At Union Square Ventures, network effects have been central to our investment thesis for a decade. From an investor perspective network effects are one of the few, possibly the only, source of sustainable competitive advantage in a world where almost everything else can be copied quickly. But we also early on recognized that this has the potential for setting up a deep conflict between companies that operate networks and the participants in those networks: the value to shareholders can be increased through rent extraction from the network. And with many network effects companies reaching near monopoly status the potential for harmful rent extraction has grown. Harm can come in many forms, such as directing too much attention towards commercial use or suppressing innovation.
One response to this problem of how to be a good steward of a network has been my advocacy for the Public Benefit Corporation. I participated in a session with Delaware legislators and spoke when the governor signed the PBC status bill into law. Since then our portfolio companies Kickstarter and Human Dx have both converted to PBC status. Effectively in each case they are making a commitment in their charter to be good steward of their respective networks not just for the benefit of shareholders but for the benefit of all.
But our exploration of alternative ownership structures for network effects businesses should not stop there. Much more experimentation is needed as well as an understanding of historic forms, which showed much more diversity than one would be led to believe from the current dominance of the singularly shareholder focused C Corporation.
I therefore strongly support the shareholder proposal to study alternative forms of ownership for Twitter.
Here are four examples of ownership structures that could and should be examined:
Co-operatives. These have played an important role in the creation of utilities of various kinds from grocery distribution to telephone networks. Generally the members contribute capital to build some piece of shared infrastructure.
Mutuals. Insurance is inherently a network effects business and many insurance companies started out as mutuals. These are similar to co-operatives and may have membership fees but tend not to require an initial contribution of capital.
Self ownership. Companies can own themselves in whole or in part via a trust, club or foundation. This is an ownership structure that has been quite common historically in Europe. The role of the owning foundation tends to be to uphold the longterm purpose (see presentation by Purpose AG which has been set up to help companies convert to such a model).
Decentralized. With the invention of Blockchain Technology we may be able to unlock entirely new ownership structures, where there is no need for a central corporation at all and the network is directly owned by its participants.
We live in a time of great change due to the extraordinary new capabilities given to us by digital technologies. We should not be stuck in one model of corporate ownership. Now is the time to experiment!
