Exit strategies ensure that infrastructure remains available even after the initial organization may dissolve. What would it mean for an organization to transfer their company to the community?
In this hypothetical, we will explore E2C strategies for One Knowledge, a hypothetical worker-owned CRO, and their hypothetical research tooling innovation marketplace, named Research for All.
One Knowledge is a worker-owned CRO dedicated to the development of open source research tooling and infrastructure for public benefit. In furtherance of its mission, Our Knowledge has developed Research for All (RfA), an innovation/problem-solving platform via contests for the development and maintenance of research tooling, with an initial grant of $5,000.00 from a grant-making foundation.
On the platform, there are three primary stakeholder groups:
Proposers: entities that propose a contest and offer a cash prize and other rewards for the development or maintenance of a research tool1;
Sponsors: entities that provide funding or sponsorship for challenges; and
Contestants: entities that submit solutions in response to a challenge.
Our Knowledge charges a service fee to Proposers to host their challenges on RfA.
In such contests, the proposer proposes the challenge and the rewards for a suitable solution, the sponsor provides funding and other support (e.g., software or hardware tools) to contestants, and contestants submit solutions, in the form of proposals, to the contest. The proposer judges2 the proposals to find the best solution(s), and then distributes rewards to the contestants with the best solution(s) (i.e., winners). A proposer, judge and sponsor can be the same entity.
Our Knowledge allows proposers to determine the rules for a contest, within reason, and for proposers to moderate submissions and contestant interactions in contests, subject to RfA’s Code of Conduct.
Our Knowledge also provides special rewards for contests for the maintenance of research software. For these contests, Our Knowledge offers recruiting services and a paid fellowship with a participating sponsor to conduct research or build research tooling to the winners.
Our Knowledge has successfully run RfA for 4 years, hosting more than 1,000 challenges, with prizes as high as ~$50,000.00 USD, fostered the development of new research infrastructure, and raised RfA’s user base to ~2,000 users.
Our Knowledge builds community with RfA’s user-base by:
hosting events in-person and online,
releasing product updates on its blog,
attending relevant conferences,
requesting and acting upon feedback from users,
joining relevant podcasts,
publishing user-written essays in a community blog touching on topics related to research tooling,
allowing users to co-manage a wiki covering the RfA platform with Our Knowledge members,
allowing contestants who have won prizes from previous contests to act as judges for contests,
hosting a discussion forum(s) for RfA’s user-base to interact and discuss about contests, research tooling, and other topics, and
promoting contests and contestants on social media platforms.
After such a long period of time, the members of Our Knowledge realized RfA has now become essential infrastructure for the development and maintenance of research tooling used in academia, industry, and other sectors.
Additionally, Our Knowledge has come to realize how important RfA’s user-base has become to the operation and growth of RfA.
The founders, along with the other members of Our Knowledge, started to consider whether an E2C was appropriate for RfA, after reflecting on Our Knowledge’s mission, the costs of managing RfA, and their reasons for starting Our Knowledge as a CRO.
Specifically, Our Knowledge members are acknowledging that managing RfA is becoming more difficult and costly as RfA continues to grow, and that managing RfA limits Our Knowledge’s ability to conduct other work in furtherance of its mission because of the need to keep RfA stable and running.
Additionally, given that the RfA user-base already participates in community-building activities and helps manage the platform, RfA’s user-base, if willing, could develop into proper stewards of RfA. Thus, ensuring that RfA could be maintained as community-owned infrastructure that can align the interests of stakeholders with the long-term development of RfA. In doing so, Our Knowledge can ensure that RfA will meet needs of the RfA user-base, the people closest to or most impacted by the platform, while also providing a public benefit in that the platform will still be used to develop and maintain research tooling for academia, industry, and other sectors.
Our Knowledge members then completed the E2C Screening Questionnaire, described in A.1. in the Appendix, to determine whether an E2C was appropriate in their circumstances. The members found that E2C was an appropriate exit strategy after answering yes to all of the questions.
The founders, along with the other members of Our Knowledge, held a vote at Our Knowledge’s Annual General Meeting (AGM) on whether to plan an E2C for RfA. The vote passed in favor of planning an E2C for RfA.
Now, Our Knowledge is considering E2C pathways for multi-stakeholder ownership of RfA that also preserves the purpose of RfA.
the ability to raise capital, and
future-proofing RfA’s purpose.
Following along with Exit To Community: Strategies for Multi-Stakeholder Ownership in the Platform Economy, Our Knowledge will primarily consider three pathways for an E2C: 1) a stockholding trust, 2) federation, and 3) tokenization.
Our Knowledge plans to consult with an advisor(s) (e.g., Common Trust) knowledgeable in E2C pathways.
