I found myself asking the following question: Supposing a group of people wanted to get together to spend money towards furthering a particular goal, how might they go about organising themselves? After some mulling this over I hit upon a design that I rather like. I suspect in practice it may have some problems, but it might be a nice starting point.
The specific case I wanted to solve is that people should be able to say “I am willing to spend up to this amount of money to further the goal” but not actually have to spend that amount of money until specific projects come along. Specific projects should then be able to be approved or denied by the group and funded from what people have committed. An example I had in mind was funding the creation and development of particular types of open source projects.
Here is the basic system I came up with:
There is a reserve pool of money held by a trusted member of the organisation. This is expected to be small compared to the total amount of money that has been committed to the cause. All funding managed by the organisation goes via this reserve – if the organisation decides to fund a cause you first pay into the reserve until the reserve has enough money, then you pay out to the project in question.
Joining the organisation
In order to join the organisation you must pay a small fixed up front contribution to the reserve (I’d imagine this to be on the order of £5 – purely nominal) and declare a commitment of an amount of money you are prepared to pay towards the organisation’s aims.
Growing the reserve
When more money than is available in the reserve needs to be spent we must grow it. This is performed as follows:
- We fix a time period in which this must be achieved. A week would be normal.
- The amount that needs to be added to the reserve is calculated as a fraction of the total amount of money committed.
- Each member of the organisation must pay that fraction of their commitment, rounded up to the nearest whole currency unit (so if the amount to grow the reserve by is 1% of the total commitment, someone committing £100 must pay £1. Someone committing £110 must pay £2). Until they have paid this it counts as their debt to the reserve. Once they have paid this it is subtracted from their commitment (so if we committed £100 and pay £1 we now have £99 left committed).
- If the time period elapses and we have not grown the reserve sufficiently due to non-payment from some members, we repeat the process for the remainder.
- If the amount of money committed from people who have not failed to pay is now too small to grow the reserve sufficiently
- Any non-payment from members remains as a debt which they should aim to pay into the reserve as soon as possible.
Requests for funding
Anyone may request the organisation for funding. This consists of a specific proposal
Request for funding: Anyone, a member or not, can request the organisation for money. This consists of a proposal and an amount of money they would require for it. The organisation then votes on whether or not to accept the proposal.
Votes are performed as follows:
- Every member has a voting share. To calculate the voting share you first calculate the amount of money they have paid into the reserve, then you subtract the amount of money they have failed to pay into the reserve when required to do so. If the result is negative their voting share is zero, else their voting share is the square root of the result. (square root voting is a thing. It basically means people more invested in the system rightfully get more of a say in it, but prevents a small clique crowding out a large number of minority stakeholders). Note that money paid into the reserve includes the joining fee, so all members start with a vote.
- Every member may choose whether or not to vote yes or not. An abstention is considered a vote no.
- A proposal is approved if the yes votes total two thirds of the total voting share.
- If the vote is successful, the reserve is grown to match the amount required and then the money is paid out. For the purposes of the reserve growing your commitment is the larger of what you had declared when the proposal was made and your current commitment, to stop people from backing out because they don’t like a specific idea.
Minority payment exception
It may be the case that a vote failed but there is enough money committed amongst those who voted yes that they could have paid for it themselves. In this case, they will fund it using only their funds. To do this:
- Put aside a reserve which is a fraction of the main reserve equal to the fraction of the voting share that voted yes.
- Grow this reserve from the yes-voters to meet the requirements, and pay out of that.
- Any remaining money in it goes back in the original reserve.
Why not use the minority payment exception everywhere? It’s a good question. I think it increases variability of what the organisation can achieve quite a lot, and I’m not sure this is a good thing. It feels like having the minority payment option means that the organisation works less effectively as a whole. More importantly, it means that the default behaviour if you’re not really paying attention is to opt-out of paying any money, which seems unfortunate. It might be a good idea anyway.
This requires a moderate amount of book-keeping, but it’s not too much to do by hand/with a spreadsheet and email. Software could help, but it’s probably not necessary at small scales.
Obviously I’ve no experience in running non-profits, so it may be that I’m ignoring human factors / vastly overestimating how easy it is to get people to actually pay money they’ve precommitted to paying.
I think it might be an interesting approach though, and I have some things I’d quite like to try it for. I don’t know if I can actually overcome the annoyance of moving money around to do that, but we’ll see.