3 min read
One of the first conversations I had when I moved to California was with Kaliya, about alternative models of ownership for startups. I know it's something that's come up at events like Future of Money, and it's interesting to see it emerge in USV's question of the week. What would community-owned applications look like? Are they even possible?
Growing up in Oxford, I lived around the corner from a Co-op: a national, collectively-owned chain of small supermarkets and other community businesses. Co-operative branches employ over 70,000 people, and their ownership structure makes them accountable to their communities, resulting in products and policies that are generally high-quality and ethical.
Every person who works there is an owner, and so was I: I paid £1, and in return I got a better deal and, importantly, a share of the profits. That never amounted to a lot of money, but I felt like I was part of it. This is the important bit: I also got to vote on policies, management and local representatives. It was a bit like being a part of a privately-owned democracy.
I think when a lot of people think of community ownership, they immediately imagine the stereotypical archetype of communal living, with anti-capitalist principles and heated arguments over basic ideas. That's not how it works out in practice, either for healthy small-scale communal ownership arrangements or for national co-operatives. Around the corner from me now, another co-operative - Cheeseboard Pizza - draws lines around the block twice a day, and has opened a second branch downtown. They're out to make a profit. And the Co-operative is a thriving business that includes one of the most prominent banks in the UK.
I think this model - community ownership governed by a council of representatives - could work for startups and applications, but it needs to be balanced against a startup's need to scrappily prototype and fail fast. A management bureaucracy is not going to help with those things.
So how about a community-owned venture capital firm?
One of the major criticisms of modern VC has been about the perceived bias towards exits, whatever the cost. That's for good structural reasons: firms need to deliver a return to their limited partners. The "whatever the cost" thing is overblown - investors understand the links between good business practices and good returns - but nonetheless, there is certainly room to test alternative models.
A co-operative venture capital firm would not be the same as crowdfunding. The fund would be managed by the firm's partners - but the firm's partners, investment hypothesis and policies would be voted on as part of a co-operative structure. Investment decisions would be made by representatives, in order to protect the privacy of the startups under consideration. (In other words, ordinary members, paying the equivalent of my £1 to the Co-op, would not get board-level information rights or to attend pitches.) But the fund's ethics and performance would ultimately be judged by a wide array of members, who ultimately will see dividends from the returns if it performs well. It would be, in effect, an open-access, democratically-run, rolling VC fund.
I'd consider this to be less dangerous than crowdfunding for members: there, I'm expected to do my own due diligence and keep on top of company performance. Startups also potentially miss out on the mentoring and partnership that they might ordinarily get from an investor. In this model, I have representatives that I elect, who are paid to do that diligence and nurture their portfolio based on principles and ethics that I helped vote on.