Note: this is the first of a series of research results for us to consider during our start up efforts. Planned for later posting will be research on: volunteer plans, member benefits and low-income/disabled plans.
Note also the proposal for our co-op based upon the results of this research.
One of the ways members help the co-op get started is by investing equity. Some of these funds will be used to pay for initial operating costs (membership brochures printing, web site hosting, a professional market appraisal, etc). The rest will be later be combined with member loans to form our startup capital. With this capital we then leverage loans from financial institutions.
Just like an individual would invest their own money to start a private business, we will be pooling our money to form our co-op.
And like any successful business, a successful co-op will be able to repay the investment at a later date if the member decides to leave. The investor’s profit will include all of the co-op benefits we’ve talked about elsewhere (and will detail later). These can include a patronage refund in each profitable year and possibly a year-end distribution of profit into member’s equity accounts.
Different co-ops use different methods to raise equity. To help us decide how to proceed, it seemed like a good idea to investigate what others have done. The founding team has undertaken some research to educate themselves and the community. We all need to make an informed decision.
Some of the co-ops we looked at have been open for decades. Others are only slightly ahead of us in the startup process. We’ve included all that we could find information on that are...
- California food coops or
- startup groups that have recently received financial support from Food Co-op 500 plus
- a few others we ran into along the way.
Note please that this research does not go into what benefits members may earn by volunteering at the co-op. That will be covered in a later effort - along with general benefits and low-income/disabled memberships.
First here’s a summation of the different structure approaches. Further below are details and links...
Summation of approaches:
The Initial Investment Approach: Here the member is asked to invest a fixed amount in the range of $75 to $300. Time payment plans are common. It seems that nearly every one of these co-ops has a different mix of incentives to encourage members to reach the maximum quickly (coupons seem popular).
PROS: the amount is fixed so each member knows what they’ll be paying and may feel that their cash flow will really benefit once the full investment is made. Quite a number have some kind of low-income membership option.
CONS: no provision for additional investments from avid supporters. Capital investment may top out as more members reach their maximum. What would the co-op board do if it wanted to raise more capital to expand?
The Initial Investment, plus Fee approach: Largely the same as the above but with an initial non-refundable fee to cover some expenses. Note that the lower the initial fee is, the higher the maximum investment often is.
The Ongoing Investments approach: With this yearly equity investment plan the co-op receives a continuous equity investment each year. So far we’ve found only one (a long-established and large co-op) that uses this approach.
PROS: low cash flow might be easier on members; continuous equity investments each year for the co-op can help it in a number of ways.
CONS: members may get concerned (or not) about their total investment amount over the years; initial investments would be too low for starting a co-op
The Share Investment approach: Here members purchase one or more shares. In our researched co-ops the amount varied from $25 to $200. Low income options are also available at some. No matter how many shares a household purchases, each household gets only one vote.
PROS: members know what the minimum amount is but can help the co-op get started (or later to expand) by purchasing additional shares.
CONS: unless requested to purchase more shares, most members probably would not invest more in the co-op after initially joining.
The Multiple Share Types approach: This might look confusing at first but actually is a pretty elegant solution for an established store. It allows members to get started with an initial low investment ($25) but has incentives for them to reach a higher level ($300). Beyond that a member may invest in dividend-bearing shares and/or make loans.
PROS: offers an investment “pathway”
CONS (for us): one of the big incentives to reach $300 in “B” shares is that members can start receiving patronage refunds - which we won’t be able to offer until some time after we open our doors. What do California state security rules say about this approach?
The Multiple Member Types approach: One co-op has a number of member types and payment options. This apparently works for their community but, as a startup, this might be a lot to have to explain to the thousands of potential members in our area.
The Hybrid approach: This seems like good way at find a balance between short term and long term needs. Each member makes an initial investment then also contributes a small yearly investment. It appears that the Daily Co-op may also allow members to purchase multiple shares.
PROS: could be a good mix of significant initial investment and ongoing investments.
CONS: are there any?
Details and links:
The Initial Investment Approach..
