Pando

Overview

Pando is a startup developing a new insurance like product focused around covering individuals in high volatility, winner take all careers.  Their product gives downside career protection for individuals in certain superstar careers such as professional sports or entrepreneurship where success is rare but the financial reward is often high.  To do this they take individuals early on in their high risk career and put them into groups or "pools" of people with other similar risk profiles and careers.  A portion of the future earnings (or equity for startup founders) above pre-defined thresholds of those who become the superstars are shared with the other members of the pool.  Basically they create a career safety net by allowing every member of the pool to invest in the success of every other pool member via a diversified portfolio.

An example that illustrates the underlying problem is the team's first market of professional baseball players.  A first round draft pick has an expected career earnings of $40M+ but has about a 50% chance of never playing a day in the MLB and earning nothing.  If this player is successful and doesn't suffer injuries they give up some of the $40M they could potentially make to other members of the pool.  On the flip side, if they aren't successful and earn nothing they would still receive income from other successful members of the pool they are in.  Basically, the winner super stars provide a safety net through a payout to everyone else in their pool who might not have had the same level or any success.

These pool sizes vary based on participant preference.  Individuals choose to pool for one of three reasons: lower career volatility, ability to invest in others, or a network of peers financially aligned with their success. Currently Pando Pooling is trying different pooling models where they either let pool members self select or use their proprietary predictive algorithms to offer optimal matching.

The team is currently less than 10 people and based in San Francisco, California.

Why I like Them

Pando Pooling's product idea is extremely innovative and one of those you wonder why no one had thought of decades ago.  In hindsight it seems obvious to give high volatility careers a safety net, but the devil is in the details with contract terms and the determination of who is in the pools of risk vital for their success.  The team has invented a novel solution for de-risking those with careers that face highly bifurcated outcomes.  Although extremely early they have several pools already running, and have found deep interest among customers with strong traction especially among professional baseball players.

Even more creative than their product itself is the firm's business model.  Unlike in traditional insurance, Pando Pooling will not be taking any premiums but instead will take a portion of a pool's payout, even if that may be years from when the policy is first created.  What this does is basically give the company a stream of cash generating assets (their pools or policies) that can be potentially borrowed against or even securitized and sold off to investors.  In the long term this might not just be a new form of insurance but a new type of securitization asset class similar to something like catastrophe bonds that are becoming more popular among institutional investors.

Overall, I love the innovation here and the creation of a new type of product, business model, and potentially a new financial asset class all in one.  However, there are extreme risks with the success of this business depending on accurately assessing career risks of members (having several pools where there are no payouts would likely affect popularity and sign up) as well as the lack of cashflow to the business itself, especially in the first few years before the pools start paying out.

Disclosure:  I have spoken to members of the team.