Recently, I gave a talk at Boulder Startup Week in a panel called Exit to Community, Journey of 2 Startups in front of around 100 university students, entrepreneurs, and startup founders. The panel itself was facilitated by the wonderful Nathan Schneider, Assistant Professor at UC Boulder, Hacker Noon contributor, and co-author of the paper "Exit To Community: Strategies for Multi-Stakeholder Ownership in the Platform Economy".
As founders, we build startups to serve communities, and as users, we value the startups that help us, so in 2019 we asked: what if communities become owners of the startups? What if founders centered users in their exit strategy? An exit strategy is how we sell and transition out of business.
The two dominant options for startups are going public or getting acquired, but both exits benefit investors in ways that leave everyone else out of decisions about the startup they depend on. We decided to organize around a third option, an Exit To Community.
But a bold idea leads to many questions:
How can we make finance, legal structures, and community leadership work together?
Is the risk of a new exit strategy really worth it?
Is it possible to make everyone happy?
There is no one clear E2C approach. Startups are trying to build something sustainable, and they’ve stumbled or jumped into this idea in a dozen different ways. This session is part of a long series -- 7 webinars on specific topics, a 10-week cohort -- but this is the first time we hear from startups making the road by walking, figuring out how to make an exit to the community in their own way.
About Linh Dao Smooke: Usually, I wouldn’t talk about my own education in this kind of blurb, but it feels relevant. I went to this idealistic school called United World College for 2 years at 16 and basically believed that it’s possible to change the world for the better by attending the same environment with 200 students from almost 100 different countries. Then I went to Brown, majoring in international development and education, liberal af, as they say.
I’m a business woman now and a lot more skeptical about the state of the world but I think in my heart of hearts I'm still that 16-year-old Vietnamese who wants to believe that capitalism is not and should not be the future of humanity.
Why I think it’s relevant to mention my past: My high school friend Morshed, who I haven't spoken to in over a decade, actually co-authored the E2C paper with Nathan about the 3 options startups could use to successfully funnel ownership from greedy VCs to actual stakeholders. The universe works in such a strange, mysterious way!
Now on to the presentation...
Hacker Noon publishes stories and writes software! We are a super active community- 30 published and 60+ submitted each day- 220 years worth of reading total.
We also built our own platform for publishing, from scratch- which enabled us to remove Medium software. Our software could be used for licensing one day too.
We don’t require anyone to log in or go through a paywall. We are profitable as of now and will be profitable by the end of the year, all thanks to a robust community and a large editorial team and collection of writers too!
Our shift in 2019, Medium made a drastic move of bringing curators/publishers in and trying to remove the middle layer – that’s us – and keep the writers, a very effective bait & switch. We were one of the first collaterals of Medium's business shift (and it's not the first or last time they did it, as we soon later found out).
My husband and I were proud of doing well, but they cut off our advertising model built over the years… and we felt betrayed. Importantly… we realized all of our writers were HN writers, they identified with us, and all we needed Medium for was the software.
The community rallied behind us, and we raised over $1,000,000! That was the maximum we could raise under equity crowdfunding under the 2015 JOBS Act. The idea came from one of our contributing writers!
We had a 6 months runway New software, lots of bugs, but we love it - lots of pain and anguish. Now, 11% of the company is owned by around 1,300 co-investors.
1) The people who deserve to own the platform the most are the users who use the platform. They already know what value they get from HN, and they care the most, so they deserve to keep getting it and caring for it.
2) Independently owned with less money is better than owned by more money with many strings attached. We were approached by 4 VCs and bigger companies that in the short term would have made more sense financially, but in the long term, we won’t control our own destiny. Now my husband and I control ~70%; crowdfunding control 11%; 8% are owned by a strategic partner, Coil, which helped with the second round of funding.
3) Listen to community concerns and feedback without losing sight of your own direction. If E2C grows, people will figure out how to avoid “having too many cooks in the kitchen”. We don’t defer to users entirely!
We may continue to explore an E2C… perhaps tokenizing user activity?