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_posts/2019-09-16-exit-to-community.md

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