- One time equity investment of $300, paid $20/yr (Quincy Natural Foods, http://www.qnf.coop/)
- One time equity investment of $200, all at one time or in installments (Cooportunity, Santa Monica, http://www.coopportunity.com/ ; Ukiah Natural Food Co-op, http://www.ukiahcoop.com/ ; Friendly City Food Co-op, Harrisonburg, VA, http://www.friendlycityfoodcoop.com/)
- One time equity investment of $175 (Harvest Moon Natural Foods Cooperative, http://www.harvestmoon.coop/)
- One time equity investment of $150 (Moon, Miami/Oxford OH, http://www.mooncoop.com/ ; Great Basin Food Co-op, Reno NV http://www.greatbasinfood.coop/ ; Pocatello Co-op, Pocatello, ID, http://pocatellocoop.com/ ; River Valley Market, Northampton, MA, http://www.rivervalleymarket.coop/); Troy Community Food Co-op, Troy, NY http://www.troyfoodcoop.com/)
- One time equity investment of $150, paid $30/yr (Isla Vista Co-op, http://www.islavistafood.coop/)
- One time equity investment of $135 (Yelm Food Co-op, http://www.yelmcoop.com/Aboutus.html)
- One time equity investment $100 (H Street Market Washington DC, http://www.hstcommunitymarket.org/ New Orleans Food Cooperative http://www.nolafoodcoop.org/, Valley Market Stauton VA http://www.valleymarket.org/ and Chatham Real Food Market http://www.realfoodnetwork.org/real-food-coop.html)
- One time equity investment of $90 (Lost River Market & Deli, Paoli, IN, http://www.lostrivercoop.com/)
- One time equity investment of $75, quarterly payment plan available with a $4 fee (Yahara River Food Co-op, Stoughton, WI, http://www.yaharagrocery.coop/)
The Initial Investment, plus Fee approach...
- Non-refundable stocking fee $25 plus one time equity investment $175 (Fiddleheads Natural Foods Cooperative, CT http://www.fiddleheadsfood.coop/)
- Non-refundable fee $25 and $100 equity, all at one time or in installments (CoG Market, Emeryville, http://www.thecog.org/index.htm)
- Non-refundable fee $10 and $290 equity, all at one time or in installments (Chico, http://www.chiconatural.com/)
- Non-refundable fee $10 and $190 equity, all at one time or in installments (BriarPatch Co-op Market, Grass Valley, http://www.briarpatch.coop/)
- Non-refundable fee $5 and $300 equity, all at one time or in installments (Davis Food Co-op, http://www.davisfood.coop/)
- Non-refundable fee $5 and $300 equity, all at one time or in installments. Extra cards for the same household $5. (Sacramento, http://www.sacfoodcoop.com)
The Ongoing Investments approach...
- Ongoing equity investment $15 per year (OB People’s http://www.obpeoplesfood.coop/)
The Share Investment approach...
- Equity investment shares $200 each, limit 20 shares per household (Sierra Vista, AZ, http://www.sierravistamarket.com/)
- Equity investment shares $160 each, installment and low income options are offered (Urban Greens, Providence RI, http://www.urbangreens.com)
- Equity investment shares: first $60-$180, additional $180 each, (Vancouver Food Cooperative, http://www.vancouverfood.coop/)
- Equity investment shares $100 each (Medford Market, Medford OR, http://medfordmarket.org)
- Equity investment shares $25 each, four needed for full membership (Littleton Food Co-op, Littleton, NH, http://www.littletoncoop.org/)
The Multiple Share Types approach...
- One time $25 “A” share accrues patronage credits but does not get refunds; $10 each “B” share, when up to $300 the member is eligible for patronage refunds, then may continue to purchase “B” shares, purchase “C” dividend-paying shares and/or make interest-bearing loans. Withdrawals incur a $5 fee. (North Coast Co-op, Arcata and Eureka, http://www.northcoastco-op.com/)
The Multiple Member Types approach...
- four different member types with a total of nine different payment options, incentives to pay in larger amounts rather than in installments (Willy Street Co-op, Madison, WI http://www.willystreet.coop/)
The Hybrid approach...
- Initial investment $200 or $250 family "lifetime" max (not shares), $5 fee for installment plan, $25 per year after that (Carbondale Community Co-op, Carbondale, CO, http://carbondalecommunityfoodcoop.org/)
- Initial investment of one share $140, $10 per year after that (Daily Market Co-op, Walla Walla, http://www.dailymarket.coop/)
- Initial investment $50, $25 per year after that (Baltimore Village, Baltimore, MD, http://www.baltimorevillage.org/)