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Comment by jasode | Hacker News Reader

The co-op structure is interesting but it's ultimately constrained by the members'/employees' financial resources to contribute capital. That's why co-ops are always modest businesses like grocery stores, or a co-op of cleaning people, or in this article's case, a co-op of IT techs.

If you want to start a capital-intensive business like Google Inc or SpaceX, you have to use the typical corporate structure because you need the $X million in investments from angels, VCs, and the stock market.

The typical employees don't have a million dollars in their bank accounts to pool together and launch a Google-sized business as a co-op. The enormous costs for rack servers and data centers to scale out would outpace the employees' tiny cash contributions.

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Usually modest businesses, but not always.

http://en.wikipedia.org/wiki/Mondragon_Corporation

> The co-op structure is interesting but it's ultimately constrained by the members'/employees' financial resources to contribute capital.

Not quite true. Its constrained -- pretty much by definition -- to internal source of equity-based financing, but it can get external non-equity financing.

> That's why co-ops are always modest businesses like grocery stores, or a co-op of cleaning people, or in this article's case, a co-op of IT techs.

I don't know that I'd describe Mondragon corporation as a "modest business".

OTOH, they are usually by design fairly moderate-risk businesses, as their aren't many established financing instruments (or financiers providing them) suitable for high-risk coop ventures.

> but it's ultimately constrained by the members'/employees' financial resources to contribute capital.

Sounds like a variation of the bootstrapping problem; i.e., something that is not necessarily a blocking constraint to more ambitious projects.

> it's ultimately constrained by the members'/employees' financial resources to contribute capital

I don't know about the rest of the world, but in the UK co-ops can raise investment via loanstock.

Yep Capital is the killer for worker coops - there have been experiments with coops taking VC funding Poptel in the UK is one example.

Unfortunately it did not end well :-(

I don't think employees are investors in co-ops. They are like founders. A co-op can still get capital from investors. Can't they?

Probably this would be debt rather than equity.

The problem with that is there are tax implications to giving someone a chunk of a company (it's technically income), even if it is completely illiquid. Tax implications the employee probably can't afford much better than a buy-in.

coops normally have special status to get round some of these issues.

And coop members can have direct or indirect ownership a full on worker coop normally has direct ownership and organizations like John Lewis have indirect ie shares held in trust.

More typically a co-op will raise funds from members via shares. I'm a bit shaky on specifics, but those shares may be capable of being sold back (to the co-op as a whole). Voting righs often _don't_ accrue per share.

Debt financing, as mentioned, is another alternative.

Read with caution, I'm really sketchy on details.

It depends is some coops members do have to ante up the Spanish Mondragon coop is an example.

And by definition the members of the coop must own the coop or own a controlling interest

> I don't think employees are investors in co-ops.

Typically, they are; their ownership stake is usually, as I understand, purchased on credit and sold back on separation.

> A co-op can still get capital from investors. Can't they?

Well, yes, in the form of debt, and perhaps non-voting equity depending on the particular rules applicable to coops where the coop is organized.

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