1. The Fairshare Model
for Raising Venture Capital via
a Crowdfunded Initial Public Offering
Highlights of a book under construction
by Karl M Sjogren
Coming in Q4 2013

2. We Need Growth! We Need Jobs! Yes!
Yesterday!
Big Problem!
Something ought to be done!
Where’s the leadership?
I’m worried about the future. Why isn’t it happening?
Occupy Wall Street!When will recession end?
How do I prepare for the future?
This recession is different—we need new solutions!
3/3/2013 Property of Karl M Sjogren 2

3. What’s the Solution?
3/3/2013 Property of Karl M Sjogren 3
More
education!
Get rid of
job-killing
regulations!
Government – Business Partnerships!
Entrepreneurs!
Invest in the
future!
Better
education!
Strengthen bank regulation!
Throw the bums out!
Focus on and fix
the problem!
Create
opportunity!
Get
government
out of the
way!
Better
regulations!
Banks that lend
Crowdfunding!
Reduce the deficit
New
Attitudes!
More venture
capital!
Competent
Government!
Fix the housing
market!
Get ready for the new economy!
Yoga!
Healthy food!
There’s an app
for that!
Encourage
innovation!
Support job-
creators!

4. 3/3/2013
Tax Policy
Regulatory
Reform
Restrict
Imports
Promote
Exports
Just Wait
Out Cycle
Gov’t
Spending
Education
Fiscal
Policy
How to Spur
Growth?
Labor
Law
Environmental
Regulations
Product
Liability
Quotas
Tariffs
Financing
Trade
Agreements
Rates
Structure
Incentives
Money
Supply
Interest
Rates
Improve
Access
Reform
Reduce
Spending
Increase
Spending
Any Other Ideas?
Property of Karl M Sjogren 4

5. ?
They identify four strategic initiatives :
1. Encourage immigration by high-
skilled foreigners
2. Improve access to capital for new
firms (subject of the Fairshare Model)
3. Speed up commercialization of
innovations at universities
4. Regulatory reform
Many good ideas are being discussed.
For example, those put forth in Better
Capitalism by Robert Litan and Carl
Schramm
3/3/2013
Link to Must-See video sketchbook for Better Capitalism (3 minutes long)
http://www.kauffman.org/sketchbook.aspx?VideoId=1845640971001
Property of Karl M Sjogren 5

6. Pathways to Improve Access to Capital
Wealthy individuals
(a.k.a. Angel Investors)
Private Sector
Equity
Accredited
Investors Unaccredited
Investors
(a/k/a general public)
Loan
Guarantees
Government
Tax Incentives
to spur equity
investment
Regulatory Reform
(e.g. JOBS Act)
3/3/2013
Venture Capital &
Private Equity firms
Fairshare Model target audience
Debt
3/3/2013 Property of Karl M Sjogren 6

7. 3/3/2013 Property of Karl M Sjogren 7
Basic Securities Term Definition
Issuer Company selling securities (stocks, notes, bonds)
Accredited Investor • Someone allowed to invest in start-ups and other
private company transactions.
• Defined in Federal securities law. Criteria: Wealthy
enough to absorb full loss of investment
• “Angel Investor” = accredited investor who invests
their own money (not a fund)
Unaccredited Investor Anyone who is not accredited (general public)
Broker-Dealer Underwriter, investment bank, brokerage firm, etc.
• Regulated by government securities agencies & by
self-governing organizations
Private offering Only Accredited Investors may invest
Public offering Anyone may invest
• Issuer must first file disclosure documents (registration
statement) acceptable to securities agencies

