The iEnterpise: A New Type of Corporate Entity
“You’re a communist.”
Those were the accusatory words of our general counsel after she told me that she decided to leave big law firms because she wanted to be able to say no to clients that weren’t aligned with her moral and ethical values.
So it made me really ponder.
Especially since it was in response to my ranting about pharma companies and how I believe they prioritize fiduciary duty over morality when choosing, for example, to push drugs (where even efficacy could be questionable) just to generate profit rather than thinking with a “patient first” mentality.
Now I don’t want to say that every single person working in big pharma is rotten. In fact, on an individual level, I believe that most (including top level executives) would make the right decision and choose morality over profit if it was just on them.
However, the institutional framework results in us then acting according to the institutional structures in place.
When it’s normal to act in the best interest of shareholders then we tend to conform to the norm and go along with it rather than rebelling against the system.
Think Nazi Germany. Or the communist USSR.
Was every single person (or even the majority of people) living inside of Nazi Germany a rotten individual?
Although it’s easier to portray the enemy as black or white meaning in this instance automatically jumping to the conclusion that every German in the Third Reich was “bad,” obviously the truth is much more nuanced.
Thus my theory is that people on an individual level want to do good but there is no framework that allows them to do this so they just go with the flow and do what everyone else does.
Fiduciary duty & shareholder profit are the norm.
And if we try to question the capitalist system, because it’s easier to see things as black or white, we are automatically labeled a communist.
But what if you could do both?
We think you can.
Elon Musk mentioned in an interview regarding how he looks at investments, “I should say that I’m not really an investor in any normal sense of the word. I don’t seek to make investments for financial return. I put money into the companies that I help create and I might invest to help a friend, or because there’s some cause that I believe in or something I’m concerned about.”
Yet Elon Musk is at this very moment the richest person. In history…
What is Fiduciary Duty Really?
Let’s go back and look at this concept of fiduciary duty.
Now a fiduciary is legally bound to put their client’s (or whoever they are responsible to) best interests ahead of their own.
We think about fiduciary duty usually when it comes to finances — managing the assets of another person.
And when we think of managing assets, our default thinking is that this means maximization of financial value — profit while managing risk.
So all corporate documents such as fundraising documents thus by default are structured using this framework. But they are done so mainly because that is the standard.
But if we look at the definition carefully, the best interests could be defined differently.
What if those best interests prioritize ethics over profits?
And what if the backers would explicitly support this approach?
Look at OpenAI — the AI company co-founded by Elon Musk. OpenAI explicitly states in their charter:
“Our primary fiduciary duty is to humanity. We anticipate needing to marshal substantial resources to fulfill our mission, but will always diligently act to minimize conflicts of interest among our employees and stakeholders that could compromise broad benefit.”
If someone chooses to support such a venture, they understand what they are supporting and the rules that decision-making will be governed by.
With structures like this, the expectations from the beginning are completely different.
Our Proposal: The iEnterprise
What we’re proposing is an enterprise where morals & ethics trump profits — the iEnterprise.
The “i” stands for impact because the enterprise’s primary purpose is to maximize positive impact.
So for example in medicine, when making the decision as to how to structure a drug, the iEnterprise doesn’t design the medicine to make the patient dependent on it (meaning recurring profits) when in reality management knows how to create a drug that would cure the patient via a one-time application.
Of course the one-time application probably means less profits but it’s much better for the patient…
That doesn’t mean the iEnterprise can’t make a profit.
We see profits & self-sufficiency as critical for long-term sustainability and ironically, to be able to maximize impact (since the iEnterprise & individuals within it have the resources to do so).
This is also exactly why we decided to launch Cuddle as a crypto project. In our opinion, the crypto community and innovative funding structures offer (almost) the perfect platform to generate funding for impact with less strings attached than with equity.
We have a few tweaks to the current token funding structures but the crypto community is the perfect place to be able to design and have projects adopt this type of new enterprise.
