Recent idea I'm going to run with for a bit: a revolving matching equity fund.

Basically, the fund will match 1:1 (or more?) the member shares of worker-members of co-op conversions with an investment of non-voting preferred shares. The shares will pay a dividend equal to the WSJ prime rate, the co-op can buy them back at face value at any time. The proceeds go back into the fund to be used for supporting future co-op buy-outs. ♻️

@mattcropp I like the idea. I would put a cap on the dividend though, something like "the prime rate or 4%, whichever is lower" just in case in the future the Fed raises rates like they did in the 70s. That seems pretty unlikely at present, but you never know how things might change.

@mattcropp Ok, a couple of other things. I don't know how/if this would even be possible, but ideally I would like to have the matching funds be forgivable in the case of business failure...which is kind of the opposite of a "preferred" share, I realize, but I wonder if the concept of non-extractive finance could be extended in this way. Also, I think the dividends should not be guaranteed unless the business is realizing a surplus (i.e. like how Eq. Ex. has theirs structured).



1. The potential issue with a specific nominal rate cap is that you probably want the rate to be to be inflation-responsive so the fund doesn't end up melting rather than snowballing larger in a late '70s/early '80s inflation.
2. My sense is that they would be subordinate to everything but the member equity, and members would not personally be on the hook to pay it back.

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3. To dividends, my sense is to allow the co-op to, at the board's discretion, defer dividend payments to a later date, but tying them to surplus would be a bit more flexible. Basically the dividend needs to be paid before any patronage is paid.

@GuerillaOntologist One other approach to dividend rates might be to have them escalate over time to encourage the co-op to buy back the shares so the funds can be paid forward to the next co-op conversion.

For instance:
Y1-Y3: Prime - 0.5%
Y4-Y6: Prime + 0.5%
Y7+: Prime + 1%

@mattcropp @GuerillaOntologist

Having established help shift the risk and resources needed to launch new cooperatives in exchange of making a return from the potential future surplus is something we need more of.

Ideally no coop would ever need that, but as long as there are coops that do, they should be given more opportunities to access such funding.

@GuerillaOntologist @LeoSammallahti @jdaviescoates

Refined it a bit more after a bunch of feedback. Ended up dropping the deferred dividend bit entirely, and added matching to member preferred as well as voting shares, which encourages those member who can to contribute more equity.

Gonna submit the grant application on Friday to our food co-op asking for $7,500 towards this... 🀞

@mattcropp @LeoSammallahti @GuerillaOntologist time to install @cloudron on a VPS somewhere and use @nextcloud instead of Google Docs? Use my Cloudron referral code for a free month: 5adcafc820c53c3d

@mattcropp This is an interesting idea, but I would still want returns to be based on the situation of the business, rather than be predetermined by contract.

@mattcropp I do think the Equal Exchange model is the gold standard here.

"...we offer investors an annual dividend with a target rate of 5 percent. That return isn’t guaranteed though, and has varied between 3% and 8% since 1989, depending on how the company is doing."

Dividends do come before patronage, but both are dependent on the health of the biz.

@GuerillaOntologist I take a huge amount of inspiration from the EE model, but also do wonder how much of the investor flexibility comes from the sexiness of their fair-trade mission. My impression is that there's been so few co-op investment opportunities that those who want to invest in them have been in the position of taking what is offered. If we're successful enough that there's many co-ops chasing investment $, I feel like a more formalized approach will be needed? Worth exploring.

@GuerillaOntologist Basically the key difference being some level of deferred dividend in a year where no dividend is paid.

@mattcropp It's true that an insufficient interest rate, in the face of high general inflation, will eat a fund over time, the relation between inflation and the prime rate is pretty sus. The Fed is really only concerned by wage inflation, not so much inflation in the price of ed, healthcare, financial assets. If inflation responsiveness is what you're after, inflation needs to be what the rate is tied to, imo.

@GuerillaOntologist Hmmm, this is an interesting point. I was conceptually using Prime as an inflation meter, but perhaps using the prior year's inflation rate + x% would be better. So, if 2019 was 1.81%, Y1-3 would be Inflation + 1%, then a bit higher in later years to encourage the co-op to buy back the shares and pay it forward?

@mattcropp Check out the correlation (or rather lack thereof) for the last 20 years, and especially during the last dozen. While the prime rate flatlined at 3.25 from Jan '09 to Nov '15, CPI inflation varied from -.35 to 3.15.

The correlation between the two rates (on a strictly eyeball basis) looks to greatly decrease after the high interest era of the late 70s-early 80s.

So I'm gonna stand by my skepticism that the prime rate is a good proxy for inflation.

@mattcropp I think that makes sense, although I'm a little leery in general of basing dividend requirements on official economic stats, which is why I like the EE setup. And not just to protect co-ops in case they don't do well, but also to make sure the fund shares in the upside if the co-op does do well and can afford to pay more than inflation + x%.

There's a lot to think about...

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