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+ Exit to Co-op
+ Nathan Schneider + Jason Wiener
+ (Use lateral arrow keys to navigate)
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+Can cooperative ownership improve your deal-flow?
+We think it might.
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+Jason Wiener
+Principal at Jason Wiener|P.C., “a boutique law and business consulting practice providing expertise to social enterprises and mission-driven business models”
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+So, what’s the problem?
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+The internet economy needs better options
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+- Dominant platforms built on surveillance and monopoly
+- Investor expectations have decentralized the network
+- Problems start with early funding terms
+- With fake news, hate speech, and bullying, investor interests conflict with those of users
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+Investors need better options, too
+How many companies in a given VC or angel portfolio either:
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+- don’t need subsequent financing
+- are operating profitably
+- are not likely to IPO or get acquired
+- have a founder who doesn’t want to sell
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+Is there latent value in your portfolio that a strategic co-op conversion can unlock?
+Can we do better than a 1/10 success rate for liquidity?
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+What’s the addressable market we’re talking about?
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+% of convertible note portfolio
# of growing portfolio companies with no strategic buyer
# of mature portfolio companies ready to exit
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+Where do co-ops come in?
+A new market of potential buyers
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+Users, workers, or other stakeholders buy the company from early investors
The company benefits from the trust and loyalty that come through co-ownership and democratic governance
Early investors benefit with a fair return
All can celebrate the social benefit
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+How would this actually work?
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+Identify candidates in fund portfolios for co-op conversions
Co-op capital partners finance buyout with exit to future co-owners
New co-owners pay off bridge capital with revenue from their business
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+What might the terms look like?
+What does this mean for PortCo?
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+- Founder negotiates enterpise valuation
+- PortCo undergoes user/worker/contributor buy-out of controlling interest
+- NewCoop becomes a multi-stakeholder cooperative with:
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+- Worker owners (employees)
+- User owners (customers)
+- Contributor owners (contractors)
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+- Net profit allocated on basis of patronage and target dividend (or capped revenue share) to outside investors
+- Fund converts at buy-out valuation or valuation cap, then holds preferred stock
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+Example 2: Leveraged buy-out
+Consider a portfolio company, TechCo, that is growing rapidly and not yet profitable, but the founder doesn’t want to exit. A mission-aligned private-equity buyer with co-op experience negotiates a buy-out with committed exit to user-ownership. There is little to no likelihood of a convertible note converting. The fund prefers to extend the note rather than claim the principal with accrued interest.
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+What does this mean for TechCo?
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+- Negotiated buy-out valuation to mission-driven private equity (PE)
+- Fund gets converted at buy-out valuation or val. cap, then position liquidated
+- PE takes control, restructures with balance of profit and growth
+- Plans multi-year transition to user-ownership
+- PE recoups investment through profitability
+- Resulting entity is either earn-in or buy-in coop or trust
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+Example 3: Seed stage
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+- Un-priced, quasi-convertible note investment
+- Equity line of credit - 10% equity- preferred stock
+- Repayment:
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+- Discretionary cash distributions
+- Profit Sharing
+- 3x cap
+- If 3x cap is reached in < 3 years, 5% equity
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+- No need for exit or additional financing
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+(Adapted from Indie.vc)
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+What makes us think this really can work?
+or, why is this not utopian?
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+Namaste Solar
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+A North Boulder solar pv company converted from a partnership to a worker-owned cooperative. Jason was in house counsel during the process.
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+Stocksy United
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+A thriving, women-led stock-photo platform co-owned by hundreds of photographers, competing effectively in a competitive online market.
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+dojo4
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+Successful Boulder technology services firm and social innovator converted from a partnership to a worker cooperative in early 2017, preserving flexibility and boosting a high-integrity brand.
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+Associated Press
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+Founded as a cooperative in 1846, it’s no accident that nobody accuses this company of “fake news.” Today it models the potential for co-ops in large-scale media.
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+At the 2017 annual meeting, Twitter shareholders voted on a widely publicized proposal to study the possibility of co-op conversion. Is this as crazy as it sounds?
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+How can we graft these models into the mainstream tech economy?
+We want to build pathways for entrepreneurs and investors to embrace cooperative models—and a fairer internet for everyone.
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+We’d love your ideas and your help
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+- What players need to be involved to make this work? Incubators, accelerators, fund managers, private equity, legacy co-ops?
+- What barriers exist to deploying capital?
+- How do we identify and vet deals?
+- Who would be receptive to continuing this conversation?
+- What role might you play?
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+How can you learn more?
+The Internet of Ownership
+Directory of the platform co-op ecosystem
+Ours to Hack and to Own
+A collective manifesto on platform cooperativism
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+Nathan Schneider nathan.schneider@colorado.edu
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+Jason Wiener
+jason@jrwiener.com
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