The cryptocurrency and blockchain sector has proven to be ripe development ground for innovative new ways of doing things. In particular, the idea of tokenizing real-world assets is still nascent, but gaining traction. Now, a radical new strategy called “exit to community” is emerging, that involves tokenizing shares in a company to turn stakeholders into stockholders.
Unlike traditional founder exit strategies that involve handing over control of a company to investors or shareholders, exit to community (E2C) means giving a tokenized stake to a broader group of customers, users, suppliers, or other interested parties. It’s currently very much in its infancy, but it could ultimately prove to have revolutionary potential to change the way people engage with platforms and companies. Furthermore, it could create new and more equitable avenues of wealth creation.
Yonatan Ben Shimon is one of a small group pioneering the exit to community approach. Here, he explains more about this emerging concept and what he believes it could mean for startups.
What are community-focused business models?
Community-focused businesses are those that rely on their community of stakeholders. A stakeholder approach involves thinking about how to return value to all of the parties involved in a company or a project – not just the ones who put the money in, which is a typical shareholder or investor-centric model.
A community-focused business model means considering users, vendors, employees, and other interested stakeholders as investors and developing a plan regarding how to distribute ownership of the business to them.
Can you explain social capital and where it exists, or why it is important?
Social capital links back to my previous answer, if you consider that stakeholders to a business contribute value to it beyond pure financial investment. On a social platform like TikTok, users create the content that makes it a valuable platform. Without its network of drivers, Uber would just be an app. In the cryptocurrency space, decentralized exchanges depend on liquidity providers, without which nobody would use the exchange because it would be illiquid.
So, social capital describes the financial value of the work of the stakeholders.
Whereas a typical exit transaction for a business involves handing over control to a set of investors or going public with an IPO, I believe that the ultimate community-focused business model is the exit-to-community model, where the community takes over.
It’s important to compensate these value creators for their social capital, with an ownership stake in the business, providing them with financial capital. Principally, because they are the ones driving the business.
Can you share your thoughts on some potential future use-cases of these models?
I believe that in the near future, every online company that derives its value from its users will be owned by its users. Currently, we’re seeing uses of blockchain where users and network participants get rewarded for their participation, such as for watching adverts. This is already a significant departure from the “old” model where the customer is the product.
The natural next evolution, therefore, is that stakeholders will be rewarded with ownership, rather than token-based rewards. The enabling infrastructure for this is already starting to emerge. For instance, Fairmint allows any project or company to make its equity programmable, referring to the era of “stakeholder capitalism.” It’s the same idea as exit to community, just a different term.
What kind of changes do you think we’ll see over the coming decades as a result of these kinds of business models gaining wider adoption?
It will become much easier for anyone to make a living. Under the current model, only a few people are compensated for the input and effort of many. We spend a lot of time engaging with platforms and products that don’t reward us for participation. Even employees mostly miss out on a large proportion of the value they create.
If everyone was fairly compensated in financial capital for the value of their social capital, the world would become more equitable, and people will find it easier to generate income.
How big a factor does technology play in these businesses?
Technology is a huge factor as an enabler for these kinds of business models. Blockchain can allow founders to fairly measure someone’s input and engagement to it and automatically assign ownership rights according to their contribution. This can be programmed to happen automatically using smart contracts. Blockchain can also assign weighted voting rights to participants in the same way, allowing them to have a say in the project’s future.
Is YBS Capital looking for companies to invest in?
Yes, we are looking to invest in companies that are interested in helping to make this change happen. We’re particularly interested in platforms that are marketplaces empowering creators to monetize their content, whether they’re developers, videographers, podcasters, writers, or data scientists. Also, platforms that enable people to provide financial services to others, such as lending or liquidity. We’re also interested in talking to companies that are already distributing equity or tokens to their stakeholders and companies that are building the infrastructure to enable these kinds of business models.
Companies that work with us can benefit from up to $3 million in investment, along with support in executing an exit to community strategy. We help to create a token and an ecosystem around it that can help distribute the token to its community of stakeholders. From the practical perspective, we offer services including providing liquidity to the token, code reviews, and partnerships with other communities and projects that can stimulate the growth.
Yonatan Ben Shimon is a serial entrepreneur with a passion for discovering how digital assets can unlock new avenues of wealth creation. He started his career as a securities analyst, but in 2013 he became interested in cryptocurrencies as an emerging asset class and never looked back.
Yonatan has been involved with projects including privacy coin Beam, art marketplace Collectorshub, virtual accelerator Celocamp, and Unipool, a union for Uniswap liquidity providers. In 2020, he decided to launch YBS Capital as a firm dedicated to furthering the idea of community-based business models, with a focus on Exit to Community strategies.