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September 21, 2006

How to Save Iraq - Borrowing an Idea from Venture Capital

posted by MR WAVETHEORY at 9/21/2006 05:23:00 PM
Recently, I wondered how venture capital concepts can be used to save Iraq. I struck upon an idea which I think works very well in growing venture backed companies. I think it will work for Iraq too. It is called giving Iraqis equity.

What is equity?

Equity is ownership. In venture backed companies, everyone from founders, managers, employees, and even administrative assistants get equity in the form of stock options. Options are like a kicker that can make you very rich. For instance, between the time of Google's first investment to today as a public company, Google stock has appreciated a over 10,000 times. Yes, that is 10,000! Not 1,000. Not 100. Not 10. But 10,000 times.

Why does equity motivate people to do the right thing in venture backed companies?

In venture backed companies, equity is not tradeable which means the owners of stock in a start cannot sell it, because there is no one who wants to buy it. There is only one way in which employees and founders and investors can sell it. That is when the company becomes public or a company is sold. So, everyone works in the best interest of the company. After all, an extra million or two would be nice in the bank account!

How can equity incentivize Iraqis?

Think about Iraq as a mini version of Google. There are lots of resources. In the case of Iraq, there is oil. Lots of it. In the case of Google, there was talent - smart people, and lots of it. Google gave equity to all its employees so everyone shares in the wealth.

Pop quiz: How do you give equity in a country?

It turns out, in the case of Iraq, there is a lot of wealth already. Give everyone a share of it. In fact, we were the first ones to figure it out in Alaska. Alaska, like Iraq, has lots and lots of oil. And what do Alaskans do with it? They give all that money from oil to themselves in the form of an annual check. Every Alaskan resident is eligible. Last year, everyone in Alaska got about $845.76. In 2000, it was even higher - $1963. Alaska has perfected equity ownership in the country. They even set a fund called the Permanent Fund.

The Iraqi Solution - Setup a Permanent Fund for Iraq

Distribute wealth to Iraqis and watch what happens. In 2005, average Iraqis took home $3,400 according to the World Fact Book. If they got an extra $800 in the mail every year for being good citizens, imagine what they will do to the oil pipelines. Blow them up? I don't think so. Given the fact that Iraq has alot more oil than Alaska, the check would probably be more than $800. It might even be a couple of thousand dollars. Now, that I am sure will make a difference.

So, next time you think about Iraq, think about it from the perspective of a VC or a true entrepreneur. Think about how to motivate people to do the right thing. Venture capitalists are notorious for having perfected it. Now, reuse the concept of equity ownership and use it to create wealth, not just for a few Googlers, but for an entire country!

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