A model, pioneered by Chris Cook, that aligns the interests of financiers with users and managers of an asset. One might think of this as a vision for a Collaborative Capital Structure!

1. Peer To Asset
Financing
On the Creation of a
Collaborative Capital
Structure

2. Questions
 How do we finance the
development/acquisition of a productive
asset (one that generates cash flow)
without…
… a few people (equity holders) controlling
the use of the asset?
… a few people (debt holders) having the right
to take possession of an asset?

3. What Is The Problem With Debt?
 Has to be repaid on the basis of specified
terms or the asset can be repossessed…
home foreclosures, for example
 Increases due to compound interest
 Serves to create/reinforce the class divide
 Creates ‘debt slaves’

4. Why Do You Need Debt?
 In the context of the creation/operation of
an asset (apartment building… wind
turbine…), you need resources
What you really need is money!... So…

5. Why Not Equity Financing?...
What’s the Problem?
 Equity creates an ownership class that
has voting control over the asset which
leads to…

6. Capital Structure and the Class
Divide
Debt
Holder
Equity Users
Ownership
and Control
No Yes No
Secured Yes No No
Return Fixed Variable N/A
Risk Low High N/A

7. Definitions…
Term Encoded In… Definition
Ownership and
Control
Legal structure of
corporation…
Shareholders
Agreement
Have the ability to
decide use of
asset… sell asset
etc
Security Mortgage
Documents
Have claim to
ownership of asset
if certain
conditions are
breached

8. What Do Investors Really Want
 Risk Adjusted Return… which is a
complicated way of say ‘return potential
that is proportional to the risk they are
assuming’
This leads to an important question…

9. What Does Risk Adjusted Return
Have To Do With Ownership,
Control and Security?
In Principle Nothing!

10. How Can We Provide Investors a Risk Adjusted
Return Without Providing Ownership, Control and
Security?
Allow Them To Purchase The
Future Cash Flows From the
Asset at a Discount to Par!
Hmm… what does this mean?

11. Example: Apartment block that
generates $100,000/month in revenue
 Investor purchases ‘notes’ that enable him
to receive $100K month
 He purchases them at discount to par; say
$80K
 His ‘rate of return’ is 100K – 80K = 20K
 He purchases them ‘directly’ from the
‘User’… in this case the renters

12. What Happens If Renters Stop
Paying?
 The investor won’t be able to redeem his
note at $100K… he will lose money
Note that the investor is assuming risk just
as in any transaction. If he had felt that the
apartment block was an especially risky
investment he could have offered only
$70K

13. What Are The Advantages Of This
Structure?
 Eliminates the ‘class divide’ between owners
and users of an asset
 Those with financial capital do not have ownership
and control of asset
 Aligns all stakeholders… investors, users and
managers of the asset… since everyone has a vested
interest in the productivity of the asset
 No banks
 No interest
 No ‘specific’ owners… all stakeholders are ‘owners’
 Control of asset is shared by all stakeholders

14. Peer to Asset Financing… a
collaborative capital structure!
Debt
Holder
Equity Peer To
Asset
Ownership No Yes Shared
Control No Yes Shared
Secured Yes No No
Return Fixed Variable Variable
Risk Low High Variable