Problem & Solution: Inspired by Malcom Gladwell’s speech to Microsoft Research in the talk Outliers: Why Some People Succeed and Some Don't.
“This is a totally wacky idea that I've been talking about with some people. Suppose you set up a system that allowed individuals, groups, or nonprofits to profit from raising cap rates [capitalization rates].
Suppose I go into South Central LA and select a first grade class. I know actuarily speaking by looking at the those kids and their socio-economic background that the amount of federal tax those kids will pay actuarily twenty to thirty years hence is probably close to zero. You have to join you to really be a member of the middle class to pay taxes these days and the number of kids in a the worst part of South Central who end up in the middle class is very, very small. So the cap rate (if we define capitalization as joining the middle class and paying federal taxes) in a bad neighborhood in South Central is pretty much a zero.
What if we said to anyone that ‘If you can raise the capitalization rate in that group, I'll give you a cut of their federal taxes.’ What if you could venture capital groups of kids? I’m just doing this as a kind of thought experiment. Because we're getting zero federal tax dollars now, what would be so wrong to say ‘If you Joe Smith want to invest in this class of kids for the next 25 years I'll give you a fifty percent of the tax revenue in perpetuity!’ In other words, if you can get you know three computer programmers and two doctors out of this class of thirty kids you're gonna be a very, very rich man. And by the way, society will be way better and the kids will be happier!”
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Contributed by: Michael Bervell (Billion Dollar Startup Ideas)