Thursday 19 January 2017 4:22 am

The gateway to a new business order: Why crowdfunding is just the start of the next era of organisations

A new campaign appeared on crowdfunding platform Crowdfunder this week. Scottish energy firm Our Energy is raising £450,000 to set up an alternative gas and electricity provider.

Fed up with Big Six high tariffs and just “lining shareholders’ pockets”, founders David Pike and Karen Snode decided to start a competitor, with plans to be operational by the end of the year.

In addition to furnishing consumers with a new provider, Our Energy is also using the crowdfunding mechanism to create a new sort of business model. Customers will have voting rights and will be given an annual rebate worth 75 per cent of profits. As the company grows, shares will be transferred back to customers, rather than sold to, say, private equity firms or pension funds. Our Energy will offer a Green Tariff, and provide complete transparency of within-business pay.

Of course, “democratising” business ownership (which is what this ostensibly is, albeit very similar to what Coop Energy offers) is what crowdfunding as a sector prides itself on – you get a good service and an investment. But innovating firms still have to operate within the current legal structures for companies. The question for anyone interested in brand new forms of ownership and organisational structures has to be around decentralisation and, ultimately, distributed models – where data and power are spread across networks.

If crowdfunding is an early iteration of how digital technology helps distribute the potential to make money, what comes next?

Distributed ledger technology (including blockchain) can be used to log ownership, transactions (very nearly in real-time) and execute smart contracts. Indeed, many claim the technology could replace the marketplace lending favoured by leading alternative lenders, where money is lent off the platform’s balance sheet, in order to keep supply and demand in equilibrium. A smart contract could, without a middleman – be that a bank or platform – guarantee a payment to a borrower, provided certain criteria are met. Or guarantee lending for the investor, based on exposure parameters.

Having a go

Meanwhile, there has already been a shambolic attempt to enable the evolution of a new form of company on the Ethereum blockchain – the Decentralised Autonomous Organisation (DAO). It ended in tears last year (with $50m being nicked in a hack), yet despite unresolved security issues, those behind it were attempting something never before tried: to offer complete transparency, shareholder control and autonomous governance via a set of (smart) contracts between members.

Crucially, the DAO was an attempt to create an organisation and enforce the ownership and governance of it without the backing of the state. It might have gone Pete Tong, but this is an important suggestion of a paradigm shift. Incorporation is a creature of statute. Setting up a company (and it’s pretty similar the developed world over) requires registration with Companies House, an executive agent of the government. Of course, our august system of company creation and legal enforcement is something to be proud of. After all, it underpins the capitalism that makes us increasingly prosperous.

But what might new systems look like?

Litmus test

To take a guess, consider just one technology about to take off – one that will make everything we do much, much faster. Quantum computers have meant that those working with distributed ledger technology have already had to start thinking ahead of themselves.

A quantum computer could break blockchains (by calculating private keys from public keys) in minutes, giving it access to information and money. A solution may be found in more sophisticated cryptography, but nevertheless, a new report out late last year from the Global Risk Institute estimates that 50 per cent of public key cryptography will be broken by 2031.

This is relevant because it tells us how fast things can change in the digital era. Imagine setting up an organisation by logging it on a distributed database, tapping into a borderless legal system, and attracting investors, management and shareholders (or the equivalent of) from all over the world. While we will need new legal forms and structures, there could well be familiar models too: global friendly societies, for example.

Jeremy Hilton, a senior vice president at D-Wave, the first firm in the world to sell quantum computers, says we have only just started learning about what quantum computing can do for business. “There is no question that this technology will continue to change how businesses run – be that more effective automation processes, software that adapts more quickly, or applications we haven’t even dreamed of yet.” A Google study found that these computers will be 100m times faster for certain problems than those we use today. “Thousands of new companies will form as this industry develops,” says Hilton.

But for the time being, firms like Our Energy, and digital-only bank Tandem, which has an invite-only shareholder scheme (anyone able to help build the bank automatically gets shares and becomes a co-founder), should be applauded and supported. They might seem zany at the moment, just as crowdfunding is still the preserve of the relative few, but it is only through trial and error that we are given a glimpse of the future.