Background and Understanding

Location-location-location.

You intend to spend $1 million building a house. In our community it can be worth $10 million. In that community it may be worth $1 million. Our community provides the best schools, the best public services, the best neighbors, and a community block committee dedicated to maintaining and raising housing values for all its members. That community has terrible schools, no public services and neighbors with cars jacked up on cinder blocks in the front yard.

Community is a major contributor to asset value. It's a multiplier of asset value. Although with Intellectual Capital⁺ we have no bricks and mortar and we won’t have our neighbor’s sewage running through our streets, the comparison still fits. Intellectual Capital shares psychological attributes with real estate investments.1 Investors and investees learn to view these assets in terms of their potential as members of a nurturing, vibrant community.

De Soto, in his book The Mystery of Capital (2000), gives results from a global survey of asset values of squatter ...

• 1. Unpredictable R&D⁺, our investment target, is an intellectual capital.

Citizens and Unpredictable R&D⁺

We don’t just want any investors. We want our investors. We invest heavily so investors will stick around. We employ a perpetual fund⁺ to provide predictable funding for unpredictable R&D and we seek corresponding perpetual investors for that fund.

We seek citizens within whom we can build love of institution. These are investors who understand that taking care of the community leads to better results from all investments. Our investments are unpredictable enough. We don’t need more unpredictability coming from the investors. We need steadiness of funding, reasonably priced, and acceptance of the nature of unpredictable R&D. We get all this from citizen – investors.1

• 1. The economy comes first. No amount of hand waving can make up for poor economic performance in any community. From a selfish standpoint we seek citizen – investors for three reasons 1) lower cost of capital, 2) reduced volatility in funding availability and 3) increased long-term safety for the funding agency⁺. All three of these eventually pay back benefits to investors. For example, a lower cost of capital allows us to fund more

We’re not building widgets here. Bribery, cajolery and punishment do little to spark the creative spirit (except perhaps in unintended ways). You get the best out of creative people by having them reach into themselves and pull out their own best. This applies as well to how we fund our work. How do we place that investment dollar so as to best elicit creative solutions from investors and researchers? Unfortunately creative people sometimes get a little too creative.

Below we discuss what can go wrong, based on a review of past wrongs in firms with missions similar to ours. We list specific dangers and describe precautions we have taken to protect against them. These are a sampling but are among the most important for our understanding.

Systemic Failures

Systemic failures can bankrupt an entire enterprise. Each investment within the funding agency⁺ may be doing fine, but management over-extends credit lines and places the entire enterprise at risk. Or, agency management⁺ picks a fight with the U.S. Department of Justice, and loses. Systemic risks are often precipitated in financial, contractual or regulatory failings. They are often due to ...