8. ENTREPRENEUR:
I have an idea but
need money
INVESTOR:
How much of your
company do I get if I
give you the money?
The Fairshare Model Begins Here
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9. Fairshare Model Basics
• Two classes of stock--“Investor Stock” & “Performance Stock”.
• Investor Stock can trade in the market. It is issued for capital.
• Performance Stock is not tradable.
• Issued to insiders, converts to Investor Stock based on performance.
• Performance measured quarterly.
• Measures = revenue, earnings, new raises of capital, Investor
Stock price appreciation, etc.
• As a class, Performance Stock controls has half voting control.
• Like a stock option that votes, and vests with performance, not the
mere passage of time.
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10. Target Companies
Companies that adopt the Fairshare Model:
• May have already raised 1-3 rounds from accredited investors.
• Want to raise $2 to $10 million in public venture capital.
• Can identify an affinity group of likely investors.
• See advantage in having stock broadly held by the public.
• Will use Performance Stock to attract and motivate talent.
Such a company will necessarily:
• Be confident it will deliver performance that results in conversion of
Performance Stock to Investor Stock
• Let public investors invest at low valuation.
• Offer protections provided to venture capital funds.
• Embrace the concept of investor oversight.
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11. Possible Outcomes for Issuers
Some companies will fail (start-ups face long odds).
Some will be acquired by other companies.
• Performance Stock conversion will be determined by the holders of
Investor Stock and Performance Stock.
• Performance Stock deserves compensation if purchase price
delivers attractive return for Investor Stock.
Some will raise more capital & trade on an exchange (NASDAQ).
• The growth may involve acquiring other companies.
Some may convert to a conventional capital structure.
• Tried it, did not like it.
• A majority of each stock must agree on a new structure.
3/3/2013




Property of Karl M Sjogren 11

12. Snapshot
Voting Control
Investor Stock
Performance Stock
Ability to Trade
Investor Stock
Performance Stock
• Performance Stock can never trade.
• Investor Stock is registered with SEC.
• Trading market likely to start off thin, then
improve as company performs.
• Matters that would require approval from
each class of stock:
• Board member election
• Change to conversion criteria.
• Compensation plans involving Investor Stock.
• Changes to capital structure.
• Acquisition matters.
3/3/2013 Property of Karl M Sjogren 12

13. Who Will Like What?
3/3/2013
Key Attributes of the Fairshare Model Investors Companies
Access to equity venture capital  
Pre-IPO angel investors have an exit  
Performance Stock is a POWERFUL competitive
advantage for managing human capital  
Broadly distributed Investor Stock creates evangelists
to promote the company’s interests  
Insiders do not get rich just because there is an IPO  
To sell stock, must have bought it or earned it   
Investors and insiders share voting control   
Ability to acquire other companies with public stock  Property of Karl M Sjogren 13

14. Fundamental Problem of a
Conventional Capital Structure
Assessing an early–stage company is as difficult as divining the adult
achievement of young child.
3/3/2013
A conventional capital structure requires a company to strike a
valuation at each round of investment that pre-supposes performance.
Accredited investors are protected
from overpaying for a private
venture capital deal.
A conventional model is NO
PROBLEM for them.
Investors in a public venture
capital deal are not protected
from overpaying.
A conventional model is a BIG
PROBLEM for them.
But most don’t realize it.
• Indicators are there, but can be wrong or misleading.
• Valuation = Value of an idea, of future performance
• “The company is worth $100 million.”
Property of Karl M Sjogren 14

15. Overpayment Protection: Who Has It
3/3/2013
Accredited Investors
in a private venture
capital deal
OVERPAYMENT PROTECTION
Know the deal valuation
They know how to calculate the price to
buy the company, given the deal terms.
Get anti-dilution provisions
Provide price protection by re-pricing
investor shares lower if a subsequent
financing is at a lower valuation than the
round they bought into.
Investors
in a public venture
capital deal
NO OVERPAYMENT PROTECTION
Valuation-Unaware
Unaccredited investors do not know how to
calculate valuation nor its importance.
Issuers not obligated to disclose valuation, let alone
discuss why its reasonable. Unable to invest
earlier, small investors compete to pay “retail” for a
“wholesale” deal; they invest with the zeal of
“Black Friday” shoppers –but not for “deals”.
They have no protection from overpaying
Property of Karl M Sjogren 15

16. What is a “Venture-Stage” Company?
3/3/2013
• Market for its products/services is new/uncertain
• Unproven business model
• Uncertain timeline to profitable operations
• Negative cash flow from operations
• In other words, it requires investor cash to operate
• Little or no sustainable competitive advantage
• Execution risk; team may not build value for investors
A company with these risk factors:
Property of Karl M Sjogren 16
Many public companies list such risk factors in their disclosure documents

17. Public Venture Capital
3/3/2013
capital provided
to a venture-stage company
…is “venture capital”….
… whether its from accredited investors…
…or from public investors!
Same Girl, Different Dress
In substance,
Private Venture
Capital
Public Venture
Capital
Property of Karl M Sjogren 17

