Our Approach
What is cooperative ownership?
Cooperative ownership is at the heart of the solidarity economy.
Cooperatives are businesses owned and controlled by the people who directly produce or use the business’s products, or services. In this ownership model, profits and governance rights are shared by those stakeholders. The ownership model is flexible enough to design ownership for workers, consumers, or producers, or hybrids of those groups.
Large businesses that are cooperatively owned include The Associated Press, ACE Hardware, Liberty Mutual, Ocean Spray, Land o’Lakes, Cabot Cheese, Blue Diamond Almonds, and REI. In fact, the top 100 cooperative owned businesses in the United States represent approximately over $222.2 billion dollars in total revenue, and the profits distributed by these companies go back to each co-op’s unique community of members. Even better, the profits are distributed to members pre-tax, not post tax, which is far more efficient in sharing wealth.
How we invest in cooperatives and shared ownership companies
In order to align our investment terms with business stage, the Equitable Economy Fund has the flexibility to use the following investment structures based on each company’s financial and risk profile:
Revenue share: Sometimes referred to as Revenue Based Financing (RBF), the Fund buys shares in each company, then as the company grows sales, it allocates a small percentage of revenue to buy back those outstanding investor shares. With this “structured exit” model, the fund receives regular payments without waiting for any “exits” or “liquidity events”.
Dividend share: The Fund buys preferred shares in each company. Each share purchased offers a pre-determined yearly “target dividend” per share. Yearly distributions of dividends to investors must generally be approved by the company’s board.
Profit share: The Fund buys shares in each company, in return the company distributes an agreed upon allocation of pre-tax profits among eligible investors on a pro rata basis. For example all investors would share pro rata in 20% of yearly company profits.
All of the Fund’s investments are values aligned, and “coop friendly” so that the Fund and its investors can reasonably expect a financial return, while also ensuring the cooperative members retain long term ownership and control of their business while having a social impact.
What is the financial case for investing in cooperatives?
There is growing evidence that shared ownership companies outperform their traditionally-owned peers.
Shared ownership companies such as worker cooperatives are found to be more competitive than traditionally-owned businesses.
Employee-owned businesses average 2-3% higher yearly sales growth than non-employee owned businesses. (source)
Several studies have indicated that employee-owned businesses are more stable, and have lower failure rates.
The 5-year survival rate for employee owned co-ops is 69% higher than non-cooperatively owned businesses. (source)
Additionally, in a highly competitive landscape shared ownership can forge an emotional brand connection that is potentially one of the most sustainable forms of differentiation.
78% of consumers report that knowing that a business is a cooperative would make them more likely to use its goods and services. (source)
History and market size
The United States’ first cooperative was founded by Benjamin Franklin in 1752: a consumer-owned mutual insurance company that is still in operation. The second oldest cooperative in the country is the Associated Press.
While there is no clear data on the total market size for shared ownership companies, there is no upward limit on the size that a cooperatively owned company can scale to, or the number of companies that might consider shared ownership. In 2019, the nation’s 100 largest cooperative businesses by volume posted yearly revenue totaling approximately $228.2 billion. (source)
Shared ownership target sectors
Consumer cooperatives: Companies owned by their consumers, for example REI a consumer owned outdoor retailer with $2.8 billion in annual revenue.
Worker cooperatives: Companies owned by their workers, for example Equal Exchange an employee owned fair trade coffee and chocolate importer with $80 million in annual revenue.
Platform cooperatives: Technology platforms owned by their users or workers, for example Stocksy with $20 million in annual revenue.
Farmer cooperatives: Farmer owned agricultural companies, for example Ocean Spray with $1.6 billion in annual revenue, or Blue Diamond Almonds with $1.57 billion in annual revenue.
Purchasing cooperatives: Small business owned purchasing groups, for example Ace Hardware, with 4700 hardware stores, or CCA Global with 2000 flooring stores.
Conversions/exit to community: Conversions of existing companies to employee ownership, for example Organically Grown company with $100 million in annual revenue.
Employee Stock Ownership Plans: Companies with benefit plans that provide workers with an ownership interest in the company, for example Publix Super Markets with over 200,000 employees.
Note example companies are for illustrative purposes only and do not imply that the companies listed are currently seeking investment.
Primary risk factors
The success of the Equitable Economy’s Fund’s investments cannot be predicted. The investor must be willing and able to tolerate a total loss of his/her investment, as this is a speculative venture. Investments in private companies, particularly early to mid-stage private companies, involve a high degree of risk.
While we have anticipated a high failure rate, there is inherent uncertainty in predicting any company’s future revenue growth or profitability. Actual company financial performance may not match our predictions which would mean that the fund will not generate expected returns. Actual fund returns may differ dramatically from expected returns.
A full description of all known fund risks factors will be made available to interested investor in our Private Placement Memorandum.