Startups have a sellout problem. There is a better way

One-time startups like Meta, Twitter, and Amazon are now part of the world’s infrastructure, serving as today’s local postal, telephone, and news services. They don’t just boost the economy; they are public goods that serve a social purpose, defining and activating countless facets of society.

The problem is, businesses like this have no responsibility to the communities they serve. Like most companies, they have a structural obligation to maximize value for their shareholders, with no real obligation to the public. Societies are left to deal with a rent-seeing, profit-obsessed infrastructure that can’t be solved that ignores or even exacerbates social problems — and, it’s not. sewing, for example consequence much.

The roots of these challenges lie in the early days of tech startups, when founders had few good ideas. To build their dreams, leaders often sacrifice control of the company for capital — an understandable trade-off, especially when the company’s and investor’s goals align. . But over time, misalignment can emerge, especially if demand for shareholder value grows exponentially. By all means replace the core mission of the company.

Startups find themselves stuck between a rock and a hard place: They need funding to create something special, but their only options are infinite growth, or exit – for sale. And options for selling, also known as “exit,” are limited. Companies can “go public” through an initial public offering or work to be acquired by another company through an acquisition. In either case, the company risks further distraction and being served by stakeholders that do not include communities. Nor can it defend the mission the original founders set out to accomplish.

So how can startups chart a new course?

Collective open looking for an answer. Thousands of communities around the world, developing projects in areas like mutual aid and technology, depend on its open source finance platform. These groups have raised and spent more than $65 million to date, completely transparent with their financial activity public. At the same time, Open Collective is a venture capital Tech startups – owned by founders, investors and employees – with an obligation to profit.

Navigating the space between these two realities requires focus from the outset. The company decided early on that, to achieve its goal of becoming a digital infrastructure for the public good, co-founders (not investors) needed to maintain control. (One of the co-founders, Pia Mancini, is the author of this paper.)

Over three rounds of investment, co-founders retain not only majority ownership but also all board seats, which is uncommon. They knew they didn’t want to jeopardize Open Collective’s return for capital purposes, so they found investors who shared their dreams, as presented in 2016“A global infrastructure on which anyone can start linking anywhere in the world is as easy as creating a Facebook group.”

The co-founders also chose to set a 10-year term on their shares, much longer than the four-year period that typical founders take. As the co-founder of Xavier Damman wrote at the time, “There’s something to be said about setting expectations right from the start.” Over a long period of time, the co-founders signaled their intention to slowly develop a mission with lasting impact.

The founder’s control during the company’s first seven years allows Open Collective to balance building a business, now profitable and growing, with the company’s mission. But the founders won’t be here forever. So who can hold onto the dream in the long run?

Over the past year, Open Collective has conferred with other such companies, seeking answers to question about how it can avoid this biased incentive problem and future-proof its foundation for the worldwide communities that rely on it. With the help of groups like Common beliefs, Zebras Unite, MEDLaband Collective E2C; collaborative projects such as; and in conversation with many others, the company clearly understood what its way forward could be: “community exit”, transition to manager ownership and community governance.


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