My friend Daniel has two kidneys, and I believe I can sell one of them for considerably more than he would charge me for it. I do not need a transplant. My kidneys are fine. What interests me is the spread between what Daniel thinks his spare kidney is worth and what a sufficiently frightened rich person might eventually pay to obtain it. Daniel says the kidney is not for sale, which makes price discovery unnecessarily difficult.
I initially offered him $1,250 for a five-year option to purchase either kidney for $48,000. An option gives you the right, without the obligation, to buy something later at an agreed price. Daniel would keep both kidneys until somebody needed one, and I would keep the right to sell my right to somebody who valued that right more highly. He asked why he would sign something like this. I told him his truck needed a transmission.
I have provisionally divided the option into one thousand shares. Each share confers an interest in the proceeds from selling the right to buy Daniel’s kidney; it does not entitle the holder to a thousandth of a kidney. I emphasized this distinction in the investor materials because people kept asking how the surgery would work. The answer is that most investors will never have to think about surgery. They will sell to other investors who are willing to think about it later.
He then asked whether I was seriously trying to flip his kidney. The word “flip” makes it sound as though I would remove the organ, keep it in my garage for six months and sell it after replacing the countertops. My contribution would be financial. The kidney would remain inside Daniel while I improved the market’s ability to price it, package it and circulate claims against its eventual availability. He would be responsible for maintaining the underlying asset, which he already does for free.
Daniel says I cannot sell shares in an agreement he has not signed. But early-stage investing routinely involves a business that has not yet secured all of its essential inputs. We are pre-contract. Investors receive a discount for assuming consent risk, and the proceeds will help me make Daniel an offer he finds more attractive. His refusal is therefore one of the very obstacles that raising capital is intended to solve.
I have already received expressions of interest from two men in my group chat and a dentist who asked whether the returns would be correlated with the stock market. I said Daniel’s kidneys had continued functioning through several major drawdowns. The dentist found this encouraging. Daniel found it invasive that I was discussing his renal function with a man who had once charged him $640 for a crown.
There is a concept called financialization, in which something previously treated as an ordinary feature of life becomes an asset producing claims, fees and opportunities for investment. People tend to discuss this negatively. I think Daniel illustrates the potential upside. For thirty-eight years his kidneys have done nothing except filter his blood, despite his continuing complaints that he never earns money while he sleeps. I have identified a way for them to perform both functions.
To accommodate different risk appetites, I have divided the offering into senior and junior tranches. The senior investors get paid first. The junior investors get paid later, if there is money left, and receive a higher projected return for accepting this possibility. Daniel asked whether one kidney was the senior kidney and the other was the junior kidney. I explained that the hierarchy applies to the money, although assigning seniority to the organs themselves might eventually simplify disputes.
The senior tranche is secured against a reserve funded by selling the junior tranche. A prospective investor asked what happens if Daniel never agrees to sell and the reserve runs out. This is a liquidity problem. The kidney is still there. The fact that it is inaccessible under the current contractual arrangement does not mean the underlying value has disappeared, any more than a locked warehouse means the inventory has ceased to exist.
My biggest difficulty is that Daniel insists on valuing the organ as though he were the only person who might use it. He says he wants to keep both kidneys in case one fails. I understand the preference. But there are people whose desire to retain kidney function is backed by considerably more money, and a market is supposed to aggregate that information. At present we allocate the entire asset to Daniel because he happened to be born around it.
He asked why, if a rich person might pay so much, he should not sell directly and keep the money. This is a reasonable question from somebody encountering intermediation for the first time. I would originate the deal, structure the securities, recruit investors, manage the paperwork and maintain an orderly secondary market. Daniel’s contribution would be the kidney. He has been providing that contribution continuously without earning anything, so $48,000 represents a substantial improvement over his existing business model.
I am also exploring kidney futures: agreements to settle at a later date based on what the claim is then worth. These could be cash-settled, meaning nobody necessarily receives an organ. Daniel asked how we would establish a market price for his kidney when there is no market. I proposed using the most recent price of shares in my kidney option. He said this meant the price would be whatever the last idiot paid me. Many markets rely on the last transaction.