18. What You Pay to Play…
3/3/2013
… venture capitalist…
… who you are!
Who R U?
…depends on….
Let’s explore how
Property of Karl M Sjogren 18

19. Private Venture Capital Supply-Chain
3/3/2013
Some accredited investors invest only in the early rounds.
• Angel investors are early investors, but seek VC funds to for
rounds over $1-2 million.
• VCs with operational expertise are the “lead institutional
investor” (i.e., evaluate deal, serve on board of directors) for
other investment funds that prefer to follow.
Others favor later rounds, after its apparent the company
is on-track to have an IPO or be acquired (i.e. exits are
visible).
Property of Karl M Sjogren 19

20. Classic Conventional Valuation Trend
3/3/2013
The valuation for accredited
investors begins low and
increases over ensuing rounds
to the price offered to “public
venture capital” investors.
Example
Property of Karl M Sjogren 20

21. What Best Explains the Trend?
3/3/2013
Risk reduction?
Performance?
What the Next Guy (the public
or potential acquirer) may pay?
The Fairshare Model book will posit a
Next Guy Theory for buyer behavior
• To a degree
• See Risk Factors in a IPO prospectus
• Guestimate: this explains 30-60% of
the late pre-IPO valuation increase
Property of Karl M Sjogren 21

22. Who is the Next Guy
for Unaccredited Investors?
3/3/2013
There isn’t one…except
other public investors
Downside Exposure
Public investors at
greater risk of
overpaying for a venture
stage deal than pre-IPO
investors
Property of Karl M Sjogren 22

23. Possibilities: Conventional Model
3/3/2013
Valuations between
years 2-8 in this
example are better
explained…
by who the Next
Guy will be…
than by what
the company’s
performance is.
Property of Karl M Sjogren 23

24. 3/3/2013
Possibilities: Fairshare Model
Same example,
but the valuation
(aggregate of Investor
Stock) is explained by
performance,
and it’s shared by
investors and
insiders, as
Performance Stock
converts to
Investor Stock.
IPO valuation comparable to what a VC might pay.
Property of Karl M Sjogren 24

25. How to Begin?
Fairshare Model = disruptive innovation in the structure of securities.
– “Crowdfunding” is an innovation in the distribution of securities.
Innovations are challenging if they are not pushed by suppliers,
demanded by customers or required by government.
– “Dutch Auction” approach to IPO pricing. Good idea! Not pushed by “suppliers” (issuers,
investment banks), demanded by customers (those positioned to “flip” shares) nor required
by government or the self governing organizations that oversee exchanges.
Fairshare Model does not benefit existing players.
– Venture capital and private equity funds; investment bankers; Investors positioned to “flip”
hot IPO shares, or, IPO companies with a conventional capital structure
Issuers will not adopt it unless it helps them raise capital.
– General investor interest must be there.
It’s beneficiaries don’t realize they get a bad deal now, or, feel helpless.
– Valuation-unaware
– Weak understanding of investor protections
– More concerned with access to deals than with terms of deals
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26. Concept Gap
3/3/2013
Where the
Fairshare
Model is now
Concept
Gap
Should Investor Interest
be significant, some
issuers will adopt it
If Early Issuers and
Investors benefit,
more issuers will
adopt it
Should it become popular,
capitalism will have evolved
in interesting ways.
Better Capitalism!!!!
Property of Karl M Sjogren 26

27. Help Narrow the Concept Gap
If the model appeals to you, please create buzz .
• Talk about the Fairshare Model
• Spread the word via social networking
• Join the community at www.fairsharemodel.com
to hear what others have to say—favorable or not.
I will publish a book on the Fairshare Model by Q4 2013.
• I seek critical input from attorneys, financial
experts, angel investors, etc. while working on it.
Companies: my focus is to define a credible & attractive
equity capital option for you; if investor interest is there,
the next step will be to define “how-to” guidance.
Email me at karl@fairsharemodel.com
3/3/2013
The Fairshare Model
Needs You!
Property of Karl M Sjogren 27

28. This is the construction of the
Fairshare Model.
It’s mission: to explore
new relationships between labor
and capital,
to help entrepreneurs finance
companies with public venture
capital,
to boldly go where no capital
structure has gone before.
3/3/2013
Better Capitalism…the new frontier
Property of Karl M Sjogren 28