Roadmap 09/11 (click here to expand/collapse)

Below is the Roadmap for select September 2011 website articles. 

Provide Predictable Funding for Unpredictable R&D+

We Make R&D funding more predictable ...

At a lower cost of capital

With reduced volatility (i.e., short term predictability)

Without mortgaging {bracketing} the future (i.e., long term sustainability)

Investors can buy and sell shares at any time (during open season+), reducing premiums they would typically charge if we mandated long term commitments, and reducing a perceived need to 'meddle' into investments, demanding 'window dressings' to increase the sale price for the next investor down the line.    Valuation of Intellectual Capital+

Asset valuations (appraisals) are greatly increased due to membership+ in our community. They command premium pricing due to the financial strength of the community, readily available comparables, and tangible benefits of membership provided by the funding agency.    Community

We can have at our disposal (in the U.S.) additional tax benefits that comes from working with member-contributed equity.    The Cooperative Solution 

Long-term investor-citizens come to rely upon the predictability and sustainability of perpetual fund+ share pricing. This reduces premiums they otherwise would charge due to the unpredictable nature of the underlying assets+ (R&D-based ventures).      Valuation of Intellectual Capital

We have at our disposal a broader variety of cost-effective tools for investor retention+ when we work with our investors vs. anonymous / absentee investors.      Investor Retention

Investor-citizen familiarity with our financial safeguards tamps down on irrational investor fears, reducing the urge to sell off during generalized market downturns. Increased volatility in buying and selling forces us to recruit (and pay for) excess investors just to be sure we have enough funds to cover the sell-offs.        Investor Education

We build love of institution in our investors. Our client base will be thousands of thousandaires and only a few millionaires (when they start). We can't do this without investor referrals, outreach, testimonials and involvement in retention and recruitment programs.        Love of Institution

Investor-citizen participation in governance builds an appreciation of the complexities in our operating model (e.g., asset appraisal, the stabilization fund, derivative investment vehicles+). Citizens learn to acknowledge that knowing and doing are two different skill-sets. An idealized vision of the funding agency leads to unrealistic expectations of the funding agents. Our operating model reflects the uncertainties of investing into unpredictable R&D and we need a latitude for our mistakes from investors.      Investor Participation

Asset appraisal, upon which the perpetual fund share price ultimately resides, is performed in a way that tamps down on period-to-period fluctuations in asset value (across a basket of assets). Interim asset appraisals informs the share pricing used by investors to buy and sell during open seasons.    Valuation of Intellectual Capital

A mandate for an accelerating growth rate forces agency management+ to continually recruit new investors, who can then be recruited as natural proponents for safeguards put in place to ensure the future of the agency. For example, new investors will not want old investors to exit with the cash, gutting the finances behind our community services. We make this a first principle.    First Principles+

Mandatory reinvestment of interim winnings is the principle funding source for all our community services. It's so important we make it a first principle.    First Principles

Minority opinions (dissenters+) provide a wake up call to other investors should the future of the agency be placed in jeopardy by self-interested investors or outsiders.    Dissenting Opinions

A common law+ legal approach makes it difficult for today's investors to enact binding legal precedent that can be burdensome on tomorrow's investors. It's very difficult to know the best way to exploit unpredictable R&D. We don't write down rules, precedents or procedures that either 1) make it too difficult for future generations to experiment or 2) make it too easy for future generations to excuse their lack of creativity.    Common Law

Investor voting constructs+ make it difficult for today's investors to enact bylaws, rules and regulations that are binding and can be burdensome on tomorrow's investors.     Voting Constructs

Benefits of a Community-Based Operating Model for Our Funding Agency

Breathing Life into Intellectual Capital

Unpredictable R&D is a different kind of intellectual capital. Its exploitation requires creativity, experimentation, progress that is halting and tentative, and a willingness to throw away all the rule books. We do not pick a commercial direction and start marching. Ours is a wilderness criss-crossed by many overgrown paths, each with unique challenges, and only a very few taking us where we want to go. Consider it a mystery instead of a puzzle. There are many misdirection cues, incredible complexity of plot, and many, many plausible conclusions. The answer often emerges when we discard that which is right before our eyes: discarding yesterday's misleading evidence.

