North-America Chinese Professional Business Plan Competition

The UCAHP Chinese professional business plan competition was held on Jan. 9th. 20 startup teams, selected among more than 100 submissions, presented their ideas and business plan, in front of judge panel consisting of top-tier VC's and angel investors, such as Northern Light, GSR Ventures, West Summit Capital, NEA, Sierra Ventures, etc. 

Among the contenders, I was particularly impressed by the following teams. (the winning team can be found here at UCAHP).

• Zebra - multi-media storage and bandwidth optimization
• PalMap - indoor map for shopping complex and convention centers
• BCBM - converting low-value coal into natural gas
• Clean Solar - Titanium dioxide solar power panel
• HealO - wound care chamber treatment

What I observed and learned was that two types of ventures have higher probability of succeeding, or surviving:

1. Deep technology accumulation in solving a bottle-neck problem in an established market;
2. Creative user experience, or business model, that acquires user base rapidly in a fast growing new market;

In both cases, business operation is as important as technology, in terms of sales channel establishment, average cost of per customer acquisition, and brand building. It all depends on the founding team, and a bit of luck.

Idea 44: Stock Exchange For Residential Houses - Own A Piece Of My House

WSJ reported in May 2009 that more than 20% of US home owners now owing more than their houses are worth. If houses were stocks, they probably would have exited the long position by now. Why should houses be so illiquid?

The value of a company is extremely difficult to calculate, especially when intengibles are involved. In comparison, the value of a house should be much simpler. Why can't we operate a residential house ownership the same way as a corporation?

1. Let's have quarterly and annual reports. Fixed the roof, upgraded the appliances, or new carpets? Put it in the report. Let's have some debt, equity and cash flow numbers to back it up.

2. Partially separate the ownership and the right to live in it. Split the ownership into pieces so that anyone can purchase and invest.

3. Have a board of director and let the board decide major upgrades and home improvements. Of course, if you own more than 50%, you pretty much have the say.

It doesn't have to get so complicated by inviting thousands of share holders. In fact, issuing 20 shares can probably do the job.

Yes, this will likely cause some rapid fluctuation of home values, but no, it should be much safer than the hyper-leveraged mortgage-debt-equity derivative manipulations, which had disrupted the financial system in the first place.

photo credit seier

Idea #27 Virtual Stock Market for Non-Profit Initiatives

Always, too many initiatives chasing too little resources, and attention.

Big world-changing impact requires large long-term investments and razor-sharp focus. Think about what it takes to fight against AIDS, hunger, climate change, energy shortage, ......

Here's an idea:

Create a world-wide virtual stock market for non-profit world-change big initiatives.

Contributors "donate" for an initiative, based on her judgement of the potential impact, through purchasing its virtual stock.

Virtual stocks are traded among contributors.

Virtual stocks are measured by P/I, price / impact, ratio.

Funding flows to the initiative that has the biggest impact. The price of a virtual stock would not fluctuate much, think about Berkshire Hathaway. However the long term impact and steady progress of big initiatives will stand out from the crowd.

This is a capitalistic way of doing social reform. Much of the sophistication involved in the world financial market can be applied to the non-profit initiatives. As Alan Greenspan rightly pointed out in his book, The Age of Turbulence, the hedge-fund industry is like lubricants that ensures the machine of the world economy runs smoothly.

Thus in the same way, we make sure that the limited resources that we have today are most effectively used for making the world a better place.

Let me know your thoughts, or how feasible this is.

photo credit southernpixel

Idea #25 Fund Raising Through Crowd and Peer-to-Peer Banking

Capital is the life blood of the free market economy. The future of capital will not be the conservative bankers and the over-paid investment bankers. The future of capital, I believe, is the crowd, i.e. crowd funding and peer-to-peer banking.

Rather than counting on a few venture capitalists, crowd funding raises fund by appealing to a large, really large, number of ordinary people for small donations or investments. So far it has worked brilliantly for a number of cases in the media industry, film and music making, by attracting funding from the community of future customers. See Wall Street Journal, Time, and PBS.org.

By appealing to the crowd, i.e. the long tail, it significantly lowers the risk on the investor side. At the same time, the project needs to be so appealing, it needs to acquire a large audience, either through the statue of the initiator or the idea itself. I guess this is also why it has worked for the media, but not yet for the technology industry, not enough geeks.

There are also regulations from the Securities and Exchange Commission that limits the form and amount of equity investments, for instance lending site prosper.com is working hard to gain access across all states. However, I believe as technology and innovation marches on, the regulators will have to adapt.

Entrepreneurship is the ultimate driver behind long-term economic growth. We need to enable entrepreneurs to pursue their passion by allowing capital to flow as liquidly as possible to the innovators, inventors and game changers.

Peer-to-peer banking enables that. It significantly lowers the risk on the buy side, and bypasses the resistive conservative bankers in the middle. We need non-profit peer-to-peer loan service Kiva.org to thrive, and we need for-profit peer-to-peer banks.

Feasible? Impossible? Please use the comment form to give your feedback.

Idea #16 - Predicting trading pattern through data mining

Predicting the trading decision of an individual is extremely difficult, however predicting the decision of the entire universe of investor community might be slightly easier if we consider a model that takes into account of herd behavior, or information cascade, accounted for in idea #12.

Assume we have the buy/sell trading data of all individual investors and institutions for the past 20 years (well, it might be difficult to obtain, but let us assume we have access). We can very well study the decision making process of the investment society as a group, testing the accuracy or predicting power, of different mathematical models for herd behavior, under both normal trading environments, as well as extreme conditions such as in 1987, 2001 and 2008.

Probability theory tells us that the aggregate of a group of random variables with i.i.d (independent identical distribution) behaves like Gaussian, i.e. the likelihood of all individuals making the same decisions decreases exponentially. However, in a social environment, this is far from reality, i.e. an individual's decision can be heavily influenced by peers, and the likelihood of making an emulating or similar decision increases greatly as more people start to join the herd.

In other words, the probability of an event that 99% of a bond holder decide to dump it at the same time is astronomically small under Gaussian. However, it is a different story under an information cascade model. By how much? It will have to be tested by the trading history of the herd.

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Idea #12 - Social herding and game in investment strategy

At a time when information spread in lightening speed, and the financial market is enormously fluid, social behavior of the human society must be seriously considered, in addition to fundamental analysis and technical analysis, when making investment strategies.

Why do we herd ?

• We (not just individuals but fund managers) follow investment advise of the same big shots.
• We observe other people's decision and emulate.
• We read the same news and reach similar conclusions (mostly).
• and more.
  

How to exploit this? It would be far too easy if game theory can solve it already. It assumes that individuals are rational. However, we humans are not rational, far from it, from an economic point of view. (If you disagree, you should read Dan Ariely).

It has to do with psychology, sociology and randomness. I am yet to see a mathematical theory that will solve this problem. It would be Nobel worthy. Meantime, when you make the next investment decision, think twice, about how other might behave... ...

Note, some practical advice were offered by Nassim Nicholas Taleb.

Update, economists study this phenomenon under the name Information Cascade.