When Uber and Lyft went public, it wasn’t the drivers who got rich — it was the executives, investors and some early employees. In an era when it has become clear that tech executives and investors are frequently the only ones who’ll reap rewards for a company’s success, cooperative startups are getting more attention.
Depending on how it’s set up, a cooperative model offers workers and users true ownership and control in a company; any profits that are generated are returned to the members or reinvested in the company.
Co-ops aren’t new: The nation’s longest-running example is The Philadelphia Contributionship, a mutually owned insurance company founded by Benjamin Franklin in 1752. In 1895, the International Co-operative Alliance formed to serve as a way to unite cooperatives across the world. Some colleges have student-run housing co-ops where cleaning, food preparation and other responsibilities are shared. Today, there are many well-known large-scale co-ops, including outdoor recreation store REI, Arizmendi Bakery in San Francisco and Blue Diamond Growers, one of the world’s largest tree-nut processors.
What’s novel, however, is applying the co-op model to technology startups. Start.coop, an accelerator for cooperative startups, is just one group trying to facilitate that practice.
“People don’t fully get what a co-op is, yet they realize there should be more co-ops in our economy,” Start.coop founder Greg Brodsky tells TechCrunch. “When we say co-op, what we’re really talking about is shared ownership.”
In the tech world, it’s common for a startup to have traditional investors hoping to extract as much value as they can, Brodsky says. On the other side of that are workers and users.
“And, you know, that may or may not benefit them,” Brodsky says. “And so all the cooperative ownership model does is it brings the Venn diagram together and said, ‘What if the people who support the business are actually the owners of that business?’ It’s that simple. Where it can get hard for some people to understand is that it can exist in any sector and it can exist at different levels of the supply chain.”
A new generation of entrepreneurs want to adapt this shared ownership model to create companies that share wealth more broadly, Brodsky says.
“We all know there are tremendous profits being generated from the stock market,” Brodsky says. “We live in the era of probably the greatest wealth accumulation ever, and yet somehow, there’s the greatest wealth inequality at the same time. The cooperative framework is one way where we can say, ‘Hey, what if the people who work in these companies or are users of these companies actually financially benefit and have some level of control of what happens at those companies?’ In some ways, it’s a very simple argument, but I think people haven’t had the resources on how to do it.”
What Start.coop is trying to achieve is the cultivation of the next generation of entrepreneurs seeking to lead cooperative startups. To do that, Start.coop offers a 12-week accelerator program that is both virtual and in-person and includes workshops, mentorship, platform services and, of course, investment and connections to investors.
“The investment component is really important for a whole bunch of reasons,” Start.coop co-director Jessica Mason tells TechCrunch. “One of which is this difficulty co-ops find in accessing financing because traditional financing models are less well-aligned with kinds of incentives and ways we think about performance and ways we think about growth within these businesses.”
Start.coop invests $15,000 in each startup and all graduates become shareholders in Start.coop, which is a cooperative itself that distributes ownership among workers, investors, advisors and startups that go through the accelerator.
Beyond that, Start.coop does quite a bit of investor education. There’s a model called a Limited Cooperative Association that enables companies to have multiple share classes. “That’s the structure that unlocks the ability to bring investors in,” he says, as it allows startups to determine how much of a company to allocate to investors.
“What we’re working with our entrepreneurs on and our investors on is how do we generate that return to investors without waiting for an exit,” he says.
The key difference between a more traditional model and the cooperative model is the notion of an exit. Traditional investment structures are in place to reward a big, lucrative exit event, Mason says.
“That is often not what we are going for in the co-op landscape,” she says. “That’s not the end goal. Instead, the goal is to pay dividends to investors and to all of the owners over time.”
So far, the accelerator has had one batch of startups and is gearing up for its second. There were 82 applicants for six spots in its first cohort. Right now, Start.coop has 73 applications for its upcoming cohort that starts this spring.
It’s worth noting that co-ops are not always just worker-owned. Beyond worker-owned co-ops, there are platform co-ops where companies share ownership with their users and the owners.
Brodsky pointed to a tech platform for freelance photographers and videographers called Stocksy. Thousands of artists use the platform to sell media to Adobe and other well-known companies. What’s neat about Stocksy, he says, is that it’s owned by the artists.
“So there are ways that technology can uniquely use the cooperative ownership model,” Brodsky says. “Technology has disrupted almost every part of the economy. It’s disrupted the gig economy, gaming, shopping and how to book hotels. But the one thing that the technology sector has not been willing to touch is ownership itself. That is, who gets rich and who benefits from the growth of these companies. That really hasn’t changed. In some ways, the tech sector is just recreating the wealth inequality in every other part of the economy.”
This is the first part of Extra Crunch’s series on co-ops. Stay tuned for more.