Coops Find New Options in Investment Funds and Crowdfunding

Joshua Bloom | August 13, 2015


With all the hoopla around online crowdfunding as a means of capitalizing startup businesses, the cooperative—that once anti-establishment business model—can seem downright dated. But look closely, and you’ll see a new energy around coops. That creative energy is also being applied to one of the biggest challenges that new and expanding coops face: raising capital.

From coop investment clubs to crowdfunding, new funding options for cooperatives are being explored.

The traditional road to getting a new coop off the ground has been to convene a group of interested people who themselves become equity investors in the new cooperative entity, each owning an equal share of the business. This can be a heavy lift since it is hard to raise the kind of capital needed to start almost any bricks-and-mortar business. Coops may also seek outside funding. But access to debt financing from banks is often precluded by lack of collateral. And, despite good intentions, the lending terms from mission-driven sources, such as The Reinvestment Fund in Philadelphia or Northcountry Cooperative Development Fund (NCDF) in Minneapolis, may be only slightly more flexible.

The cooperative grocery store movement is old enough and large enough that it offers a few more tools to startups within its network. Coop grocery stores often make loans to other coop groceries, for example, and National Cooperative Grocers has established the NCG Development Coop. to provide expansion assistance for retail food coops.  

But how can other kinds of coops access capital, whether debt or equity?

Joe Riemann, whose day job is Director of Cooperative Business Development for NCDF, has launched a pilot of a new idea: Cooperative investment clubs. It’s based on the traditional idea of investment clubs, but with a coop twist.

The cooperative is, essentially, an early form of crowdfunding.

You may recall that investment clubs were a phenomenon in the 1990s (remember the Beardstown Ladies?) People formed groups to research and plan their investments together, usually in companies publicly traded on the stock market. They might have been making retirement investments or they might have been investing for fun. There were 400,000 such clubs in 1998. The clubs have been on the decline every year since, and in 2012 there were 39,000 remaining. The stock market was no longer fun for small investors.

More recently, local investment groups have sprouted, including the Port Townsend Local Investment Opportunities Network (LION), a model that has spread to other cities, and the Slow Money-inspired No Small Potatoes, an investment club in Maine that makes loans and investments in local sustainable food and farm enterprises.

Joe’s idea is to propagate lots of local investment clubs around the country formed specifically to make debt or equity investments in local coops. The members would research coop business prospects, get to know the coop’s leaders, and then make a democratic decision to invest in startup or expanding coops in their region. Joe is one of the individuals behind COOPRINCIPAL Investment Club, a new organization whose purpose is to systematize and streamline the development of local coop investment clubs around the country.

They have started with one investment club, CP Local 001. The club has been up and running for about a year, with 17 members who each invest $50 per month. The club itself is organized as an LLC (investment clubs cannot be coops, by law), but it follows cooperative principles, including one-member-one-vote. There is a social aspect to the club, as well: Members have chosen to meet in person in order to have meaningful discussion, and it is the members who research and bring forward potential investment opportunities.

The scale so far is small: to date, CP Local 001 has made investments totaling about $10,000, about 80% of which are equity (preferred stock) and 20% are debt. The investments have included a real estate investment cooperative, a maple syrup producers’ cooperative, and three grocery store cooperatives.

COOPRINCIPAL is working out the kinks and systems to make it easier to start new clubs. But it is easy to imagine a scalable model: for example, a club with 50 members investing $100 per month would raise $60,000 in a single year. And there could be multiple coop investment clubs in a city or region, adding up to a significant capital resource.

In the meantime, in the U.K., online crowdfunding platforms are embracing Community Share Offerings—a type of security specific to cooperatives and other community benefit organizations. Investment crowdfunding (as well as the cooperative movement in general) is more advanced in the U.K., in part because of its more flexible securities laws. But similar ideas could be developed in the U.S.

That makes sense. The cooperative is, essentially, an early form of crowdfunding. Its origins date back to 19th century England, when a group of textile workers pooled their money to create a store and shared in the its proceeds. But the cooperative is also a specific ownership model. Perhaps the two most distinguishing features of cooperatives when compared to other crowdfunded businesses are an explicit social-enterprise purpose and democratic control (the one-member one-vote principle).

Related: Crowdfunding Boosts Community Shares 

Since the 19th century, coops have continued to see steady use. In the U.S., they are most commonly used for grocery stores, rural electric utilities and farm cooperatives, but interest in the model is growing. Some communities are forming coops to buy local real estate, for example. And worker-owned coops are finding fresh resonance as a way to build wealth and ownership in an age of growing inequality.

For community-minded investors, these developments offer a way to make meaningful investments—true capital investments with an anticipated (if small and slow) financial return—in businesses they want to support.

I’m writing this from my desk in Philadelphia, where I sit on the board of Weavers Way, a multi-store grocery cooperative. A few of our members—people who have an interest in growing the cooperative economy and are seeking a way to invest as individuals—have started to convene around the idea of starting a cooperative investment fund. It would be an entirely separate entity from Weavers Way. It may end up looking like a COOPRINCIPAL investment club, or it may take a different form. The new thing for the old coop is, people are starting to think about capital in new ways.

Josh Bloom is a principal at the Community Land Use + Economics Group (CLUE Group), a national consultancy based in Arlington, Virginia, that helps communities create vibrant downtowns and business districts. He also serves on the board of Weavers Way, a $21 million grocery store enterprise in Philadelphia. He thanks Joe Riemann at NCDF and Peter Frank at Philadelphia Area Cooperative Alliance for their assistance.


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