Primarily, the advisor will assist in:
determining the feasibility of an E2C strategy and whether it is aligned with the interests of key stakeholders,
designing E2C pathways,
developing a financing strategy, and
supporting the new owners/stakeholders to lead and steward the new organization.
Our Knowledge also plans to keep RfA’s user-base informed about the E2C by 1) publishing updates on the E2C transition on RfA’s blog, 2) creating a new section on the discussion forum to discuss E2C pathways, and 3) creating a Transition Facilitation Team (TFT), consisting of key stakeholders from RfA’s user-base, Our Knowledge members, and advisors to develop a transition plan and other E2C-related outputs.
The TFT has developed possible pathways for an E2C, further described in the sub-sections below, and plans to present the pathways to RfA’s user-base in a blog post.
As part of every pathway, the TFT will host a membership drive, that will first be open to RfA’s user-base for a year, before opening the membership drive to the broader public, while raising other funding for the transition with their advisor’s aid such as debt or loan financing. The goal of the membership drive is to raise ~$25,000.00 and have ~200 founding members. The funds from the membership drive will be used to pay for legal fees and other fees associated with executing the transition.
You can find a general decision flowchart for deciding upon an E2C pathway here.
If pursuing a stockholding trust, the TFT will likely a consider multi-stakeholder stockholding trust. Our Knowledge is likely to follow the example of Organically Grown Company, rather than the aforementioned Patagonia because Our Knowledge acknowledges the need for stakeholder representation in RfA’s governance.
In pursuit of a multi-stakeholder trust, the TFT will form two new organizations:
Research for All Holdings (RfAH): a corporation with preferred (non-voting) and common (voting) shares; and
Research for All Trust (RfAT): a PPT for stewarding the mission of RfA and distributing benefits to RfA’s stakeholders.
RfA’s stakeholder groups (employees, proposers, sponsors, and contestants) will receive voting shares in RfAH, with a class of voting shares per stakeholder group. In other words, there are four voting classes in RfAH: 1) employees, 2) proposers, 3) contestants, and 4) sponsors, with all classes having equal voting power (i.e., one vote per class).
RfAT will hold and manage the voting shares for all classes.
The trustee for RfAT will be elected by RfA’s stakeholder groups, as part of a four-member Trust Protector Committee (TPC)3, with each stakeholder group having the ability to elect one committee member. The TPC will elect and oversee the Board of Directors (BoD) of RfAH, who will handle RfAH’s administration, and recruit officers and employees to operate RfA.
Our Knowledge will be the trust enforcer of the PPT, acting as the arbiter of disputes between the TPC and stakeholders, “deciding whether or not the T[P]C has violated the terms of the trust agreement or fallen short of its responsibilities.”
Our Knowledge will grant RfAH an exclusive license to commercially operate RfA in exchange for thirty-percent (30%) of the total supply of preferred shares.
Within the next five to ten years after establishing RfAT and RfAH, Our Knowledge will transfer all of the rights to RfA to RfAT in exchange for an additional ten-percent (10%) of the total supply of preferred shares, and thus, completing the transition.
The TPC will develop a profit-sharing program, to be executed by the BoD of RfAH, to share a percentage of the profits with RFA’s stakeholders.
The TPC will also offer preferred shares to investors to support maintenance and R&D efforts for RfA.
TFT will create Research for All Cooperative (RfAC), a shared services cooperative providing the RfA platform and other technology services to members. RfAC will have both common and preferred shares, to be used in the same manner as described in the the stockholding trust pathway.
Our Knowledge will grant RfAC an exclusive license to commercially operate RfA in exchange for thirty-percent (30%) of the total supply of preferred shares. Within the next five to ten years after establishing RfAC, Our Knowledge will transfer all of the rights to RfA to RfAC in exchange for an additional ten-percent (10%) of the total supply of preferred shares, and thus, completing the transition.
Membership in RfAC is restricted to organizations that plan to host their own contests on RfA for the development or maintenance of research tooling. Thus, it is only the proposer and sponsor stakeholders that can become members because they create and manage contests. As members of RfAC, proposers and sponsors can run their own instance of RfA (managed or non-managed) for private contests, which can be customized to meet their specific needs, or use the RfA platform for public contests. RfAC members are required to pay a membership fee to join, which could be the purchase of an annual subscription like OCLC for the use of the RfA software or a one-time payment, and then pay annual dues thereafter.
Through RfAC, members will achieve cost-savings from not having to individually host RfA, gain access to improvements and new services, and have governance rights to direct the development of RfA and “the price and quality of services and products” by electing the BoD.
RfAC can also provide additional services beyond offering RfA. Similar to CoopCycle, RfAC can provide members with custom services, customer support, community development services, and other additional services.
