With noses pressed against the glass

TL;DR: we invested in a company called Buffer and I start to ponder radical transparency in business.

The more we think about it, the more strongly we believe that there are a few ways to think about the social impact of any given business. This question weighs heavily on us at Collaborative Fund, given our stated bias towards pushing the world forward through innovation.

The impact all of us normally think about, of course, is what a business does. We tend to be a narrow form of consequentialists. Does it sell something that we can reasonably agree is good for the world? Does it empower individuals in a way that makes our society more equitable and humane? You get the picture.

But what about how a business does that what? If a really successful social enterprise fibs to its investors, cheats its competitors, and mistreats its employees, does it still pass the ‘impact’ filter? Surely, we figure, how a business does its work is part of the equation, too.

When we met Joel and Leo at Buffer, we had been thinking a lot about this particular concept — doing good business — and had heard about their commitment to transparency. We went through a diligence process, asked them some tough questions, asked around about the team, market, and business model, and ultimately agreed to lead their Series A. We are very excited to be a very small part of the Buffer story, which has put us on a very interesting road, which we expect to be on for quite some time.

Buffer posts all of their equity calculations online. Salaries, too. In fact, Buffer posts all of their KPI’s (key performance indicators) on a public website that anybody can see. They have a distributed team, highly flexible work policy, and a culture that puts the primacy of authentic motivation at top billing. One of their employees was reported to have chosen to move to Hawaii for a month, just because. And not only did the Buffer executive team allow it, they encouraged it. As a result, they have what I can only describe as a very passionate team of thirty-odd people. It’s a fascinating experiment to watch, because it turns the notion of ‘social enterprise’ somewhat on its head for me. How many companies (of any type) would be willing to post their kpi’s to the public? To say nothing of equity and salaries? And what would that do to the organization’s performance, habits, and behavior?

Over the course of our negotiations in constructing a venture round with the Buffer team, they indicated to us that they didn’t plan on a traditional exit — or, at least, that they certainly weren’t ready to exit any time soon. With our Alignment Holdings initiative, we have been working hard on financial solutions to this situation, where the pressure to sell a company, or even to hold an IPO, is not always aligned with the executive team, or in Buffer’s case, with all of the employees either. Our thinking was that if we could write a term sheet with sufficient downside protection, that we could justify knowingly investing in a firm with incredible potential, but creative plans for creating liquidity. We proposed high-level terms which made me fairly nervous. After all, particularly today, the average term sheet has far less protection than they did 5 or 10 years ago, and far less protection than we were asking for. After a series of very productive conversations, and some creative thinking, we finally landed at a term sheet which looked unusual. It has a cumulative dividend, and a redemption right, more like a mezzanine debt or middle-market deal, but also buys a much smaller percentage of the company, and allows them to retain their board control. We felt good about this. Once we had both signed, and were feeling rather dandy about the state of the negotiation, Leo asked Craig and me: “How would you guys feel if we published the term sheet and some of our email conversations?”

He said so in a joking tone, as if allowing us to laugh it off by way of escaping the question. But we knew he meant it. And it scared us. Could we stand up to public scrutiny for the moves we had made? Was the realization that our supposedly private conversations were going to be made public a positive one, or a negative one? At any rate, we said yes, after looking at each other with a bit of a “holy shit” face. And what we can say is this: our tone, perhaps subconsciously, markedly improved in subsequent email interactions.” Which then made us wonder: if our actions were fully transparent, like government emails, surely my behavior would change for the better, right? Do we think that we can privately get away with misdeeds here and there? And, more broadly, to wit: is transparency in business an objectively good force?

Buffer is asking that question of us all, and we think it requires serious investigation. Our current instinct on it is: yes.

We were at a talk a few weeks ago where an educator was speaking about the state of the contemporary education system. In an anecdote, she spoke of a colleague who hated the concept of transparency in her classroom: “I don’t like the feeling that my curtains are pulled back and the whole world has their noses pressed up against the glass, evaluating my every move.” We found that statement powerfully evocative, and ultimately surprising. We have always thought of transparency as the opposite of secrecy, rather than the opposite of privacy. And secrecy carries with it an assumption of illicit activity (illicit and secret almost feel like synonyms, right?) so surely transparency is the force for good standing on the opposite end of it. But what of privacy? Privacy is, itself, a good too, right? Do I not have the right to privacy over my taxes, over my property, my family affairs, and so forth? And so under those circumstances, transparency is less of a good, right? So how do we make sense of this in the context of business, which is individual dealings in the name of organizations?

In publishing a few of our email exchanges to the press, our only request was that my email be blurred out, out of respect for my personal privacy.

‘Transparency breeds trust’, to crib a thought from the Buffer team. And we feel an incredibly high level of trust going into this relationship. And their transparency value is a big part of why. Buffer’s grand transparency experiment hit a cultural bullseye for us, and it is already so fun, and a great challenge to us as a firm (and the great partners who we are working with in this investment) to hold ourselves to a high standard. And it has already invited some real discomfort, and we have to imagine it will invite even more. But that is good. This is only the tip of the iceberg…!