Friday 23 January 2009

Time I started to write!

Morning paper and coffee time is often when most ideas and observations happen in my CityOdds world.

This morning was the turn of The Times and an article about two musicians seeking funds to help them produce an album. Firstly, good on Martyn Shone (the guitarist) for getting out of the moribund banking business and embarking on an adventure with the band Honey Ryder. The curious and innovative thing about this band was the choice of method of funding. Forget going to a bank where the large cheeky chappie ignores the customer then refuses any help in the money department - this model seems dead for some time - why not try selling shares in the band instead?

Selling shares is not new but in such a small size it is. As Sean Park, of Nauiokaspark, correctly points out that risk can be broken down into small units, repackaged like Lego and built into a variety of shapes to suit the buyer or seller. In today's information centric world, the size of these risk "quarks" it is shrinking. Shares in Honey Ryder are £3,500 each and only 100 available - small by company standards but enough to launch a pop career..

So how do you value the share? Here comes the fun bit. There are no fundamental ways to value this share - its just hope and your guestimate of the odds of them succeeding. Offer me £10 if I can predict whether a coin lands heads, on a fair flip, and I'll pay up to £5 to enter the game. £5 is thus the fair value of the share, it matters not that the coin has not yet been flipped. It is the prospect that values the share. Its up to the fans to see whether they think £3,500 is a fair price to share in the band's success. You won't find these shares being sold by your local IFA!

Do I like Honey Ryder? - they seem funky, cool and I'd happily have a drink in a bar with them but I bet they don't know what a revolution they are beginning...the story has only just started and the time when financial products are bought rather than sold is coming...

More soon..


3 comments:

John Wilson said...

You should take a look at Slicethepie who are operating a fund raising service designed to enable musicians to fund album recording. Deal structure is clever and allows for secondary trading of your interest in an album.

For clarity, I am not connected to the venture, but did have the opportunity to discuss it at some length with the founder over a year ago.

Confessions Of A Day Trader said...

Didn't David Bowie do somethig similar to Honeyryder in the 90s. When he sold his future royalties as bonds to investors? Admittedly he was a established star and pricing the bonds must have been easier than an unknown band who are more than likely to fail as succeed.

aaronchua said...

One way to determine fair price is of course to use the familiar asset pricing approach. This runs into the difficulty of assessing all the potential revenue streams that the band can potentially earn.

If we push the idea further, will we see research companies coming up that specializes in band research?