If pursuing tokenization, Our Knowledge can follow in Gitcoin’s or Optimism’s footsteps and create a DAO and a token allocation scheme.
The TFT will create a new organization, RfA DAO, a stock-issuing legal entity4, and tokenize its common and preferred shares on the Ethereum blockchain.
Our Knowledge will grant RfA DAO an exclusive license to commercially operate RfA in exchange for thirty-percent (30%) of the total supply of preferred shares. Within the next five to ten years after establishing RfA DAO, Our Knowledge will transfer all of the rights to RfA to RfAC in exchange for an additional ten-percent (10%) of the total supply of preferred shares, and thus, completing the transition.
The TFT will develop educational materials on the transition and background information on Web3 technologies and DAOs for RfA’s user-base to account for the specialized knowledge needed to interact with Web3 technologies.
The RfA DAO will utilize a multi-stakeholder governance model, similar to the stockholding trust scenario, with each stakeholder group (employees, contestants, proposers, and sponsors) having an equal amount of voting power and electing one representative to serve on RfA DAO’s BoD.
The RfA DAO will govern a dual-token ownership model, with soulbound tokens (a token that can only be transferred to and from the DAO) representing governance rights (similar to common shares) in RfA DAO, symbolized as $GOV, and a transferrable economic token, as an ERC-20 token, for investment (similar to preferred shares), symbolized as $FUND.
$GOV tokens are reserved solely for RfA stakeholders (employees, contestants, proposers, sponsors). There may be additional qualifications added to determine if a stakeholder can hold $GOV tokens. RfA DAO will also require $GOV holders to have a unique digital identity to prevent sybil attacks, possibly through a personhood protocol such as Proof of Humanity. $GOV holders can, and are encouraged to, also hold $FUND tokens.
$FUND token holder’s economic right includes an accrued fixed percentage (e.g., 4%) of profit from RfA DAO’s treasury via staking $FUND tokens, delivered annually as a dividend. Dividends for $GOV and $FUND token holders will be paid in $USDC, a stablecoin pegged one-to-one to the US dollar. RfA DAO will develop a staking application for both $GOV and $FUND holders.
The RfA DAO will earn revenue from collecting fees from contests hosted on the RfA platform. Service fees accrued on RfA are split into four funds:
Rainy day fund (10%): a fund for any emergencies
Staked $FUND (30%): a fund for $FUND holders who stake their $FUND tokens
$GOV holders (30%): a fund for $GOV holders
Maintenance fund (30%): Maintenance and administration of RfA
RfA DAO will list $FUND tokens on a Decentralized Exchange (DEX) such as Uniswap to increase the liquidity of the token, and to collect fees from exchanges as a liquidity provider.
Our Knowledge will act as the initial administrator of the RfA DAO for one to five years, generally tasked with dispute resolution and proposal execution (i.e., executive and judicial functions), while the TFT educates $GOV holders on how to govern and steward RfA and RfA DAO.
In all three pathways, Our Knowledge remains independent so it can focus on its mission, while providing RfA’s user-base the ability to co-govern and -design RfA to meet their needs.
In considering these pathways, the TFT will evaluate the pathways by returning to their initial purpose and goals for conducting an E2C.
After considering all three pathways, Our Knowledge’s advisors suggested for Our Knowledge to consider a federation or stockholding trust pathway, because both pathways have historical precedents, there are recent examples of cooperatives adopting such structures, and both pathways can be executed without compromising on the cooperative values.
The advisors preferred the stockholding trust to the federation pathway because a stockholding trust is will represent the interests of contestants and employees, who may not be represented in a federation, which could lead to a power imbalance between contestants and employees, and proposers and sponsors.
The advisors recommended against Our Knowledge pursuing the tokenization pathway because 1) tokenization is still a very new pathway that requires more experimentation before becoming a go-to strategy for cooperatives, 2) it is uncertain whether such a strategy is doable without compromising on cooperative values, 3) the regulatory landscape is uncertain for tokenization, 4) it is more complicated setup than the other pathways5, 5) tokenization requires users to be knowledgeable about DAOs and Web3 technologies such as wallets to participate in the DAO, and 6) there is not enough evidence to suggest that tokenization leads to collective enfranchisement of a user-base.
Given the goals of Our Knowledge, the advisors summarized Our Knowledge’s desired features, and whether a pathway implements the feature, in the table below.
A pathway could either receive a yes, partially, or no, regarding a feature.
Additional considerations are also described in the table below.
Knowledge Barrier for Users
Lastly, Our Knowledge may also not be content with any of the pathways presented by its advisors. Instead, Our Knowledge may work with its advisors to develop or find another pathway that meets their requirements.