Posts from law

Network Equity

Our portfolio company LaRuche is leading an effort in France to allow platforms to share the equity in their businesses to the broader network of participants on their platform. As more and more businesses leverage the power of networks to create economic value, there is a question of whether the network participants should share in the value they help create.

Reddit has expressed a desire to share equity in Reddit with its community and went as far to announce that intention when it raised capital in the fall of 2014. The last I heard, Reddit had put those plans on hold in anticipation of more regulatory clarity around this issue.

Regulatory clarity is what is lacking, both in the US and in other countries, and France is no exception. Marc-David Choukroun, co-founder and CEO of LaRuche, wrote a tribune in Les Echos, the leading financial newspaper in France, explaining his views on the issue. I’ve pasted a translation of it here:

Long seen as the future, the sharing economy is now accused of being responsible for all society’s ills. In response, some experts on the new economy have suggested that platforms should be transformed into cooperatives. But is that really such a good idea?

By Marc-David Choukroun, CEO of The Food Assembly (La Ruche qui dit Oui !).

Not so long ago, the sharing economy was seen pretty much universally as a sort of magic bullet for the social and environmental crises of our times. Then, all of a sudden, the tone changed. The new economy was blamed for a whole swathe of ills, including widespread job insecurity, excessive commercialisation, and generalized fraud. The spectre of “Uberisation” is hanging over the world. The problem is that, while attempting to apply this concept to just about anything, we foolishly let the debate become polarised between the partisans of California-style capitalism and the white knights of the common good.

In the midst of this great wave of criticism, which has often been justified but sometimes excessive, the following idea is increasingly being put forward: that online platforms should be transformed into cooperatives. Give or take a few details, is the sharing economy not a form of unconscious mutualism? Indeed, leading specialists in the new economy met recently at a conference entitled “Platform Cooperativism” in New York to debate this question.

There are upsides to the idea: after all, the concern of fair sharing of value between users, freelancers and platforms themselves is a fully legitimate one. But I am rather afraid that this idea may be a bit more difficult to put in place than it seems. As things stand, the structure of a cooperative involves a lot of complications that make it ill-adapted to digital companies.

In 2011, I co-founded a collaborative platform called “La Ruche qui dit Oui !” (“The Food Assembly” in English). At the time, the concept of the “sharing economy” hadn’t yet emerged. And to be quite honest, we didn’t care much about labels. We knew that if we were to have any chance of taking the slightest bit of ground from the giants of food distribution, we could not afford to remain just one more “local food” initiative. And if, as we say in start-up jargon, we were to “scale up”, then the form of a commercial enterprise was a must.

Is there a legal structure that is perfectly suited to this sort of hybrid entity, somewhere in between a conventional business and a network? We very seriously considered the cooperative option a year ago. The conclusion was clear: as things stand, the idea doesn’t really stand up. The form of a cooperative involves a certain number of requirements that are complicated, and above all incompatible with managing an innovative start-up. Firstly, their governance is arduous and complex, while agility is needed. And secondly, the diversity of statuses and motivations in our network – some are guided by a spirit of activism, while others are simply seeking some extra income – is one of the strengths of our model. Another major difficulty is that the shares in cooperatives are fixed at their nominal value of issue, which is just inconceivable for a growing start-up(*).  

It is also difficult for cooperatives to raise funds, as the complexity of their structure tends to deter investors, yet the costs of developing and maintaining a platform are far from negligible: the largest collaborative platforms employ hundreds of developers. It is therefore best to avoid economic purism and one-size-fits-all solutions.

That does not mean that the issue of sharing value fairly should not be raised – far from it. It is evident that the success of a collaborative model relies largely on the commitment of the members of its community of contributors. It would be fair to be able to involve this new type of entrepreneurs in the company’s capital. In an economy that involves more and more freelancers, this is even a key issue.

Yet instruments to reward them already exist and simply need to be adapted, such as stock warrants for business creators (bons de souscription de parts de créateur d’entreprise, BSPCE) in France. These are stock options that can be awarded free of charge to the employees of a company. To strengthen our ties with the freelancers in our network, this instrument could simply be expanded beyond employees alone – for a new sharing of risk, a new sharing of value is needed. A cooperative system compatible with the digital economy still needs to be built, so let us start by laying the first foundations.

Marc-David Choukroun is a co-founder and the CEO of The Food Assembly (La Ruche qui dit Oui !).

(*) On this specific point, it is important to note that a number of exceptions are possible, complicating matters further still.

Like many political debates, there are many views on this issue. The purists would like to see cooperativism strengthened and applied to these platforms. Others want to regulate these platforms to protect the workers/freelancers in a union style model. But the middle ground, which seems more sensible to me, is to allow platforms an easy and elegant way to share their equity with network participants so that the broader ecosystem can share in the value these platforms are creating.

I hope the French government sees the wisdom of this approach. It would be great if governments around the world, including, of course, the US government, would evolve the legal and taxation frameworks around the sharing of equity so that network platforms can choose to share the value creation with their broader ecosystem.

Next Wednesday Is The Internet Slowdown

We’ve talked a lot here at AVC about Net Neutrality. I hate that term because it’s got so much baggage now that it is essentially meaningless to me. What I want to see is a framework that everyone agrees to (application developers, bandwidth providers, last mile access providers, and the regulators) that says you can’t prioritize one bit over another in the last mile access network and you can’t charge application developers to deliver their bits to the end user.

This issue is coming to a head at the FCC as the comment period is ending and some sort of decision will be made this fall. So next Wednesday, September 10th, is the Internet’s opportunity to stand up and be heard.

If you are with me on this issue, please consider joining the Internet Slowdown campaign next Wednesday. There are all sorts of ways you can do this. You can change your avatars on your social media profiles, you can send push notifications if you operate a mobile app, you can put a slow loading graphic on your blog or website (there are WordPress widgets if you are on WordPress like I am).

And if you still aren’t convinced, please read Chad Dickerson’s piece in Wired this week on why this issue is important to businesses and everyone who uses the Internet to reach their customers and/or audience.

Is Coding Speech?

We got into an interesting discussion yesterday at USV during our analyst interview process. A candidate said that he believes coding is speech and so applications should be protected like speech is protected.

Of course, not all speech is protected and not all code should be protected. I went to Wikipedia this morning and read a bit up on the law on this. From the “hate speech” page on Wikipedia:

Some limits on expression were contemplated by the framers and have been read into the Constitution by the Supreme Court. In 1942, Justice Frank Murphy summarized the case law: “There are certain well-defined and limited classes of speech, the prevention and punishment of which have never been thought to raise a Constitutional problem. These include the lewd and obscene, the profane, the libelous and the insulting or “fighting” words – those which by their very utterances inflict injury or tend to incite an immediate breach of the peace.”

I suspect we can all come up with examples of code that would not be protected. Malware being the prime example.

I’m curious if there is case law on protecting code as speech and also if there is any case law that defines what kinds of code would not be protected.

To all the lawyers in the AVC community, can you educate us on this? I’m curious and I suspect others are too.