From 70ae55451a957020746612800d057faf1db1a4f2 Mon Sep 17 00:00:00 2001 From: Nathan Schneider Date: Tue, 14 May 2019 13:26:43 -0600 Subject: [PATCH] REALLY added 'Exit to Co-op' --- assets/exit_to_co-op.html | 6339 +++++++++++++++++++++++++++++++++++++ 1 file changed, 6339 insertions(+) create mode 100644 assets/exit_to_co-op.html diff --git a/assets/exit_to_co-op.html b/assets/exit_to_co-op.html new file mode 100644 index 0000000..be1d72e --- /dev/null +++ b/assets/exit_to_co-op.html @@ -0,0 +1,6339 @@ + + + + + + + Exit to Co-op + + + + + + + + + + + +
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Exit to Co-op

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Nathan Schneider + Jason Wiener

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(Use lateral arrow keys to navigate)

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Can cooperative ownership improve your deal-flow?

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We think it might.

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Who are we, anyway?

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Jason Wiener

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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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Nathan Schneider

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Assistant Professor of Media Studies at the University of Colorado Boulder, leader in the “platform cooperativism” movement; co-organizer of the original conference and co-editor of the collective manifesto, Ours to Hack and to Own

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What is Platform cooperativism?

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A growing movement to build democracy into the operating system of the internet, from worker-led startups to #BuyTwitter

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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
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  • Investor expectations have decentralized the network
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  • Problems start with early funding terms
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  • With fake news, hate speech, and bullying, investor interests conflict with those of users
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Investors need better options, too

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How many companies in a given VC or angel portfolio either:

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  • don’t need subsequent financing
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  • are operating profitably
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  • are not likely to IPO or get acquired
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  • 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?

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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

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  • # of growing portfolio companies with no strategic buyer

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  • # of mature portfolio companies ready to exit

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Where do co-ops come in?

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A new market of potential buyers

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  • Users, workers, or other stakeholders buy the company from early investors

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  • The company benefits from the trust and loyalty that come through co-ownership and democratic governance

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  • Early investors benefit with a fair return

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  • All can celebrate the social benefit

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How would this actually work?

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  1. Identify candidates in fund portfolios for co-op conversions

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  2. Co-op capital partners finance buyout with exit to future co-owners

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  3. New co-owners pay off bridge capital with revenue from their business

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What might the terms look like?

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What does this mean for PortCo?

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  • Founder negotiates enterpise valuation
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  • PortCo undergoes user/worker/contributor buy-out of controlling interest
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  • NewCoop becomes a multi-stakeholder cooperative with: +
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    • Worker owners (employees)
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    • User owners (customers)
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    • Contributor owners (contractors)
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  • Net profit allocated on basis of patronage and target dividend (or capped revenue share) to outside investors
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  • Fund converts at buy-out valuation or valuation cap, then holds preferred stock
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Example 2: Leveraged buy-out

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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)
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  • Fund gets converted at buy-out valuation or val. cap, then position liquidated
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  • PE takes control, restructures with balance of profit and growth
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  • Plans multi-year transition to user-ownership
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  • PE recoups investment through profitability
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  • 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
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  • Equity line of credit - 10% equity- preferred stock
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    • Discretionary cash distributions
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    • Profit Sharing
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    • 3x cap
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    • 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?

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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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Twitter (?!)

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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?

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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?
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  • What barriers exist to deploying capital?
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  • How do we identify and vet deals?
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  • Who would be receptive to continuing this conversation?
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  • What role might you play?
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How can you learn more?

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The Internet of Ownership
+Directory of the platform co-op ecosystem

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Ours to Hack and to Own
+A collective manifesto on platform cooperativism

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+Nathan Schneider nathan.schneider@colorado.edu + +Jason Wiener
+jason@jrwiener.com +
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