Cooperatives are just like any enterprise, and require investment capital both to fund startup costs or expansion. Normal equity investment incentives don't transfer very cleanly to cooperatives, since the entire point of a cooperative is that the members are the entire ownership class and own it merely to benefit from its existence. Normal business loans aren't usually available to companies who don't already have revenue, which is why governmental loan programs have often been necessary to bootstrap cooperatives in particular industries.
Sometimes cooperatives pool startup capital with contributions from initial members, but the normal ways this is done introduces potentially troublesome recurring investment requirements that don't make a lot of sense to require of all future members as well as the initial ones. Especially in a cooperative that's competing with normal "frictionless" consumer companies, it's fairly important for members to be able to join easily even if the amount of business they bring is very small.
We can't solve this problem by creating different "tiers" or "classes" of membership (investing vs non-investing for example), since that goes against principles of cooperative ownership and invites conflicts and disengagement. But it's also true that those who contribute capital ahead of that capital actually benefitting them are taking much more risk than those who just pay for services once the cooperative is already running!
We can resolve this problem by fully embracing the liquid and adaptive nature of participation-based voting weights, and treating startup capital as essentially a low-interest loan:
- Members contribute some amount of capital, and receive proportional voting weights as if they had spent that money on normal services.
- The cooperative is required to pay back these initial pledges with variable interest matching the greater of the inflation rate or the applicable federal rate (
interest rate = max(inflation rate, afr)). Which official source is used to set the inflation rate is left to the discretion of each enterprise and situation. - The payback period only begins once the cooperative has achieved the goal of the investment.
- The payback is done at a reasonable pace and proportionally, meaning all pledging members receive payments of proportional size on the same schedule.
The interest rate is intentionally set to merely offset inflation. A member doesn't invest in a cooperative to make a literal monetary profit, but to benefit from the existence of the cooperative. The only reason the pledge is payed back at all is to compensate the member for taking a risk. Alongside the reward of extra voting weights this mechanism ensures that founding members are motivated to contribute for the right reasons.
Whether or not these investments should be legally classified as loans, with the attendant creditor rights etc, is a question we're actively investigating.
Another entirely different option is to make these investments instead be classed as mere "pre-payments", with the member having their monthly charges offset instead of being directly paid.
Voting weight decay cliffs
The voting weights given for investment have a "decay cliff", meaning they don't begin to decay until the organizational goal of the investment is achieved. The purpose of this is to ensure members retain full right to preferentially steer the organization while their investment is still not paid back.
- If the cooperative is in the pre-operational startup phase then the decay cliff is set to the date it becomes operational: the first day it is able to actually provide priced services that themselves generate member voting weights in the normal way.
- If the capital is needed for expansion or to navigate a period of exogenous obstacles, the decay cliff is set to the date the members consider the expansion complete or the obstacles overcome.