Debt Equity

Last week, while recording an episode of the podcast, I spoke with Henry about a company called Ghost. They're a non-profit organization that creates software to help journalists publish their content and grow a paid audience.

You might hear "non-profit" and think that means they don’t make any money. However, with just a team of 30 people, Ghost generates $7.5 million in ARR. They’ve been self-sustaining since their inception in 2013 and have reinvested 100% of their "profit" back into their mission: supporting independent journalism with open-source software.

To me, Ghost is an aspirational business. Whether through deep thought or sheer luck, their founders, O'Nolan and Wolfe, built a sustainable organization with nearly complete alignment among all their stakeholders.

As impressed as Henry was to hear about Ghost, he was skeptical about recommending or replicating the model, primarily due to the question most founders ask themselves: "What about equity?"

In a non-profit model, there is no equity because there are no shares. O'Nolan and Wolfe don’t own Ghost; they are trustees of it. This means they control the organization's assets but do not personally gain financially if those assets are sold. Only the organization itself benefits from the proceeds.

This structure means that no one personally has a right to any profit the organization may have at the end of the fiscal year. In fact, in most countries, non-profits are legally required to reinvest or redistribute any excess capital toward projects aligned with their mission. For Ghost, this often means hiring additional team members, but soon it might involve donating more to open-source foundations or directly to local journalism institutions.

The key point is that no one has equity in Ghost.

But in a world without equity, what motivates founders like O'Nolan and Wolfe to invest potentially years of their lives building something from nothing without financial compensation? Well, in the case of Ghost, that reality never existed.

Ghost launched on Kickstarter in September 2013, raising $367,000 (adjusted for inflation). They were profitable from day one—something aspiring founders may want to emulate. However, most of us won’t launch a wildly successful Kickstarter campaign. So what do we do? Just work for free?

If you’re willing, yes. Most non-profit founders volunteer their time to help start the organization. But if you do want some form of future financial compensation for your work, there’s a straightforward solution we’ve been using for thousands of years: debt.

Simply establish a system where the non-profit commits to back-pay you, an employee, for your work once they have adequate capital. You can even add an interest rate to ensure the organization’s debt to you keeps up with inflation.

We often use the phrase "sweat equity" to explain equity as something earned through the toil of building a business. But this strategy, which I believe can work for non-profits, cooperatives, or any organizational structure without shares, is what I’m calling "debt equity."

Of course, there are some nuances regarding payment structures, first right of refusal, etc. But in general, I’m eager to explore this idea further and see if I can find anyone who’s put it into practice.

What do you think about "debt equity," Ghost, or anything else I’ve mentioned this week? I’d love to hear your thoughts.