Menus Subscribe Search

The Future of Money

human-capital

(Photo: Melpomene/Shutterstock)

Investing in Human Capital, Literally

• March 26, 2014 • 8:00 AM

(Photo: Melpomene/Shutterstock)

In what’s been criticized as a modern-day version of indentured servitude, a new batch of start-ups are giving investors the opportunity to turn people into profit by buying a piece of their future earnings. Could this be a solution to our student debt problem?

Richard Frethorne was just a young man in England looking for a way to get ahead, to make a name for himself. There was a lot happening—society was changing, new industries were opening up. But Frethorne, coming as he did from a lower-class background, didn’t have the resources he needed to pursue the opportunities he saw. So, like many of us, he went into debt. Turns out he didn’t enjoy it very much.

Born in the 17th century, Frethorne wanted to travel to the New World. America was just starting to play host to its first wave of opportunists, but Frethorne lacked the capital required to pay for a voyage. Instead, he became an indentured servant, paying for his passage with labor instead of money. His plan was to work for four to seven years, and then he would have his freedom as a full-fledged colonist.

Soon after he arrived at Jamestown colony in Virginia in 1623, Frethorne realized he needed a lot more than just labor to improve his lot. There is “nothing to be gotten here but sickness and death, except [in the event] that one had money to lay out in some things for profit,” Frethorne wrote in a pitiful letter to his parents in March 1623. “But I have nothing at all.” He begged his family to either buy him out of his servitude (pay back his debt) or send some capital in the way of “meal and cheese and butter and beef. Any eating meat will yield great profit.” Frethorne may have been starving, but at least his debt would be paid off in less than a decade rather than over the course of a lifetime.

Today, just as in the 17th century, going into debt can be a way of getting a shot at social mobility, as it theoretically was for Frethorne (the colony’s charter was revoked in 1624, with Virginia becoming a royal province rather than a free and open society). In our own time of rampant inequality, debt still thrives as a path to gaining access to a better life: Getting a loan against credit is the standard method of buying a house, starting a business, and going to school.

The crowd-investment model for human capital has the unique advantage of not exacting painful debt if a gamble—on education, or a new job, or a new company—doesn’t work out.

It’s this kind of self-improvement debt that a new batch of technology start-ups are targeting. Companies like Upstart, Pave, and Lumni are acting like Kickstarter platforms for people instead of businesses or products. Through them, it’s possible to invest in a human being, funding their education or professional development and getting a cut of their future profits in return.

The investment structure is based on the concept of human capital, or the intangibles like knowledge, creativity, and personality that combine to form a worker’s ability to produce profitable labor in the current economy, particularly in the post-industrial context of the United States. Politicians often talk about investing in human capital—building better schools and community institutions to build better workers and promote economic growth. But these businesses are making the phrase literal, turning people into profit.

Of the existing start-ups in this space, Upstart is the most like Kickstarter. Accredited investors can pick among potential individual investees, who pitch themselves with short written blurbs and resume samples. (Unlike more public platforms, the networks can only take money from investors with licenses since crowd-investing is illegal, for now at least.)

The company uses a statistical model to “predict each upstart’s income over the next decade” and create a funding rate, the amount of venture capital the individual can raise for each one percent of their income they choose to pay back to investors annually over a five- or 10-year period. Those who receive the money can pay no more than seven percent of their annual income based on U.S. tax returns, and they don’t owe anything for years they earn under a set amount—guarding against a kind of investment-induced bankruptcy.

On Upstart, it’s people like Rachel Honeth Kim who steal the spotlight. She’s a Harvard MBA who worked at Google and Zynga who plans to open her own company—all factors that would suggest a high future income and payoff for investors.

Both Lumni and Pave focus on funding causes that include a social-good angle. Pave’s mantra—“talent is an asset”—suggests that human potential is a commodity that can be easily monetized. Investors can choose to invest in individuals or groups of talent in particular areas—Columbia students, perhaps, or architects—with the aim of creating a seven percent return on investment again based on earnings. Pave’s success stories range from $12,000 to $50,000 worth of funding, too little to make a dent in the largest of student loans, but enough to smooth a major career transition.

Lumni is explicitly devoted to funding students, and the company’s results are already impressive. It creates a group portfolio of students that investors can fund, often supporting schools in developing countries. According to the company, an investment in Chilean students has already returned 20 percent, twice the estimated profit and almost three times the return of most hedge funds.

These start-ups are entering a void in our country’s social and financial support infrastructure. Student loans, the debt-of-choice for educational opportunity, are increasingly failing both students and the country. Out of $1 trillion in loans, $180 billion is in default or forbearance and $315 billion isn’t being paid back by students who are still in school or are deferring payment, according to Politico. One in eight borrowers end up defaulting.

The crowd-investment model for human capital has the unique advantage of not exacting painful debt if a gamble—on education, or a new job, or a new company—doesn’t work out. And though it’s early days for this type of portfolio, the initial signs are far more positive for both investors and investees than the crippling debts that are preventing students from pursuing careers they’re suited for. Some bets won’t pay off, of course, but like venture capital investments in actual start-ups, there’s always the chance of hitting the next Facebook or Apple, the future Mark Zuckerberg or Steve Jobs. And even investees that don’t hit the jackpot will still benefit from the opportunity.

