Now We Know: Exit to Community Is Possible

Back in 2019, I made a plea: “Startups Need a New Option: Exit to Community.” In some circles, at least, the argument quickly caught on. This is because, for startup companies, an exit through an acquisition or public offering is the goal that all else points toward. It is the payoff for founders, investors, and early employees. I contended that the roots of the exit as we know it are rotten. Exits turn companies into commodities, and exits often turn those companies against the people who rely on them most. We need a different kind of exit that is just and accountable, an exit to community.

As the E2C meme first spread, I heard from founders and others looking to do a community exit themselves. But I didn’t have a model or a blueprint to offer—just a vision and a story that I hoped we could learn to tell together.

To develop the idea, I teamed up with my longtime collaborator Danny Spitzberg. Years before, we had tried to turn Twitter toward community ownership, with a provocative shareholder proposal that appeared on the company’s 2017 ballot and made news worldwide. (If we had won, perhaps Twitter would still exist.) In early 2020, we started an E2C webinar series and joined with Zebras Unite to run a cohort program for founders interested in the idea. We published a zine and a trailer video, and E2C was featured in a special on PBS. Danny also co-founded the Exit to Community Collective, a group of journalists, marketers, stakeholder engagement specialists, and academics working to advance E2C in practice. In the years since, we have quietly supported and learned from a variety of experiments, helping entrepreneurs push the limits of what is possible. Memes, we believe, will only take us as far as they are backed up by the hard work of courageous pioneers.

As a new year arrives, I am thrilled to announce the release of a new library of E2C stories that the E2C Collective has created at E2C.how. Our “snapshots” are brief, structured case studies that give a taste of the many diverse ways that startups have been trying to grow into community ownership and governance, albeit with mixed results.

The snapshots range from my Colorado neighbors Namaste Solar and Trident bookstore, which converted to employee ownership, to major open-source software projects like Debian and Python, which are mini-democracies accountable to their developers. There is NIO, a Chinese electric car company whose founder set aside a chunk of stock for car-buyers, and Defector Media, a co-op founded by employees who quit their previous job in protest. There are also blockchain-based efforts, like Gitcoin and SongADAO, that have tried to make good on a new technology’s often-betrayed promises for making a more inclusive economy.

I have taken two main lessons from these snapshots so far.

1.There is widespread craving for a better kind of exit—and the creativity to back it up.Entrepreneurs, investors, users, and workers alike are all recognizing the need for a new approach, and they are trying lots of different ways to get it. They are relying on old technology and the latest innovations. They are using many different legal structures and techniques for empowering communities. The resourcefulness is pretty astonishing, really.

2.Better exits need to be easier—and this will require structural change. In just about every case, E2C attempts have faced profound challenges. They are often working at the very edge of what the law allows, because many of our laws were written to serve profit-seeking investors, not communities. Much of what communities wanted was simply not possible. Truly changing the landscape of exits will mean policy change that takes communities seriously as sources of innovation and accountability.

I want to stress this second point. It first became clear to me when working with collaborators at Zebras Unite on the idea of turning Meetup into a user-owned cooperative. The founder wanted it. The business model made perfect sense—a rare platform whose users actually pay for it. The company was up for a fire sale. But we simply could not find investors or lenders prepared to back a deal like that. This is a problem I have seen with many other co-op efforts, over and over. Policy is the most powerful shaping force for where capital can aggregate, and there is no adequate policy to support capital for large-scale community ownership. This is also the reason we have lost many community-owned companies in recent years, from New Belgium Brewing to Mountain Equipment Co-op—the most successful community-owned companies too often can’t access the capital they need to flourish.

I’ve seen the same pattern repeat itself with blockchains, where the E2C idea has taken hold more than anywhere. Blockchains can enable organizations that are collectively owned and governed by their users, and millions of people have been attracted by possibility. But what has happened in practice? Any time a new project started gaining traction, it would become drowned in investment from the same venture-capital firms that fueled earlier kinds of startups. The driving force became not the tech or the communities but the investors, once again.

This pattern is not inevitable. History has demonstrated that, with the right policy in place, large-scale capital access for community ownership is possible. That’s what happened after 1936, when the US government passed the Rural Electrification Act; thanks to a (revenue positive!) loan program at the Department of Agriculture, cooperatives now operate nuclear power plants and deliver high-speed Internet in once-underserved areas. In 1974, a relatively small change to the federal tax code unleashed the employee stock ownership plan, or ESOP, which has enabled millions of workers to become co-owners of the companies where they work.

Today, most policy that governs taxation and finance is built on the assumption that investor profits at all costs is the norm and the ideal. As Marjorie Kelly powerfully argues, this assumption is intolerable. We need to demand changes that reorder how capital is able to be organized and deployed. These changes can be relatively small to make a difference—tweaks to tax codes and securities laws, for instance—and they can win support from diverse constituencies.

Too often, I have come to believe, advocates of cooperatives and community ownership have put their energy downstream of the real policy problems. They focus on gaining access to small loan funds and technical assistance for small companies. But they neglect the upstream challenge of exits—and other endgames for the most successful companies in the economy.

Unless we change the options available at the highest levels, any gains that communities make for early-stage companies can be erased once companies grow and need capital at the highest levels. On the other hand, when community ownership flourishes at large scales, that’s an attractor — something the whole rest of the economy can start moving toward.

Rather than fighting over crumbs, advocates of community ownership should be asking: What change will we win for community ownership that does for future generations what our predecessors won for us? Historically, major structural change for community ownership has involved a three-step process.

First, the experiments: creative, path-breaking people demonstrate the need and the possibility of something better. This is where E2C is right now, and our snapshots portray that experimentation beautifully. Now we need to learn from those experiments, identifying what works and where the barriers lie.

Second, the policy: Here’s when we build on the experiments, which hint at what is possible, and try to break down the biggest barriers in the way of unleashing economic justice. We assemble broad coalitions to advocate for achievable change, grounding our stories in the experiences of people who need change the most. And we win.

Third, the practice: Policy is only the beginning. What matters more is what we do with it. Here, we need to grow our movements and our culture to use the new policy in the best ways, and we watch out for those who want to exploit our policy—as any policy can be exploited. We spread, and community ownership becomes a new normal.

I have hunches about the kinds of policy E2C needs, but above all I am interested in learning from a shared conversation. What paths should we be organizing around? The tax code? Public loan guarantees? Securities exemptions? What would have the greatest effect for community ownership at the most achievable political cost?

Four years after first calling for E2C, I have become more convinced than ever that focusing on the exit—the goals the economy sets, not just its entry-points—is the right place to be. I hope more people recognize how vital it is to rethink what startups aim for.

Meanwhile, I am grateful for all those who have worked together to make this new phase possible through the E2C Collective. That includes, currently, Hazel Devjani, Adina Glickstein, Valentine Erokhin, Nanz Nair, Marisa Rando, Sheba Rivera, and Eli Zeger. Danny Spitzberg kept the Collective moving when no one else did and. The team is continuing to create resources and support teams exploring their own community exits. These people are weaving a fairer kind of economy into being. Please consider supporting their work through Open Collective (which is also a company pursuing an E2C).

I published my initial call to “exit to community” here because Hacker Noon is a Colorado-based, family-led company; it used an equity crowdfunding campaign to remain independent of conventional venture-capital pressures. Now it is one of our snapshots. Everyone doing E2C today has had to go against the grain of mainstream startup culture, facing unique challenges as a result. Someday, I hope that what Hacker Noon and others have struggled to do will be easier, that building with and for community will be the obvious thing to do. This, we now know, is possible.

Artwork by Marcos Osorio, via Stocksy, a worker-owned co-op.