LTSE Long-Term Alignment Framework
Turn long-termism from an aspiration in an S-1 into a binding, enforceable pledge that rewards patient owners.
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 75%
Eric Ries designed the Long-Term Stock Exchange's listing standards to solve a structural problem: public companies routinely state long-term, multi-stakeholder aspirations in their prospectuses, but those statements carry no legal weight. LTSE requires companies to translate broad principles (treating long-term investors and other stakeholders as first-class citizens) into specific, binding, operational commitments registered with the exchange, making violation a securities issue. Crucially, the framework is principles-based, not one-size-fits-all: companies can choose mechanics like progressive voting rights, progressive dividends, or superior capital-raising access for investors who hold longer. This creates natural self-selection, since only companies genuinely willing to be held accountable will opt in, and gives long-term investors a path to earn into the same privileged position typically reserved for founders under dual-class structures.
Origin
Ries conceived the idea in the final page and a half of The Lean Startup in 2010, spent years testing and refining the model, and eventually built LTSE into an SEC-approved national securities exchange in the same year the interview took place.
Core principles
- 01State principles must be operationalized into binding, enforceable commitments, not just aspirational language
- 02No single mechanic is mandated — companies choose the implementation that fits their stage and structure
- 03Long-term investors should be able to earn their way into a founder-like privileged class over time
- 04Binding pledges create a securities-law consequence for breaking them, which filters out companies not serious about the commitment
How to run it
- 1
Adopt core principles
Company commits to principles such as treating long-term investors and other stakeholders (employees, community, vendors, customers) as first-class members of decision-making.
- 2
Operationalize each principle into a binding pledge
Rather than stating aspirations in an S-1, the company registers a concrete implementation of each principle with LTSE.
Watch out A stated aspiration with no binding mechanism is functionally worthless — investors 'put it in the shredder.'
- 3
Choose a mechanism suited to the company's stage
Options include progressive dividends paid preferentially to longer holders, or a voting-rights multiplier that grows the longer stock is held.
Pro tip A large controlled company may prefer a voting-based mechanic; a smaller-cap company focused purely on retention may prefer a progressive dividend instead.
- 4
Track long-term ownership in real time
Use LTSE's software infrastructure to identify and verify which holders qualify as long-term investors on an ongoing basis.
Watch out If an investor trades out, they lose eligibility for the reward — tracking must be continuous.
- 5
Enforce via exchange certification
LTSE certifies whether the pledge implementation is real; breaking a registered pledge becomes a securities violation.
- 6
Let self-selection do the filtering
Because the pledge is binding and enforced, only companies genuinely willing to commit will list — bad-faith companies self-exclude.
In the wild
Ries describes a hypothetical where every quarter an investor continues to hold a stock, their voting power gains a multiplier, giving long-term holders governance influence that grows over time rather than a fixed dual-class split.
→ Long-term investors gradually join founders in co-determining company direction instead of being permanently excluded by static dual-class structures.
For companies less focused on voting control, Ries suggests a progressive dividend paid preferentially to those who have held the stock longer as a simpler incentive mechanism.
→ Creates an economic incentive for patient capital without touching governance structure.
Common mistakes
Treating stated values as sufficient
Putting long-term or multi-stakeholder language in an S-1 without a binding enforcement mechanism means investors correctly disregard it as marketing.
Forcing one-size-fits-all mechanics
Mandating a single voting or dividend structure for every company ignores that different company stages and control situations need different implementations.
Is it for you?
Best for
Founders and long-term investors seeking to align governance and economics with patient, multi-year ownership horizons.
Not ideal for
Companies uninterested in binding governance commitments, or those unwilling to have implementation of stated values certified and enforced by an outside body.
From the transcript
“companies should commit to these principles by making a binding pledge to operationalize each one.”
“So you could imagine like every quarter that you hold the stock, it adding some multiplier to the amount of votes you get or something…”
From the episode
The Lean Startup and the Long-Term Stock Exchange (with Eric Ries)
Eric Ries