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nicholasdrake | 11 years ago
well this is kinda random but my best friend and i are looking to apply to yc, our idea is 'A new asset class: Human capital. By paying for a students university education who in return give back a percentage of their annual income (probably developing world) we allow investors to make long-term bets on specific industries and countries.
Anyway our first draft of our yc application is here , it will be great if you can take a look and give some feedback... https://news.ycombinator.com/item?id=9224487
avnfish|11 years ago
Let’s compare Seldon to the financing structure of Make School (see: https://www.makeschool.com/admissions). It seems to me that your idea has three unique selling points: 1) it can cover the cost of going to any university, 2) % repayments are lower and last much longer and 3) student repayments become a tradable asset class. This has pros and cons. Pros: students have total control about where they want to study, return can be much higher and more kids get an education. Cons: students are incentivized to make expensive choices, education is commoditized, return is much slower (you might not break even for decades) and ‘human capital’ (as an unavoidably opaque financial product) is high risk. I think your biggest obstacle will be overcoming volatility and opacity – you’ll need to prove that the candidates you finance will provide good return on investment. What is it about Seldon that means they can offer a student loan a traditional Chinese bank cannot? Maybe adopt some of the strategies Make School and YCombinator use – a rigorous (and prestigious) application process, guidance, relationship building, sense of community, commercial nouse ect. I wouldn’t sell the idea as a cold-hearted asset class at the start and I certainly would change the name – it undermines the true value of your project. Make human capital a little more…human? Besides, tradable asset classes only really emerge once a financial product is big and established enough to be traded.
Other points: • 2% seems too low? (I’m not a numbers guy) • This business would not work in the UK (~50% of students never pay back the full amount they borrow…so no financial incentive to use Seldon) • Top US schools usually cover all their students financing needs – so not too much of a market there unless you want to grab higher-risk candidates. (MBAs are the BIG exception – probably some good opportunities there). • Highlight who you both are - your past achievements and work (because it’s good). • Take your private contact info off of the website (it’s in the public domain, yo). • I like the basic idea – but you need to be more conscious about the fact you’re dealing with 18 year olds and not, say, crude oil.
nicholasdrake|11 years ago
nonetheless in addition to what you said i would point out one more advantage for students (probably the biggest one) which is repayments are dependent upon your situation (because it's a percentage of income) so if you're 'unlucky' and can't find a job or only a low-paying job you pay less - which is good if you are a risk-averse/poor student..
in terms of the cons, i actually think hte aggregated income streams are likely to be very stable.. despite it's equity structure we see it more as a fixed income product than a vc equity product (stable but lowish ~5% returns). the moral hazard is an interesting issue that we hadn't thought about much - i suspect the larger issue what not be in their university choice but rather their post university choices... currently faced with debts students would look to find a high paying job immediately, whereas with our instrument they might travle the world care free knowing they don't have to pay anything unless they get a job? in terms of becoming a tradable asset class that is very much a long-term potential. we could end up trying to be originators for asset backed securities but right now our thinking is it's better for us to actually invest the money ourselves and get returns ourselves. the opacity issue is interesting - opacity from whose perspective? it mihgt only be a problem if it's traded on markets right?
in terms of proving returns - at this stage we can collect data on graduate incomes and estimate returns but of course the proof will be in the pudding. our selection process for the students will almost entirely be delegated to the universities ie.. if you can get into the best university in india we'll fund you
i think the big positives which your analysis missed (and actually we're most excited about) is not the student side but the investor side in particular we think that long-run income streams are a much better proxy for country/industry success than betting on a specific company in that industry (what buffet calls trying to 'pick the winners'). for example suppose your bullish on chinese software as an industry... what is a better long-term bet? the very risky (although higher reward) vc bet of picking a particular chinese software company or sending 100 of the brightest chinese students to study computer science with the assumption that if the chinese software industry does well so will employees in that industry. furthermore, this will bring in a lot more capital to big risky capital-intensive projects and through tranching out the risk will enable much more investment and ultimatley innovation in our societies...
re: 2% yeah it may be without going into the numbers lol 2% requires average annual income to be 11x cost of university. in america if uni costs $30,000 that means we need incomes to be more than $300,000 which even with the fact we're hand picking the smartest students and the fact you have future economic growth (and inflation) over 35 years to help you out it doesn't seem like a good investment. in china though the cost of the best 4 year uniiversity (accomodation + tuition fees) ~$3,000-$4,000 so it seems very reasonable that average incomes coudl be 10x that (and we find that the data supports that)... obviously from an investors stand-point a higher than 2% interest rate is better but we're not sure how much students will accept so we're currently testing that (at the 2% level) with our chinese version of hte website and asking for interested students to email us..
i think it doesn't work in the uk because financing is readily available and cheap. in the us the story is a little different where if you don't qualify for free tuition (which the poorest students do) there can still be a credit constraining aspect to university choice... i think mbas and masters could be a real opportunity as you point out, because masters/mbas are more optional but can lead to a big iincrease in income for the student.
haha yeah we've reworked the who we are section, no point trying to be modest lol!!
haha yeah i forgot about that, i suppose adding my facebook just makes things worst right lol?