These challenges (opportunities) get reflected in the demands we place on the funding agency. We must better educate citizens (vis-à-vis anonymous or absentee investors) to appreciate the value of the freedoms we make available to our investees. Investees are freed from many arbitrary constraints. Our task is to make these freedoms seem dear to investors so they aren't tempted to take them away, with meddling or impatience. Responsibility for the defense of these freedoms must become a matter of personal mission for many of our investors.

Above we listed advantages of a community-based approach vis-à-vis a corporate or venture capital approach (our competitors). We take the best and discard the worst from these competing models. We have our investors (venture) but we allow them to exit at any time (corporate). The community-based approach also brings advantages not found elsewhere (e.g., love of institution).



This is not your daddy's business model. We do our damnedest to keep rules in the funding agency+ to a minimum. This is consistent with the fact that the rules have yet to be written for the Phase 1 industrial+ firms into which we are investing.

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies Groucho Marx


Owners of intellectual capital+ (investees) need assurances they won’t get the financial rug pulled out from under them. This means they need to know by what standards they will be judged so they can proceed accordingly. We expect steady progress in our investments, but not measured in concrete steps. We are a goals-free, metrics-free society. Our measures are subjective by definition. Teams can work endless hours and still be judged ineffective. There are no checklists+.

Assurances for investees and investors can only come from trust in the system. We have no legal precedent, rules or government memorandums of understanding. Not for measures of effectiveness. Not for precedence in disputes. There are many checks and balances. But in the end investors and investees must learn to appreciate why our subjective, one-off decision mechanisms work best. Our system seeks the best answer for each case at hand, as independently adjudicated.

Common Law+

Ours is a common law society. To the extent possible we don’t let over-reaction to past wrongs hobble the freedoms of future generations.1 Our judgments are situational and contextual. We eschew broad generalizations as remedies. We rely instead on the wisdom of those we place in judicial roles. What is the best remedy for this specific situation with all its nuanced peculiarities? Consider the game-plan of the trial lawyer. Any bylaw or rule applies (or not) only to the extent it helps or hinders their client’s case. Instead of playing this game, we simply eliminate the bylaws and rules, and rely instead on the wisdom of our judges following a common law approach to adjudication.

There is no equivalent of the Uniform Commercial Code. You can’t read the regulations and predict the outcome for this upcoming decision. Judges arrive at a decision by referring back to a limited set of first principles+. Their job is not to make law. It’s to ensure each instance brought before them gets decided in a manner most consistent with the first principles of the funding agency+. Judges have broad powers: adjudication of specific disputes and final say in the construction of any (legislative) vote by investors. They practice effectiveness of law (not efficiency as was the rationale for the Uniform Commercial Code).

Table 1. First Principles of Judicial Decision Making

We hold these truths to be self-evident, that to ensure predictable funding for unpredictable R&D+ we must:

  • Protect the funding agency mandate to pursue an accelerating growth rate of blockbuster+ success
  • Protect the funding agency against undue systemic risks (e.g., on- or off- balance sheet financial, regulatory or contractual risks)
  • Protect the fidelity of reinvestments of interim winnings (i.e., the primary source of funding for all agency activities, including the judiciary)

Notes: As happened in the outcome for the adoption of the U.S. constitution2, our judiciary will likely incorporate a Bill of Rights for investors and Investees. Limits on fees and reward structures will likely also be adopted. But the first principles above are primary. 

