Why are most business investments in the form of common stock? The value of common stock is a function of perpetual cash flows. This is a blunt instrument. Many investors would love to take more surgical positions.
Seats let investors pick their spots. Investors can buy revenue bands with any expected payment date. They can choose anything from high-probability, short-term revenue (a debt-like position) to highly speculative, long-term revenue (an equity-like position). If the revenue is earned, the Seats contract pays, regardless of the value of the company.
Consider the following benefits:
Investors in private companies often expect to not see a return on their money for many years. In addition, the return is usually dependent on some type of liquidity event, such as an IPO or sale of the company.
With Seats, angels, VCs, private equity and hedge funds can structure equity-like positions with shorter time horizons that are not dependent on liquidity events.
An investor’s return on an equity investment is often dependent on the price at which the equity is sold in the future. The problem is that equity prices can dislocate from “intrinsic value” because of passive investing or unpredictable technical market issues.
With Seats, the return is solely dependent on a simple payment of a revenue amount. Investors can buy revenue bands without concern that their ultimate return will be affected by unrelated equity market factors.
Common stock is monolithic. Every investor owns a piece of the same thing and the price is the same for everyone. As any good marketer knows, market segmentation can maximize value for both the seller and the buyer.
Seats allows for maximum market segmentation. In fact, each investment is unique. Only one investor can own a particular revenue band.
As with mispriced equity, unexpected negative future events can spoil an investor’s return on common stock even when the current performance of the company is positive. Let’s say you invested in an airline in January 2018 because you thought the company was going to have higher near-term sales than projected by the market. The company’s sales were as you expected in 2018 and 2019 and then COVID-19 hits and the stock tanks. You were right about the sales, but you didn’t anticipate the pandemic and you lost money.
With Seats, investors can isolate risks. They aren’t directly exposed to the price of the stock and they can pick their time horizons.
In simple terms, it’s like horse racing. Not everyone wants to buy the horse. A lot of people just want to take a position on a single race. Seats now makes this possible for every business.