where it is accepted that there will be hard work involved. They each have some kind of payoff, like games and concerts. I guess the club would be broken down into coaching and development sessions to teach skills, and then projects to develop them. You would want the projects to be something that the students could show the rest of the school, like a website or toy app. It would need to be small enough to be completed during a semester and could be done with the help of the art or A/V club.
How will a professional programmer feel about all of this? Yes, it is rewarding to teach, but at the same time you would be working with teenagers with varying levels of commitment. You're selecting for a very special type of person now, that is a programmer with vision, leadership skills, and that actually enjoys being around young adults.
I could see this working with small groups: 5 to 10 highly motivated students that already know the basics of programming hacking together apps with the help of a mentor. For those who don't know how to program yet, maybe work with the local colleges to open up programming courses similar to Vocational programs or Post Secondary Education Opportunities to learn the basics and earn college credit while still in high school.
It's only 40k USD and only 6 months and the location isn't desirable for westerners to perm relocate and doesn't select for the top 5% of engineers but it's close.
---
How about Las Vegas? I've never been there but:
1) Cheap airfare, international destination
2) A Party Town, probably helps the gender balance in one aspect, people would like to visit you.
3) No Income Tax
4) Still close to the SF Bay Area
5) Never cold, barely rains (good or bad depending on your preferences)
6) Really cheap real estate. Buy a townhouse for under $100k!
7) Many tech conventions are hosted there
8) Driving from one corner to another takes only 30 minutes according to google maps.
Autonomy Fund on the surface looks like a great fit with Tony's DowntownProject vision[2].
[1] http://www.forbes.com/sites/evankirkpatrick/2013/02/13/lesso...
[2] http://downtownproject.com/
1. write good code
2. ???
3. profits
Also, you will need to attract non coders, such as domain experts or marketing. They will also want their shares of the cake, and you will need to pick good ones, which will not be trivial for you as a developer. I am sure there are many other flaws, and I'd rather suggest that you use your technical excellence to "scratch your own itch" and live from it.
My end goal is for this to congeal into something like an open-allocation environment, but one that exists across companies to some extent. I feel like if we bring OA to the external market, we'll force the hands of employers who will have to improve conditions if they want to compete for talent. So, the trans-corporate open allocation (because each person carries an income that follows her whereever she goes) is the ultimate end goal. That may be completely insane, but isn't that what the open-source gift economy is-- trans-corporate collaboration?
Getting designers, marketers and domain experts will be hard. I grant you that. Strong designers and marketers I can spot; domain expertise I would not be able to tell, unless I had it myself and, of course, for most domains I won't. I think that to get a domain expert, you'd have to hire her into a company already formed through this process, because you're right that there's no way we can build up a competent selection process for every domain we might care about.
And I can see this taking off. Obviously not fast because most of your potential customers wouldn't even know yet they need your services, but that should be able to slowly bootstrap. And I suppose once you would have built a strong team and gotten some notoriety, you would be able to bootstrap your technological edge into some concrete product.
Having said that, I still have some doubts, mainly because I think we are in a coding bubble, and the future belongs less to the programmers than to the engineers who will build the new space rockets or the technology to exploit green energies from example, while with the standardization of functional programming and the development of various libraries it will be easy for a non programmer to start creating software components that are currently requiring programmers (IMHO there will be less "pure" programmers and more "X's who can program" as you once said here on HN).
Nevertheless I wish you can succeed with your idea, even though I don't think I'll be able to work in your company as I am not a top programmer.
I have a feeling that organizations part-funded by governments that hire intellectuals on near-market salaries to work on projects that interest them (and do the odd bit of teaching) already exist: they're called universities. I realise the plan here sheds a layer of bureaucracy and gives the productive a slice of potential profits they generate, but I think the comparison is reasonable, and I certainly wouldn't pump money into academia with the expectation of collecting returns on it.
And I actually like the idea!
If we set up a "20/20" plan where the entrepreneurs spend 15-20 hours teaching (as in, the public) while they draw a salary, then it might work.
The only danger is that it pisses off the teacher's unions. It'd have to be a free after-school program.
http://37signals.com/about
Software Engineering, done this way, does not require a lot of capital. What are your thoughts on this model?
(a) It will be hard to get $7 million for an untested investment model like this. It would be easier to start with something more like $150k, like the first YC class.
(b) It's hard to advise people on something you haven't done yourself. If you first started a successful mid-growth company, you'd find it a lot easier to raise money for this plan.
A successful growing business is never profitable, most / all the profit is reinvested in the business. There will per se be no investor return relatively speaking.
I recently saw an article this past week that suggests a better structure: the investment is a loan that is forgiven if the business folds.
This is actually better for both sides: the investor gets their money back with some fixed return if the biz succeeds, and the business doesn't have to pay it back if it fails.
Then it becomes a small tech business entrepreneurship Loan/ investment vehicle. In which case the pitch to the city is the their investing in furthering local biz growth in a way that has potential to have a multiplicative return for local industrial base.
Tl;dr no small privately held biz is ever truely profitable, structure it as a forgivable loan upon biz failure.
I agree with what you're saying, I'm mainly quibbling with the language of the structure of the proposed investment instrument. It would be very easy to do some Hollywood style accounting so that the business owner and employees all get a fraction of gross revenue after costs, but any investor would get zilch for all time.
I know little of accounting, but I know that much :-)
(This is of course orthogonal to the ethical / moral dimensions)
Unless the fixed return is something intolerable to the startup, such as 100% return, that would make a terrible investment. Even ignoring the go-big-or-go-home type of startup in SV, the vast majority of startups that seek to make profits from day one do not succeed - they'll fail and the investors lose the loan. The only situation in which this makes sense is for the loan to have a very very high return - usually a multiple (1x, 2x, etc), since investors will need that rare winner to subsidize the losers. This is how the entire VC industry in SV works, and it definitely still applies even if you want to make a profit-first company, it just applies to a sightly lesser degree (usually for VCs in SV, one company in their entire portfolio will need to deliver 50x+ return). This is also bad for the startup because now they have this loan that they have to pay back in X years that has a huge interest rate.
Essentially, this is bad for investors because investors get all the downside, but their return is quite capped.