Quants, regulators and civil rights lawyers will chafe at our disdain for regulations. Without the written rule they cannot exercise their superior faculties of ratiocination. There will be very little paperwork available for deposition in host government lawsuits. We’re in effect setting up a new legal system, an extra-legal system. Our legal system is founded upon the logic of the blockbuster. Every legal decision refers back to our unambiguous measures of success: investors voting with their feet and consumers voting with their wallets. Argue how your client retains today’s investors or increases future consumer purchases and you’ll probably win the case. Rely on legal precedent, bylaws or regulations and you’ll likely lose.

Common law is the best approach for unpredictable R&D. We don’t know what it’ll take to make these investments succeed in the future, so we don’t invent rules today pretending we know. We do know we’re sick of cheap heuristics+ (e.g., shots-on-goal+) and the Three C’s+ (e.g., “We’ve always done it this way.”). With unpredictable R&D the rules have not yet been written, and so it will be with our legal proceedings. Decisions are one-off. We decide what’s best for the dispute-at-hand and to-the-devil with codification of business norms (e.g., Uniform Commercial Codes). There are no norms. The rules have yet to be written and we intend to keep it that way.


Allergan Agrees to Plead Guilty and Pay $600 Million to Resolve Allegations of Off-Label Promotion of Botox®

Allergan, maker of the Botox wrinkle treatment, challenged the Federal government's ban on off-label promotion3 of Botox, claiming it violated the company's right to freedom of speech. Lower courts agreed. The U.S. Department of Justice cooked up a legal strategy. They appealed the lower court ruling and threaten Allergan with a multi-billion dollar fine, payable should the Department of Justice win the appeal. If Allergan were to prevail (in the Supreme Court) this would open the lucrative off-label market to other makers of Botox, potentially neutralizing commercial gains for Allergan from the victory. Allergan would pay all the legal costs and competitors would reap many of the benefits. In any event, the new democrat-majority in Congress would likely enact legislation minimizing benefits from such a Supreme Court victory. Allergan should accept a ‘slap-on-the-wrist’ fine of $600 million and avoid the larger threatened fine and legal fees. Allergan agreed. They are in the business to sell drugs and not to win Supreme Court cases. Both sides stepped back from the brink. Deal done. Federal terrorism of corporate America prevails once more.

Corporations and venture capitalists often fold in the face of host government bullying or class-action lawsuits. We can’t afford this luxury. We are a new industry, one ultimately beneficial to the host government economy, but one with deep pockets tempting to ambitious politicians and trial lawyers. Our funding agency is itself the industry (at least for a decade or so) and outcomes in the courtroom directly hit our investor’s pocketbooks. We discussed the means to protect investees from agency management+. Below we discuss protections of the funding agency itself.

Protect our Legal Structures. Our judiciary is fully independent, only having to rely on their own rational faculties as hemmed in by our first principles. The judiciary is independent of investors, investees and agency management. It is also independent, to the extent possible, of host country legal practices. Members in our community commit, under the contract law of host countries, to binding arbitration by our judiciary. We spend whatever funds are needed to protect the independence and sovereignty of our judiciary, even to the point of exiting the jurisdiction of a recalcitrant host government.

Few rules. We have the logic of the blockbuster, but we are very sparing in formal contracts and/or bylaws. Instead we rely extensively on common law, on subjective interpretations by our independent judges and evaluators (e.g., Watchdog+). Their decisions are law for the specific cases they decide. Legal precedent is only given a slight nod in future cases, and is often ignored. Investors, investees, agency management and outside parties sign up for this means of arbitration as a condition for playing in our sandbox.

No easily accessible deep pockets. We have the appearance of deep pockets, but much of the equity in the firm is owned by third parties. For example, our market stabilization fund is placed well beyond the reach of trial lawyers and tax authorities. A significant portion of the equity used for agency working capital+ is owned by individual investors. There is very little equity in the agency either not owned or contractually entangled with outside interests.

Few (or no) anonymous or absentee investors. These are our investors. Although a few investors will always be stubborn enough to pursue lawsuits within host government courts, it will be very difficult for them to muster the numbers needed for a profitable class action lawsuit. We deliberately build loyalty in investors, one-by-one. We’re there for them when economic times get tough, and we quite reasonably ask them to be there for us in the face of patently self-seeking attacks by disgruntled investors or ambitious regulators.

