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+---
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+layout: post
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+author: Nathan Schneider
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+title: "Startups Need a New Option: Exit to Community"
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+summary: "Why are we building disposable companies?"
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+tags: [internet-of-ownership]
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+---
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+
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+Founders create startups for all sorts of reasons. Often, the motivation
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+is a mix between the founders' desires to do well for themselves and to
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+do something worthwhile for others. Dreams of greatness might figure in
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+there too. Rarely, however, is the overriding reason to build a company
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+people want to get rid of. But that is what the startup pipeline is
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+designed to produce.
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+
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+When a startup company takes early investment, typically the expectation
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+is that everyone is working toward one of two "exit" events: selling the
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+company to a bigger company or selling to retail investors in an initial
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+public offering. In either case, the startup is a hot potato. One group
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+of investors buys in order to sell to another group of investors who buy
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+in to sell to the fools down the road. There's something sort of
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+pyramid-scheme-ish about all this. The exit event, also, is often the
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+beginning of the end of any positive social vision that the company
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+might have held.
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+
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+What if startups had the option to mature in a way that gets them out of
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+the investors' hamster wheel?
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+
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+In the coming months, I will be exploring strategies and stories that
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+could help create a new option for startups: Exit to community. In E2C,
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+the company would transition from investor ownership to ownership by the
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+people who rely on it most. Those people might be users, workers,
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+customers, participant organizations, or a combination of such
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+stakeholder groups. The mechanism for co-ownership might be a
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+cooperative, a trust, or even crypto-tokens. The community might own the
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+whole company when the process is over, or just a substantial-enough
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+part of it to make a difference.
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+
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+When a startup exits to community, founders should see enough of a
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+reward that they feel their risk and hard work was worth it. Investors
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+should see a fair return for their risk. Most importantly, the key
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+stakeholders should know the company is worthy of their trust and
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+ongoing investment because they co-own it. For a social-media company,
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+this might mean that users have a meaningful say in how their private
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+data is or isn't used. For a gig platform, it might mean that the gig
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+workers co-determine their working conditions and what is done with the
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+profits they produce. These kinds of outcomes could help prevent the
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+massive accountability crises that now beset today's most successful
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+venture-backed startups.
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+
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+One way to begin exploring E2C could be by identifying a subset of
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+startups in venture capital portfolios that lie in "zombie"
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+territory---somewhere between failure and exit-ready. Investor owners
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+would benefit from having a new way of liquidating investments that
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+would otherwise lie dormant. In some cases, the community might be in a
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+position to buy the company with cash on hand---especially if it came
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+back to them in later savings or profits. In other cases, E2C might be
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+financed externally on the expectation of future growth, as is generally
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+done for employee-ownership conversions using an Employee Stock
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+Ownership Plan. Startups might also plan ahead for E2C by identifying
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+particular guardrails that keep this option open as they negotiate their
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+early rounds of financing. As with the ESOP---and with [the venture
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+capital industry
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+itself](https://logicmag.io/scale/the-unicorn-hunters/)---a targeted
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+policy intervention may be necessary to make this kind of financing
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+attractive enough to be feasible. These possibilities and more are the
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+kinds of things I've been thinking about and would like to think about
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+with others.
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+
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+Why not, you might ask, just begin these startups under community
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+ownership? This is certainly an option, and it's one that I have
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+enthusiastically supported through the \#PlatformCoop community and
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+through co-founding the Start.coop accelerator. But getting going under
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+community ownership doesn't seem like the right approach in many cases.
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+
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+Ambitious startups are a risky endeavor, and it may not be fair to
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+distribute that risk with early-stage participants. Also, startups
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+usually need to make a few dramatic pivots early in their life, and
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+having a large community of co-owners would make those hard decisions
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+more difficult than if a small, high-trust group of founders is in
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+charge. Centralizing the risk and responsibility early on is a
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+reasonable strategy for startups. Later, once the company has found its
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+market and its footing, the transition to accountable community
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+ownership will better suit the nature of the business. With E2C, we get
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+the best of both worlds---the dynamic startup, then the accountable,
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+sustainable public asset.
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+
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+For me, this vision came together in conversations with social
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+enterprise lawyer [Jason Wiener](http://jrwiener.com/team/jason/) (who
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+has participated in some exits to community), along with sources of
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+inspiration that include [Zebras Unite](https://www.zebrasunite.com/),
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+[Louis
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+Kelso](https://osf.io/v7fe2/?view_only=2ffd750b4ba54001beb5a459d61faff0),
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+[platform cooperativism](https://platform.coop/), and the
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+[steward-ownership](http://steward-ownership.com/) network. Now it is
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+time to bring more people into the conversation.
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+
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+Our team at the [Media Enterprise Design
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+Lab](http://cmci.colorado.edu/medlab/) at the University of Colorado
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+Boulder is looking for collaborators on this work. This includes
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+entrepreneurs, activists, investors, policy advocates, researchers, and
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+more. Do you want to join us? [Let
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+](mailto:medlab@colorado.edu?subject=E2C)[us](mailto:medlab@colorado.edu?subject=E2C)[
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+know](mailto:medlab@colorado.edu?subject=E2C) what you'd want your E2C
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+to look like.
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