Robitcoin Venture Exchange

Summary

Every student will start this class owning a company (jointly with a team of co-founders) and some personal cash (individually). Over the duration of the class, students will work to grow the value of both of these assets in three ways:

• Growing the fundamental value of their company through engineering success;
• Accumulating returns on external funding by securing investments in their company; and
• Growing their personal cash balance by identifying successful companies in which to invest.

The goal is to end the class with highest net worth, defined as a weighted sum of those three quantities.

Companies

Each team of students constitutes a company on the Robitcoin Venture Exchange (RVX). Every company with have its initial public offering (IPO) at the same time, starting with an equal fundamental value and zero accumulated returns on external funding. From then on, each company will present deliverables each week until the end of the class. Most of these deliverables will be standard weekly progress updates, but a few will be more involved design reviews (see class schedule for details).

Growth in fundamental value

Each week, based on the outcomes presented in the deliverables, the Invisible Hand of the Economy¹ will assess the performance of each company and compute its rate of growth for that week. The fundamental value of the company--and correspondingly its share price--will increase by that rate that week.

Return on external funding

Within a two day trading window after the IPO and each weekly deliverable, students will be able to buy and sell shares in the companies on RVX at their respective share prices. At the close of the window, each company will earn a fractional return on the total value of its shares held by the public. This weekly fractional return will get accumulated over the duration of the class.

Total value

The cumulative sum of weekly returns on external funding will be added to the fundamental value to define the total value of the company.

Individuals

Trading

Each individual student will choose how to spend their cash balance every week during the trading period following the presentation of deliverables. There is no cost for trades, so every week each student can freely re-allocate their cash to buy shares across all the RVX companies other than their own.

Net worth

The net worth of an individual student is a weighted sum of the assets held, i.e. the cash value of all shares held by that student and the total value of that student's company.

Quantitative details

Money

• Each company will start with a fundamental value of ℟1,000,000 (1 million Robitcoin)
• Each company will start with ℟0 accumulated returns on external funding
• Each individual will start with ℟100,000 (100k Robitcoin) cash balance to invest in RVX companies

Rates²

• The weekly fundamental growth rate will be calibrated to 10% for the average company meeting expected engineering progress.
  • If a company only meets a fraction of their expected outcomes, the growth rate will be lower than 10%, but never below 0%
  • If a company exceeds performance expectations, the growth rate will be greater than 10%
• The fractional return on external funding will be 15%, i.e. every week companies will bank 15% of the total value of shares held by the public that week.
• Each founder will count 5% of the total value of the company towards their personal net worth (in addition to 100% of their personal cash)

Example

• Before IPO, each student has a net worth of ℟150k = ℟100k cash + 5% of ℟1m stake in their company.
• Immediately after IPO, 40 students decide to invest half of their cash (℟50k each) in company A, and no one else invests anything anywhere:
  • The fundamental value of company A hasn't yet changed from its initial ℟1m.
  • The total value of shares of company A held by the public that week is: 40 * ℟50k = ℟2m; company A earns a 15% return = ℟300k.
  • The total value of company A is therefore ℟1.3m.
  • Each founder of company A now has a net worth of ℟165k = ℟100k cash/stock + 5% of ℟1.3m.
• At the end of the week, Company A presents its deliverables, indicating that it has met expectations for a 10% growth rate that week:
  • Share prices go up 10%, so each student who had invested ℟50k in company A gains ℟5k return for a new cash balance of ℟105k
  • The fundamental value of company A grows 10% to ℟1.1m
  • Each founder of company A now has a net worth of ℟170k = ℟100k cash/stock + 5% of ℟1.4m.