We do our best at guessing what might go bump in the night but we don’t hobble ourselves with precautionary rules based on imagined fears. In trying to stop what might go wrong we often put in place protections ensuring we do less right. Instead we deal with wrongs, one-off, as they arise. We can’t predict them all, but we write down the obvious ones just to be ready and we are ever-vigilant for new clever attacks on the agency by self-seeking individuals.


Our only rule is ‘what can possibly go right’. We don’t fill the cookie jar for trial lawyers. We keep normative rules to a minimum. We rely upon a common law approach to arbitration. We guard against falling victim to false generalizations based on hurtin’ from one-off wrongs. First principles and binding legal agreements are kept to a minimum. We’ll still suffer host government lawsuits, but when they happen we will be much better placed to fend them off.

We build a community of investors that understands ‘the why’ of our decision mechanisms, and willingly submits to these mechanisms. This takes education and participation. Investors ‘sit’ in the jury box and hear conflicting evidence as to whether or not this particular R&D investment should continue. There are no hard and fast rules. Our investors are educated investors and this takes time and commitment. We are a community of citizen – investors, not anonymous or absentee day-traders.

This is not your daddy’s business model.

Home Page September 2011

  • 1. For example, seasoned investors may attempt to re-purpose success assurance+ programs so as to expropriate wealth from future investors. We could set up hard percentages for these programs. But there are countless ways hard percentages backfire. For example, they would send a strong signal to the management of these programs to pursue a use-it-or-lose-it budgeting approach.
  • 2. Storing provides a brilliant narrative on the anti-Federalist position in the debates, those opposed to the U.S. Constitution. Storing describes how they were able to quickly amend the U.S. constitution to incorporate a U.S. Bill of Rights. The Federalists argued that whatever wasn’t specifically spelled out in the constitution was off-limits to the Federal government. The anti-Federalist argued: “Let’s agree on basic human freedoms no government, federal or state, should be able to impinge. Let’s write them down and include them in our constitution.” The anti-Federalist position, paradoxically, led to the vast expansions in the Federal government we see today, as basic human rights were expanded and protected by the Federal government. Similarly our investees, the owners of Intellectual Property, will insist their rights be protected through incorporation into our first principles as amendments.
  • 3. Off-label prescribing — the prescription of a medication in a manner different from that approved by the FDA — is legal and common in the U.S. Off-label promotion — the marketing of a medication to promote off-label prescribing, is illegal in the U.S. and has been the subject of many high-profile penalties and fines for drug manufacturers.
Further Reading
Reba Tull
Joined: 03/30/2011
So Many Problems...

Where to start. There is so much in this article that troubles me. Perhaps the best answer to all my complaints below is to view the article as an ‘ideal’ likely never to be achieved.

The only thing management respects is the threat of jail time. All else is covered by D&O insurance. In the U.S., if the Department of Justice isn’t involved then nothing happens (or amends are mere window dressing). It’s a problem of Other People’s Money+. Fines and penalties don’t faze me. I don’t pay them so I feel no need (beyond that imposed by my official position) for regrets+ or to make amends. If you get rid of rules you remove the threat of jail and you open yourself up to greater malfeasance and corruption.

Corporate rules also inform host government prosecutors. They reach into corporate rules, procedures and bylaws and use breaches of these as evidence of deliberate malfeasance – from which they segue to the harsh penalties provided by host government laws. You’ve made it harder for prosecutors to throw wrongdoers into host government jails.

As someone accustomed to the rule of law, I’m feeling quite vulnerable. This is quite a complex game you’ve set up. You’re asking me to commit money or my intellectual capital+ based on ‘trust in the system’. It’s not clear how I’m going to achieve that level of trust without having already been through your investor conditioning.

Judges are people too. You haven’t told us how you keep them honest.