Indulge the (finance) nerd in me. You can take the coding out of a nerd, but the nerd never leaves the post-coding, well … nerd. So while I rejoiced in functional programming language heaven during my years as a programmer (heck, I even wrote Clojure in Action), I have not written code in a number of years. Sadly.
So I made a bit of money when we sold Runa, and I decided to do the first thing most people shouldn’t do: became an angel investor. Then again, most people don’t do tech startups either.
I did good as an angel, a string of great founders just happened to land on the table. At first.
And then not so much, because as I always say, we make money as entrepreneurs, and lose it as angels. I didn’t like this at all, it just didn’t make sense. Many of us were engineers, no less … how can this be such an inefficiency? Think about it, only 5% of startups make it big. That’s 95% failure rate. Etc, etc. Wow, sure seemed like there’s plenty of depressing stats like that one, which translates to a tremendous opportunity, but mostly failed investments.
So what chance does the average investor have?
This was the problem placed before the functional programming geek that I am.
The answer, of course, is to diversify and select better winners. This implies one is best served with a wide portfolio of super early stage companies, and then pick the winners at every phase as these seeds grow up. A sort of go wide, then deep. It makes sense. Any good book on investments will tell you this. In fact, the best advice for the average investor is an index fund.
As we shall see, an index fund is a general case of the Functional Finance model.
So, most people would be best served investing in index funds, which track the performance of the market such as NASDAQ or the DOW. However, our nerd waves kicked in, and we built a new use case for the ComFac engine we had already created (Shoptype).
The resulting AwakeX engine is a CapFac, or a Capital Facilitator, and uses ComFac data, as well as underlying Internet activity data (via Opentangle) to bootstrap new AI algorithms that can optimize functional derivatives of the underlying data sources, aka businesses on Main St.
Map/Reduce for Investors
As we have said, the job of investment managers is to do well for their clients, and in that process, do well for themselves. There should be no moral hazard, just alignment and upside for everyone involved. This ought to be achievable on entirely digital rails, given that the Internet, is well … digital.
So our job is create a system of finance that can apply functions to incoming streams of network activity data, including marketing, engagement, and sales data across all channels of each underlying businesses.
Again, like we said earlier, the broadest form of this approach is the index fund.
And the way the system devolves to the basic index fund is very simple – map over all available businesses, and reduce them to a single security that represents each businesses equally in the reduced security, and say weighted by its market-cap.
If all the businesses on the Internet were connected via the ComFac engine, you would get an index of all Internet-enabled businesses.
Is such a data transformation possible? A chain that connects the dots from PayFac to ComFac and now to a CapFac, resulting in alpha?
Go broad, go deep
So now that we have a functional map/reduce system, what can we map over, what kind of selection criteria can we use to pick out what we want to invest in? Or perhaps more appropriately, as wealth managers, can we find and bundle relevant investment opportunities for clients, that suit their goals across one, two, three, or even four bottom lines?
In order to make this possible, we need live data from underlying transactions, that is from the businesses and ideally also their supply chains.
So these businesses are what is generally termed as Main St, and includes brands, online and offline retailers, wholesalers and manufacturers, raw material suppliers, real-estate assets and operations, and so on.
In the abstract, of course, they’re all just cashflows, connected via a digital infrastructure that enables a new kind of seeing, one that we call Opentangle.
This seeing is a broad market observer, which is able to selectively filter the stream of qualifying transactions as per investor interest, and this same focused seeing is able to create an instrument that leverages those profitable cashflows.
So the whole market is the broad base from which various layers of filters can whittle down the streams of cashflow into interesting ones that match the remit of the funds being invested. One is able to start totally broad, and go as deep as one wants … indeed, the resolution is a line item such a as that Pumpkin Spiced Latte on a customer’s itemized receipt, or that 50 lb. bag of coffee beans from the roasters across town.
See them, filter them, select them, slice and dice them, package them back up.
Totally digital, totally transparent, welcome to the world of real-time derivatives and CapFac engines.
Investing in known markets
This is how investment bankers and wealth managers will be able to serve their clients better, as they are able to match the needs of both sides instantly, on a global market network, powered by real-time activity streams.
And an AI can make use of knowledge to assist investment decisions for clients’ and personal funds alike. Again, all on a digital platform that is able to settle both Main St and Wall St transactions on a single global asset ledger.
Life becomes simple when looked through a functional lens, without the baggage of the past, or “how it has always been done”. Welcome to new type of Functional Finance!
Recall that AwakeX is a data processor, and as a CapFac only facilitates decision making. It takes no action by itself, and it needs human beings to use the intelligence produced.
These humans might need to be licensed operators to use the CapFac platform, depending on the jurisdiction, and the type of deal. As an example of licensed brokers, financial advisors and wealth managers need to be licensed, whereas their clients need not be licensed to deploy their own funds anywhere they choose.
A different type of deal emerges where there is no involvement of an advisor or a broker, and only principals are involved. In this case, the CapFac operator needs no license, as they are just building new companies or derivatives.
So broadly, we enable two types of deal making.
Advisors need to be licensed, and if the deal does not have Awake on the cap table in a significant way, then the operators of AwakeX must be licensed.
In the case that Awake is on the cap table in a significant way, the deal becomes a Principal-managed deal, as opposed to an Advisor-managed deal.
When are no brokers or licensed parties needed? AwakeX is open for business.
When parties A and B want to do a deal, and want to partner with the CapFac to use the AI, a new co that captures the parameters of the deal, with the CapFac as a principal partner in the deal, is created. The new co may also include others who co-created the deal as principals.
These types of deals remove the need for a licensed broker or RIA, recognizing and attribute the exact value co-created by each party on each deal, and that the AI has immeasurable, intangible value, and is the reason why is the principal on these deals. This infinite value addition is the reason why the platform itself becomes an entry on the cap table for such deals.
From PayFac to ComFac, BankFac, and CapFac
We will have a lot more to say about BankFac aka the “treasury” or a “central” banking facilitator.
We know what a PayFac is, and we now know what a ComFac is and what a CapFac is.
While a PayFac is a regulated industry and requires appropriate licenses that allow money transmitting between parties, both a ComFac and a CapFac are simply software layers, using AI and FinTech methods to derive actionable intelligence.
These ComFac and CapFac layers only drive data and intelligence, and need to be plugged into other systems with properly licensed operators to do the work involved, depending on the industry in which these systems are deployed.
Thus, these software AI layers are themselves not the operators, but only help facilitate the actual licensed operators as required, ensuring compliance across regulations, tax, and other legal boundaries.
ComFac and CapFac platforms bring a new level of programmatic intelligence to the flow of value across the inter-network of networks aka The Actual Internet.