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When Boulder’s solar energy company Namaste Solar started looking for capital to grow in 2004, it could have gone through the hassle of getting a bank loan or hosting a dog and pony show to attract investors exteriors. But the company decided they wanted to partner with people who knew the business better than anyone: their own staff.
Namaste invited its employees to buy up to 10,000 shares of the company. The response astounded co-founder Blake Jones, employees borrowing money from friends and family to buy. “The average employee investment was between $ 15,000 and $ 25,000,” says Jones. “And one person invested $ 100,000.”
Namaste operates a work cooperative, a for-profit business owned and run by its employees. Usually the domain of idealists concerned with workers’ rights, cooperatives give interested employees a democratic vote in key business decisions and a reduction in profits. But they can also be a smart business decision – as long as the conditions are right.
First thing to know: “Co-operatives will almost never be fully capitalized by their members,” says Melissa Hoover, executive director of the Democracy at Work Institute, an advocacy group for worker co-operatives. “To grow, they want to make sure that the cooperative can still attract outside investment.” And that can be difficult. Banks often hesitate to invest in companies that seem to put their employees before profits and exponential growth. And newly qualified workers may not want to sell large portions of equity to outside investors obsessed with return on investment.
But if the idea still seems appealing, organizations like the International Co-operative Alliance, the National Cooperative Business Association, and the United States Federation of Worker Cooperatives can help companies move toward a cooperative structure that works for them. There are, for example, ways to maintain the spirit of the program while selling non-voting shares to strangers. (A “member” of the cooperative, after all, to have be an employee.) That’s what fair trade coffee distributor Equal Exchange does. Since 1989, it has sold more than $ 16 million of preferred shares to more than 600 people. “Whenever they sell, they sell. There is a waiting list, ”said Jones of Namaste Solar, who converted his company’s model to the Equal Exchange in 2011 to expand its pool of potential investors.
A new generation of cooperatives is even using direct pre-launch offers to get started. CERO is one of them. He was a Boston-based commercial compost transporter who raised his initial money through a local grant and an Indiegogo campaign in 2013. He then hired finance company Cutting Edge Capital of San Francisco to guide him through a direct public offering, which allowed CERO to sell to investors with a minimum investment of $ 2,500. Over 80 buyers seized $ 340,000 worth of shares.
Last year, the compost start-up diverted more than 350 tonnes of food waste from restaurants, supermarkets and schools from landfills. He plans to break even in 2020 and expects investors to earn an annual dividend of 4%. “We want people to come back,” says Lor Holmes, who leads CERO’s development and capitalization strategies, “and invest when we decide to grow the business.