Crowd-investing in individuals resembles most not student loans or Richard Frethorne’s indentured servitude (though the start-ups have been compared to that practice, which is now universally illegal). It actually seems more like a guild or apprenticeship system, the social labor structures that were prevalent centuries ago but have largely faded away. A young worker would enter into a partnership with an established company, working for them while learning a trade, and be supported with room and board or a nominal salary in return. In both cases, a little bit of sustainable debt offers a big opportunity.

As student loans continue to show their adverse effects on individuals and our culture’s youth as a whole, we should be looking to alternative strategies to offer those who might not have immediate access to the resources they need a chance to see what they can do with that capital. Start-up economics has its downsides, but it excels at letting entrepreneurs give it their all in an effort to succeed—just what we should be doing with our students.

Kyle Chayka
Kyle Chayka is a freelance technology and culture writer living in Brooklyn. Follow him on Twitter @chaykak.

More From Kyle Chayka

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

July 23 • 4:00 PM

Who Doesn’t Like Atheists?

The Pew Research Center asked Americans of varying religious affiliations how they felt about each other.


July 23 • 2:00 PM

We Need to Start Tracking Patient Harm and Medical Mistakes Now

Top patient-safety experts call on Congress to step in and, among other steps, give the Centers for Disease Control and Prevention wider responsibility for measuring medical mistakes.


July 23 • 12:19 PM

How a CEO’s Fiery Battle Speeches Can Shape Ethical Behavior

CEO war speech might inspire ethical decisions internally and unethical ones among competing companies.


July 23 • 12:00 PM

Why Do We Love the ‘Kim Kardashian: Hollywood’ Game?

It’s easy enough to turn yourself into a virtual celebrity, complete with fame and mansions—but it will likely cost you.


July 23 • 11:49 AM

Modern Technology Still Doesn’t Protect Americans From Deadly Landslides

No landslide monitoring or warning systems are being used to protect vulnerable communities.


July 23 • 10:00 AM

Outing the Death-Drug Distributors

Calling all hackers: It’s time to go Assange on capital punishment.


July 23 • 8:00 AM

The Surprising Appeal of Products That Require Effort to Use

New research finds they enable consumers to re-establish a feeling that they’re in control of their lives.



July 23 • 6:00 AM

How the Other Half Lifts: What Your Workout Says About Your Social Class

Why can’t triathletes and weightlifters get along?


July 23 • 5:02 AM

Battle of the Public Intellectuals: Edward Glaeser vs. Richard Florida

On gentrification and housing costs.


July 23 • 4:00 AM

Our Fear of Immigrants

Why did a group of fourth graders rally in support of an undocumented classmate while the citizens of Murrieta, California, tried to stop immigrant children from entering their town?


July 22 • 4:00 PM

Can Meditation Really Slow Aging?

Is there real science in the spiritualism of meditation? Jo Marchant meets a Nobel Prize-winner who thinks so.



July 22 • 2:00 PM

The Alabama Judge Who Refuses to Let Desegregation Orders Go Ignored

A federal judge in Alabama says a local school board has failed to meet legal mandate to integrate.


July 22 • 12:00 PM

On the Destinations of Species

It’s almost always easier to cross international borders if you’re something other than human.


July 22 • 10:51 AM

The Link Between Carbs, Gut Microbes, and Colon Cancer

Reduced carb intake among mice protected them from colon cancer.


July 22 • 10:47 AM

Irrational Choice Theory: The LeBron James Migration From Miami to Cleveland

Return migrants to Cleveland have been coming home in large numbers for quite some time. It makes perfect sense.


July 22 • 9:32 AM

This Time, Scalia Was Right

President Obama’s recess appointments were wrong and, worse, dangerous.


July 22 • 8:00 AM

On Vegas Strip, Blackjack Rule Change Is Sleight of Hand

Casino operators are changing blackjack payouts to give the house an even greater advantage. Is this a sign that Vegas is on its way back from the recession, or that the Strip’s biggest players are trying to squeeze some more cash out of visitors before the well runs dry?


July 22 • 6:00 AM

Label Me Confused

How the words on a bag of food create more questions than answers.


July 22 • 5:07 AM

Doubly Victimized: The Shocking Prevalence of Violence Against Homeless Women

An especially vulnerable population is surveyed by researchers.


July 22 • 4:00 AM

New Evidence That Blacks Are Aging Faster Than Whites

A large study finds American blacks are, biologically, three years older than their white chronological counterparts.



July 21 • 4:00 PM

Do You Have to Learn How to Get High?

All drugs are socially constructed.


July 21 • 2:14 PM

The New Weapon Against Disease-Spreading Insects Is Big Data

Computer models that pinpoint the likely locations of mosquitoes and tsetse flies are helping officials target vector control efforts.


Follow us


Subscribe Now

How a CEO’s Fiery Battle Speeches Can Shape Ethical Behavior

CEO war speech might inspire ethical decisions internally and unethical ones among competing companies.

Modern Technology Still Doesn’t Protect Americans From Deadly Landslides

No landslide monitoring or warning systems are being used to protect vulnerable communities.

The Link Between Carbs, Gut Microbes, and Colon Cancer

Reduced carb intake among mice protected them from colon cancer.

The New Weapon Against Disease-Spreading Insects Is Big Data

Computer models that pinpoint the likely locations of mosquitoes and tsetse flies are helping officials target vector control efforts.

People Are Clueless About Placebos

Doctors know that sometimes the best medicine is no medicine at all. But how do patients feel about getting duped into recovery?

The Big One

Today, the United States produces less than two percent of the clothing purchased by Americans. In 1990, it produced nearly 50 percent. July/August 2014

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.