In fact, crypto has already created a new type of enterprise via “tokens.” When buying tokens often through an instrument called a SAFT — Simple Agreement for Future Tokens — the SAFT & eventually the token design is actually specifically structured to NOT include an expectation of profit.
The reason for this was not so philosophical as it was practical — startups in the crypto space want to avoid having their “token” fall under security laws that generally govern equity structures. These security laws would then prevent them from being listed and traded on non-regulated crypto exchanges and would force them to do endless legal work (and come with very strict reporting and responsibilities) if they wanted to provide liquidity for their backers.
Thus what was born is that backers started voluntarily giving up their rights in order to buy these tokens.
This created a new type of enterprise which really operates on token value rather than the concept of profitability and cash flow.
This type of enterprise now thinks about “network value” and has much more flexibility than a publicly traded company.
We think we can go a step further with the iEnterprise…
The Impact Fund & iEnterprises
With the Impact Fund (aka the “iFund”), these are exactly the types of projects (and founders) we want to back — projects where there is a clear vision of making impact while built by founders with deep values & legally structured with a fiduciary duty that prioritizes ethics over profits.
But we want to make the Impact Fund long-term sustainable hence why if there is potential to increase the value of an investment (without sacrificing the fund’s fundamental values), then we are happy to do so because that will result in the Impact Fund not having to close once all capital is deployed.
Of course shelters, charities & other organizations are supported as well (as long as we believe their is tangible impact) so not all funds are deployed as investments into iEnterprises.
However, we believe that with this approach, the Impact Fund can continue in perpetuity even past our lifetimes.
Is the Impact Fund Structured as an iEnterprise (or an iFund)?
We thought about this very carefully because this is a critical decision for long-term viability.
Should the Impact Fund be a private entity?
A foundation?
A DAO?
Technically speaking, the first Impact Fund is not a “fund” since there aren’t any LP’s (Limited Partners aka investors).
But we feel that again it’s just like with crypto and the iEnterprise structure.
For some reason, there is still a human need for profit. It motivates individuals, makes work more exciting.
And we have never tried to suppress this. We’re just advocating responsible profit.
We also considered projects we’ve advised, invested into & monitored that have DAO’s and foundations. We were never impressed. We actually felt the “socialist vibe” in terms of talent that was in leadership positions in these organizations.
So ironically, by keeping the “for-profit” part, we believe that we can maximize long-term impact.
We believe this also allows us to attract the best talent possible to help with the Impact Fund.
Our structure gives our team a unique opportunity to both feel growth (including financial growth) and deeper meaning. We can give them financial packages in-line with the market and potentially make them even more money.
Ironically, we actually feel that this approach where the benefit is prioritized over financial maximization actually in the end often results in even greater financial value. Again, look at Elon Musk. Push product (and benefit to everyone involved) in a practical way and profits come naturally.
Furthermore, we believe that we are recruiting team members aligned with our core values therefore we are happy if they are in control of financial resources. We believe that if individual team members also accumulate significant financial resources, they will use them responsibly and deploy them in a way that maximizes positive impact on the world.
We’d rather have our own team members in control of these resources since they are aligned with our values compared to most others in the world.
Implementing the iEnterprise: An Iterative Process
Although we see this as the structure for the current Impact Fund, we see the iEnterprise as an iterative process that will continue to evolve.
It’s a discussion (and an experiment) as to how to implement in the best way possible to achieve this vision.
We are open to discussions, new structures and potentially even creating new iFunds (or having the community create iFunds) with different values, use of funds and visions.
In fact, we encourage community members to consider this because only if we empower the wider community will we truly accomplish our mission to spread these ideas.
We will monitor these closely to see if we can improve our own structure or the structure of new funds we may launch to better achieve the vision we originally set out for.
But first we have to create the proper legal framework for the first iEnterprise, which could be a very lengthy process (as expected when dealing with anything legal)…
So in the meantime, while we build Cuddle and work on these new paradigms, read more about the Impact Fund here.
