World Half Full
Co-ops form their own investment networks
When Princess Robinson takes her son to school, there’s always a line of people waiting to buy their morning tamales and coffee from a woman selling on the corner. Later in the day she might come across people barbecuing and selling plates out on the block.
Robinson lives in North Richmond, a small unincorporated area of Contra Costa County in California, home to mostly Blacks and Hispanics. Typically, unemployment stubbornly hovers around 22 percent, the median income around US$26,000. North Richmond lies downwind from a major oil refinery and has long suffered higher child asthma rates and other chronic health problems related to air pollution than other parts of the county.
But as they do in neighbourhoods across the United States, people find a way. “I know so many people who are hustling in my community but they’re not legal,” Robinson told Oscar Perry Abello. “Those were my businesses growing up here.”
Coming up amidst that hustle fuelled Robinson’s desire to become an entrepreneur. For years she wanted to start her own record label, even attending business school to learn how. But after graduating in 2019, she found her true calling — incubating and investing in cooperatively-owned businesses, as a project officer at Cooperation Richmond.
“I’m not just opening up a restaurant or food truck, I’m helping someone open up a food truck or a restaurant and someone else open up a grocery store,” said Robinson. “I get experience in all these different sectors and I’m just like ‘oh my god this is my dream job and I never knew it existed.’”
Robinson recently ushered her first investment to the finish line — a Black, family-owned food business. Unfortunately, due to covid, it took about a year to get there. She has another three more possible investments in the pipeline.
“Going through the process for the first time ever it was frustrating at times because of all the back and forth, but it was great for me because now I know what it takes and next time it’ll go easier and faster,” says Robinson. “I wouldn’t have had this opportunity anywhere else . . . I wasn’t qualified, I wasn’t experienced.”
Because of their unorthodox ownership structures and management practices, co-ops don’t fit neatly into most lenders’ and incubators’ boxes. However, Cooperation Richmond is a member of Seed Commons, a nationwide network of loan funds and incubators specialising in supporting and investing in co-ops. Working as a group, they collectively share the burden of everything from fundraising to support their work to vetting possible investments. It’s a network built largely by and mostly for worker-owned co-ops.
“This is about using our collective power to create a new financial institution,” says Kate Khatib, co-director of Seed Commons and a worker-owner at Red Emma’s, a co-op restaurant and bookstore in Baltimore. “We’re fundraising collectively, raising the investment capital collectively and figuring out how to deploy that capital most effectively in our individual communities.”
Since inception in 2016, Seed Commons has enabled its members to make more than a hundred loans, worth more than US$10 million. The first loan made through the network was to Baltimore ice cream maker Taharka Brothers, which recently converted from a non-profit social enterprise to a worker-owned co-op.
Seed Commons has roots in the frustrations that Red Emma’s went through several years ago, when it needed finance to move. Already an established business with deposits held at several banks, Red Emma’s went to all of them but none was willing to finance on terms that worked for the co-op.
For example, all of Red Emma’s banks wanted at least one person from the co-op to sign a personal guarantee, which the banks say they need to reduce the risk of making a small business loan. But it meant if the business were to fail and the loan defaulted, the bank caould repossess the owner’s house or other assets the bank could then sell to recoup at least some of the debt. But for worker co-ops, the whole point is for the workers to share ownership equally and reduce the risk of business ownership to each worker, so it doesn’t make much sense to make one or two people liable.
And the worker-owners may not have any assets that would satisfy a bank anyway — especially if they are Black people from North Richmond or Baltimore. White households today have a median net worth eight times higher than Black households and five times higher than Hispanic households, according to the Federal Reserve.
Red Emma’s asked each bank for a smaller loan, reducing the risk, but none were interested. Eventually, though, it hatched a plan to create what became Seed Commons, bringing together worker co-op incubators and loan funds in cities across the country.
“Creating your own loan fund, all of the compliance issues, all of the fundraising, all of the challenges, we couldn’t believe how much it would take,” says Kristen Barker, executive director of Co-op Cincy, a Seed Commons member in Cincinnati. “We were founded in 2011 and we wanted to start making loans to worker co-ops ourselves but we just put it on the backburner until the opportunity to join Seed Commons.”
To date, Co-op Cincy has made 13 loans totalling nearly $300,000 to worker-owned co-ops and their members in Cincinnati, the largest of $130,000 to Our Harvest, a worker-owned urban farm in Newport, Kentucky.
Most Seed Commons network loans are small, which insulates co-ops from larger debt until they’re up and running or until they have more experience operating and managing themselves.
Rich City Rides, a worker-owned bike shop in Richmond, has seen a spike in demand with covid as more people spend time outdoors. The shop had already repaid two loans since Cooperation Richmond helped it launch five years ago. Robinson says they’re now considering making another loan to capitalise on the spike in business. “When I’ve been taking my kids for walks in parks and trails, it’s all packed,” she says. “Rich City Rides also does a lot of community building around cycling, doing organised bike rides with fifty to a hundred people at a time.”
Each local member group of the Seed Commons network can raise funds on their own to make loans, but that takes a lot of relationship building and cultivating of local investors, which isn’t impossible but it almost never matches when a co-op needs capital. Seed Commons is always on standby to provide liquidity for loans when network members need it.
The network also helps vet potential loans and advises co-ops, which is particularly helpful when the local loan fund officer isn’t familiar with certain industries. Khatib often spends extra time helping peers across the country vet food businesses. Barker says it was also helpful as part of the incubation process to connect a childcare co-op in Cincinnati to other childcare co-ops that Seed Commons has supported in other cities.
When local groups come to Seed Commons for liquidity to advance a loan, the network’s sustainability committee provides another layer of advice and approval. Robinson’s initial request was to finance a food truck for her first business, but working with the committee, that was pared down to a smaller loan to get the business started as delivery-only until the worker-owners gained some experience running a business together. They plan to come back later for a food truck loan after they build up a revenue base. “Going through that process with the members, we realised ‘okay, let’s go back to the drawing board and start off small and work our way up,’” she says.
The loans the Seed Commons network makes also allow borrowers to make repayments as a percentage of monthly profits — if there’s no profit in a given month, they don’t need to make a loan payment. Not only is it a plus for the borrower, it also means the local loan funder has a strong incentive to provide good incubation and other support to ensure the co-op's success.
Around half of the Seed Commons members also get at least 75 percent of their operating budget through the network, according to Khatib. In an annual process, network members collectively allocate available operating funds from grants and donors. Some of the same individuals and foundations who fund operations for the network are also committed to lending money to the network when it’s needed to advance loans through local members.
“We’re really only going to take in capital that works,” says Khatib. “We’ve been fortunate to find funders and investors who’ve been willing to work with us in very favourable ways to build a structure we believe in, that people feel comfortable investing in but keeps the control in the hands of the people in the network.”
The only thing Seed Commons doesn’t have is what local loan officers such as Robinson have in spades — relationships with potential co-op members and an intimate knowledge of their target markets.
“You could have bad credit, you could have [criminal records] on your background, that’s another reason a lot of people feel like they can’t go to banks,” says Robinson. “We don’t dismiss anybody. You come in here looking for help with your credit — I am you. I need help, too. I’m in the same boat. I didn’t know anything about credit ratings till I was 27. That’s what makes coming to Cooperation Richmond more comfortable because the project officers are people from the community.”
ABOVE A pre-covid Cooperation Richmond workshop
PHOTO Princess Robinson