The Wall Street Bets Buyout Fund

Moviepass, the erstwhile company selling dimes for nickels, was at one point worth less than $45,000. The top investors in the world came together with an idea - buy out moviepass.

There were a lot of problems with that idea but at its core it is quite intriguing. If a bunch of people wanted to come together and buy out their favorite (most hated) company, could that work? Could a subreddit run a company?

Structuring

To explore the idea lets look at the closest sibling organizations - search funds, syndicates and crowdfunding campaigns.

Search Funds

A search fund is a bespoke Private Equity fund built around an operating entrepreneur. The entrepreneur creates a thesis around a particular business area, one they think can perform better than it currently does. For example a technologist who is deeply familiar with the latest automation processes might try arbitraging these business practices to another sector.

Often the entrepreneur(s) will raise money from a group of investors. This fund then begins the titular search process, looking for a company that they can acquire.

Syndicate

A syndicate is a single purpose “company”/deal. For tech investors AngelList popularized these deals, where an experienced investor can raise money from a crowd of accredited investors and deploy it for a single investment into a tech company.

Crowdfunding

The crowdfunding model has been successfully applied to independent projects, films, and startups. The mechanism is simple and tidy - a project will only be funded if the total amount needed is reached, otherwise everyone gets their money back.

Crowdfunding for equity has been legal since 2016 once the JOBS Act regulation went into effect, which allows licensed crowdfunding campaigns to give out equity in a company in return for contributions.

WSB Syndicate

Looking at the above structures, I propose that a WallStreetBets Buyout Fund could be created as a crowdfunded syndicate with the express purpose of finding and taking over a failing company. It would be a ‘single purpose company’ that would be financed by a crowdfunding campaign. If the crowdfunding campaign hit it’s target - let’s say $5 mil, it could then being the search process for a target company or begin negotiating to buyout the largest shareholders from the explicitly targeted company.

I’m presuming at this point the only novel part of the operation would be the financing for the takeover - everything else would be a traditional search fund. This model could get more exotic if combined with novel governance techniques to better leverage the internet scale community. Liquid democracy, prediction markets, and generic crowdsourcing all come to mind as an internet scale way to improve

Issues

I’m not sure how a takeover would work if the takeover was announced publicly before it even happened. In this current model as described, the WSBB might first declare their intention to buy out MoviePass, and then start a crowdfunding campaign. How would this affect the share price of MoviePass? Presumably people would start buying up shares equal to (% chance of crowdfunding success * proposed takeover share price). To execute on the trade might require good traders to not simply communicate their intent to buy up moviepass as soon as the crowdfunding campaign finishes.

Additionally the person in charge of the fund would be subject to a bunch of adverse principal-agent problems, where they might be motivated to make deals that would benefit them in particular.

Errata:

Crypto In some ways the DAO (and its spiritual children, MolochDAO) are examples of this type of funding structure.