Once there is a quoted price, holders could borrow against their shares and buy additional shares. This would provide liquidity, which is especially important because Daniel’s kidney is otherwise extremely illiquid. I made this point at lunch and he told me to stop describing his body that way. I offered to use “privately held.” He said that was worse, although it more accurately describes the concentration of ownership.
There are legitimate concerns about excessive leverage. I would not want a small change in sentiment about Daniel to trigger forced selling across the entire structure. For this reason I have proposed a circuit breaker that suspends trading after a sharp price decline and a standing agreement requiring him to answer basic health questions during market hours. Daniel asked whether getting the flu would create a margin call. I told him that would depend on how convincingly he sounded ill.
The maintenance covenants have also become contentious. Investors need assurance that he will not start smoking, take up boxing or donate the kidney to someone else while their claims are outstanding. Daniel says he will not ask a syndicate for permission to live his life. The syndicate would have approval rights over activities that could materially impair the value of the kidney, a category whose precise boundaries we would establish through ordinary commercial negotiation. He would retain complete discretion over activities that had no bearing on the asset.
I suggested keeping a water bottle on his desk and sending me a photograph of it once a day. He said he would rather die. This was concerning language for a counterparty to use, although it opened a potentially useful discussion about whether the option should survive his death. He clarified that he meant he would rather stop being my friend. That is a much more manageable event because friendship is not among the assets pledged to the vehicle.
My lawyer says the entire arrangement is unenforceable and that putting it inside a company does not change this. I asked whether investors could instead purchase exposure to a company whose strategy was to pursue economically valuable arrangements involving Daniel. He said he could not believe I was making him answer that. I have budgeted his bill as a regulatory expense, which lowers projected returns but also creates a barrier to entry for competitors.
To hedge consent risk, I approached a third member of our group chat about selling me protection against Daniel refusing the transaction. Under a credit-default-swap-style arrangement, I would pay him a premium and he would pay me if Daniel definitively withdrew. He said Daniel had already definitively withdrawn. I explained that there was a difference between a verbal objection and a contractually recognized credit event, and we had not yet constituted the committee that would determine which had occurred.
He asked whether I would sit on the committee. I would, because I understand the transaction. Daniel would also be invited to provide information, although allowing him a vote would create an obvious conflict of interest. He has both a personal attachment to the kidney and a financial incentive to retain an asset I believe is undervalued. People have called this governance structure grotesque without suggesting how we should otherwise obtain independent oversight.
There is also a synthetic version of the product in which investors bet on the value of the kidney claim without owning the claim itself. This could accommodate far more capital than one kidney would ordinarily support. Daniel asked how many people would consequently have a financial interest in something being removed from his body. I told him we could not know that in advance, which is why efficient markets are so useful: demand can emerge without a central planner imposing an arbitrary limit.
Some investors might actually benefit from the transaction collapsing. Others would benefit from the kidney becoming more valuable, which could happen if Daniel remained healthy while somebody much richer became less healthy. These positions could offset one another within a diversified portfolio. Daniel said it sounded as though I had created a group of people with different reasons to hope something terrible happened. I pointed out that several of the positions would benefit from him continuing to take care of himself.
The moral objections have been frustratingly imprecise. Daniel says I have turned twelve years of friendship into an opportunity to make money from his organs. Twelve years is precisely why I consider him investable. I know he exercises, keeps appointments and has never missed a mortgage payment. A stranger’s kidney would require extensive due diligence. He seems to think my having this information creates an obligation not to use it, which would make trust an unusually expensive disadvantage.
Last week he sent a message stating that he would never sell me a kidney, never sign anything related to a kidney, and never speak to me again if I continued. I forwarded it to the man providing consent-risk protection. He says the wording constitutes a payout event; I say we should wait for the committee. In the meantime, the junior investors have asked whether they can sell their shares, and I have offered to buy them at a substantial discount. Daniel considers his position final, but I am now exposed to the kidney at a much more attractive entry price.