Open Source Hardware Reserve Bank

URL = http://www.oshwbank.org/

Description

"The mission of the bank is to fund and invest in Open Source Hardware. It helps open source projects achieve scale discounts at low quantities of production, where most DIY happens. The objective of the bank is to break-even, and sustain and grow Open Source Hardware."

Massimo Menichinelli:

"There is another interesting business model for Open Hardware that is just blooming: microcredit and peer-to-peer lending / crowdfunding. The main idea is to gather small loans from single individuals or greater groups in order to start an Open Hardware project.

The best example of this trend comes from two hackers, Justin Huynh and Matt Stack, who calculated that for every small hardware project, there’s a potential to have to pay upwards of 40-50% of the initial cost of the project in just infrastructure fees. As a consequence, they have started the Open Source Hardware Reserve Bank in order to solve two main financial problems specific to Open Hardware: throwaway costs that result from repeated revisions to physical hardware during the design process, and the inability to take advantage of volume discounts for raw materials.

The Open Source Hardware Reserve Bank (which still has to fully comply to the laws that regulate lending) allows only hackers (no VC or other companies) to make investments in specific projects, buying and funding at the same time, doubling then the number of pieces created and reducing per-unit costs by around 10 percent to 30 percent.

Moreover, they designed an infovis that visualizes the state of the funding and manufacturing of each copy of a Open Hardware project. Each cell identify one copy of the Open Hardware project, and the smaller cell on the top represents the 15% markup charged by the Bank (as opposed to the normal 30-50% or more charged on electronics). All the cells are numbered and sorted on a waiting list for receiving the manufactured copies. If a cell is white, there is a copy available in the queue, otherwise the color will be blue (for personal copy) or yellow (for copies funded with microcredit). When somebody funds the manufacturing of one more physical copy, he/she won’t pay the 15% markup; when the copies funded will be two, he/she will save the 15% markup and the shipping fees. Funding 5 copies makes you an investor in the specific Open Hardware project, getting a 15% return on investment.

For every funding, the Bank will issue a certificate. " (http://www.openp2pdesign.org/2011/open-design/business-models-for-open-hardware/)

Principles

"The principles of the Open Source Hardware Reserve Bank are:

• Reduce margins and share costs for the community.

• Minimize the risk and opportunity cost of unsold inventory.

• Provide incentives for Open Hardware projects to move to production without risks.

• Allow the building and distribution of low-quantity, non-scalable products (e.g. niche applications that are potentially non-VC fundable).

• Give rewards and profits back as close as possible to those who contributed."

(http://www.openp2pdesign.org/2011/open-design/business-models-for-open-hardware/)

Background

More details in our entry on the Open Source Hardware Bank

From Wired:

"So far nearly 70 people have signed up as lenders for the bank. Huynh and Stack are managing the process through an Open Office Calc spreadsheet and an open source statistics program called R. They soon hope to bring it online through the Open Source Hardware Bank website that lists some of the initial projects that have been funded.

Lenders are offered returns based on a rolling six-month average so dud projects will be offset by sales of profitable ones. It takes just a few deals to strike it big, Huynh and Stack say, and because it is a community that is not just passionate but also knowledgeable, better projects are likely to get funded." (http://blog.wired.com/gadgets/2009/03/open-source-har.html)

Discussion

Regulatory Hurdles in the U.S. context

"A promising idea it may be, but in this case the geeks are likely to face serious opposition from the financial regulators, says Paul Kedrosky, angel investor and a senior fellow at the Kauffman Foundation, which focuses on entrepreneurship and innovation. The Open Source Hardware Bank founders don't have to flip the pages of history too much to see the fate of peer-to-peer lending ideas in the United States, points out Kedrosky.

Last year, major community lending startup Prosper was forced to shut down by the U.S. Securities and Exchange Commission for not registering with regulators.

"If I put money into a project and am offered some kind of return on a system-wide basis, that requires issuing a security," says Kedrosky. "Which means the open source hardware guys will have to go through the same kind of securities registration as Prosper was forced to."

Zopa's Pitts agrees that the Open Source Hardware Bank needs to figure out how to navigate through the financial rules of the U.S. market. "These guys do not have a regulatory strategy and they need one," he says.

The SEC regulations around peer-to-peer lending SEC issue aren't cut and dry. Prosper, for instance, was in business for nearly three years and made $178 million in loans before the SEC intervened. With the open source hardware bank, says Pitts, all depends on the kind of promises and the system that is built. Zopa did not have any SEC related issues as it created a quasi-community lending model and used credit unions as intermediaries." (http://blog.wired.com/gadgets/2009/03/open-source-har.html)

Proposal for Open Hardware Microcredit

Massimo Menichinelli:

"Let’s consider how a community could self-fund its projects through microcredit as a license.

Even without considering radical projects like all the Open Money and Metacurrency initiatives that proposes new forms of currencies, we can think more about further joining existing currencies with microcredit certificates like the Open Source Hardware Reserve Bank ones. There is the need of accurate, portable and shareable tools of reputation ranking, able to interconnect different local contexts and attached to existing currencies. The Open Hardware still needs proper open-content licenses, since with current licenses we can protect the design but not the manufactured product or forks. And Open Hardware projects will have the need of warranties and conformance marks about the proper function of the manufactured product. Why don’t we use the microcredit certificates for these tasks as well? We could design microcredit certificates to act as a conformance mark, warranty and license certificates as well: only the community can issue them and use them for its own self-organization." (http://www.openp2pdesign.org/2011/open-design/business-models-for-open-hardware/)