Startup Exit to Community

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.