Upstart social network Ello took the internet by storm this past month, and a big part of its appeal lies with a promise that, unlike Facebook, it will never sell ads to users. Now, it's using a novel legal maneuver to ensure that it will actually live up that promise.
Ello has become what's known as public benefit corporation---a novel type of corporate entity that has popped up in more than two dozen states over the past few years. The idea is that this new corporate structure will inoculate Ello from any future investor pressure to sell ads or data on its fast-growing user base.
"We're really creating a way to enshrine Ello, legally, as what we intend it to be," says Paul Budnitz, Ello's CEO. "The bottom line is we're not going to sell out and no one can make us sell out."
Ello's founders and investors have signed a new charter that prohibits the company from selling user data or ads, and should the company be sold, it would also force the new owners to comply with these terms.
That doesn't mean, however, that Ello is not going to accept investment dollars. In fact, the company says it has lined up another $5.5 million in venture funding from Foundry Group, Bullet Time Ventures, and FreshTracks Capital. Until now, the social network had been bootstrapped with a tiny $450,000 investment.
>We're really creating a way to enshrine Ello, legally, as what we intend it to be
Critics have warned that, despite Ello's ad-free manifesto, the company might be pressured to sell out by investors looking for a return on their money. But the new public benefit corporation structure gives Ello's board of directors a justification for keeping ads off the network, even if it doesn't happen to maximize shareholder value.
There are over 1,100 public benefit corporations nationwide, according to Benefitcorp.net, a web site operated by B Lab, the organization that spearheaded the effort to create this type of cooperate structure. Public benefit corporations include hiking wear retailer Patagonia, soap-maker Method, and Plum, Campbell's Soup's organic baby food subsidiary.
The public benefit corporation status broadens the purpose of the corporation, says William Clark, a partner with Drinker Biddle & Reath who has written public benefit corporation laws in many states. "In addition to whatever purposes it had before, it would also have a purpose of creating material positive impact on society and the environment."
In less than two months, Ello has mushroomed from a close-knit community of 90 into the world's fastest-growing social network. Budnitz says that Ello now has more than 1 million members, with 3 million in queue to join up. The company has a staff of 14, and despite its newfound investment millions, Budnitz says, it plans to remain in Vermont. Fittingly, it's a state where billboards are banned.
