Early musings on "Exit to Community" for Open Collective

(Stay up to date on our journey here.)

Part 1 of ...

Open Collective is a strange beast: furiously mission-driven, long-term oriented, and very patient. We know what we want to achieve—making communities around the world financially sustainable—and we always knew it would take time.

In the early days, the co-founders, Xavier Damman, Aseem Sood and I (Pia), had endless discussions about the funding path. Xavier raised an initial investment of $500,000 with an idea only, and we ran with that for a while.  We considered bootstrapping the rest of the way, but our own financial situations meant we needed a salary to make a living, and we didn't want Open Collective to be just a side project.

At the same time, major venture capital (VC) funding wasn't an obvious choice for us, because the usual exit paths (i.e., IPO or getting acquired) didn't feel right. Hyper-growth at any cost was out of the question, because it incentivizes profit over purpose and extractive practices toward users. Ultimately, we felt that selling Open Collective would put our mission and values at risk.

After raising small amounts in 2015 and 2016 and acknowledging that sustainability was still not in the horizon, we decided to engage with venture capital in 2017. We were fortunate that Xavier, CEO at the time, negotiated the round: he'd learned from a previous negative experience with VC and defended control of the company. We retained not only majority ownership, but also all the board seats. This is an uncommon and special thing to achieve in the startup world.

Ultimately, we ended up raising funds in three rounds (see all our investors here):

• 2015: Xavier raised $500k before Aseem and I joined
• 2016: Bridge funding of $300k from entrepreneurs in our community
• 2017: Series Seed of $2M, led by Bloomberg Beta

We managed to build a small, sustainable company, with some resources in the bank and increasing revenue. Most importantly, we had a growing community of collectives, fiscal hosts, contributors, and organizers. Impactful communities and collectives of all stripes came to depend on our platform to transparently and sustainably raise money and manage their finances.

We finally began to turn a profit in 2020, after 4 years in operation. Now, in 2021, we are reflecting on our funding journey and looking to the future. What's next? How can we achieve success as a company, aligned with our deeply held mission and values? How can we future-proof Open Collective Inc. for the thousands of communities around the world that rely on it?

These musings mark the beginning of the public phase of our exploration on a path for Open Collective to 'Exit To Community'

Exit to community: why "exit?"

Folks from the technology world will be very familiar with the term "exit," but others in our community may not be.

An exit is when investors (in our case, minority owners of Open Collective Inc) liquidate their equity (the portion they own), converting it to cash, ideally multiplying it by a factor. In effect, they exit the organization and are no longer part of the company's ownership.

As part of this process, someone else must purchase investors' portion of the company. The standard ways to exit are:

1. Get acquired (purchased) by another company, as with Microsoft's purchase of GitHub or any number of similar stories.
2. An initial public offering (IPO) where the company joins the stock market and sells equity to the public, as with Google, Apple, Twitter, and many others.

The problem with both options is that purpose and social impact don't often factor in. These pathways essentially put a company on sale to the highest bidder. And if the value the company has created is its community, that means putting that community itself up for sale. In the case of an acquisition or merger with another company, we could not ensure that our values would be maintained. If we did an IPO, the focus would shift to profit above all else.

What options do we have for stewarding Open Collective as infrastructure for the commons? Can we find an arrangement that pays back to our investors, and at the same time lets collectives and employees share in the ownership, revenue and decision-making of the platform? Who are the best stewards of the Open Collective constellation? Could our community co-own and co-govern the platform? How do we release Open Collective to the public domain? What could an "Exit to Community" look like?

How we're different

We are not, and have never been, a typical tech start-up. We see our role as not only a platform and a company, but as a steward of a financial, legal, and technological commons in service of a deeper purpose. As a result, the normal pathways do not fit, and do not align with our values.

We aim to cultivate a community of communities, with collective governance at every level. We're not interested in profit over purpose, and we don't have to be.

We are lucky to have investors who care about the purpose and our values—that's why they believed in this company in the first place. VC investors typically seek a return on investment (ROI) with a multiple in the hundred or thousands, driving companies to scale and extract profit at all costs, with negative outcomes for other affected stakeholders like users, employees, and society as a whole.

• Some of our investors are certainly hoping for a good financial return. We will be talking with them about what that could look like, what they can live with, and what they expect at this stage. Our investors are likely to invest returns from Open Collective in the next generation of purposeful, positive-impact startups. We want to become a success story about ethical investing, because the world needs more of it.
• Other investors will be happy to get back back the amount they put in, seeing the positive impact created by Open Collective in the world as a valuable type of non-financial return. Think of it as a zero interest loan.
• Some of our investors may convert their investment into a donation, seeing purely the impact created as a valuable outcome that's worth the cost.

Rather than exiting to an acquisition or IPO, we want to transfer ownership to our community. We will be working to make that a reality.

Our investors are just the first chapter of this story; we then need to design an agreement in collaboration with our community of Collective Admins and Fiscal Hosts. How can we bring them in to become the steward-owners of this infrastructure for the commons? What roles can we imagine, what power distributions?

Today, we still have more questions than answers, but we know what we want: to ensure that Open Collective is sustainable, resilient, transparent, and accountable to the communities that depend on it, for years to come.

These are only early musings. My focus, and the team's focus, is still on serving our collectives and growing the business. Why? Because the better we do, the more tools we'll have to help collectives thrive and make an Exit to Community (E2C) possible.  I plan to spend some time each week researching, talking, writing about this until we find what we are looking for.

And then, we'll build it together.

Next, I'll be writing about what options are out there for a Venture Capital-backed company considering an Exit to Community. Spoiler Alert! These are uncharted waters, but we are not alone: The E2C Collective is busy building a framework we can all use.

Plus, we've been known for being fearless. So here we go.  

Please reach out via email or Slack (the e2c channel) if you are interested, you have ideas, want to chat about this or have experience with community ownership models.

Part 2 of this journey is now published here.