The Bottom LineThe Bottom Line

Worker Cooperatives Are Finding Investors Who Share Their Values

As more cities incubate worker co-ops, Equal Exchange blazes a trail to reach scale.

Members of the roasting, production and QC teams at Equal Exchange's roasting facility in West Bridgewater, Massachusetts. (Credit: Equal Exchange via Facebook)

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You may know Equal Exchange by the food company’s signature bright red logo on its coffee, tea, or chocolate bars. You may know they sell only certified fair-trade products, ensuring just compensation paid to farmers and their workers in countries all over the world. You may even know the company currently earns around $70 million a year in revenues, and has around 150 employees. But did you also know the company is a worker cooperative?

In the 1980s, Equal Exchange’s three co-founders were working in the food industry, but not enthusiastic about the conventional business models they found across the sector, which were based primarily on a “race to the bottom,” cutting costs wherever possible to increase shareholder profits. That usually meant companies paid the bare minimum to workers along the global supply chain — farmers, truck and forklift drivers, packaging machine operators, coffee roaster operators, warehouse staff and others. Equal Exchange’s co-founders came together to form the company in the late 1980s, setting out to prove a point: that you could be a successful, even a profitable company and not treat your workers, suppliers, and other stakeholders like cogs in the money-making machine. You could pay everyone fairly, even give workers ownership and control of the company, and have cash left over to repay investors.

Being a worker cooperative means every worker has an equal say and an equal ownership share in the company. It doesn’t mean every worker has to vote on every day-to-day decision within the business. But on major decisions, this structure helps to guard against making drastic changes such as sacrificing wages and benefits for the sake of profits or shutting down their existing roasting facility and moving it hundreds or thousands of miles away.

For those and other reasons, a growing number of cities from New York City to Cleveland to Rochester to Madison have been exploring worker cooperatives; the goal is to create jobs with better pay and benefits and to support companies that won’t threaten to shift those jobs to other countries or even other parts of the United States.

But access to capital remains a major barrier for most worker cooperatives to achieve their potential to grow and scale to the point where they can influence others in their cities and sectors to change practices and possibly incorporate as or convert to worker cooperative ownership structures. Equal Exchange is one of the few worker cooperatives that has raised a significant amount of capital from investors. They have moved beyond setting an example for how to court investors as a worker cooperative; they’ve directly supported other worker cooperatives to learn how to raise capital and have even connected others to their established network of around 600 investors.

At Equal Exchange’s headquarters, just outside the city of Brockton, Massachusetts — home to office supplier W.B. Mason, and boxers Rocky Marciano and “Marvelous” Marvin Hagler — you’ll find forklift drivers, packing machines and operators, coffee roasters, coffee tasters, and office staff. You may also find Daniel Fireside, who, as capital coordinator, manages the company’s investor relationships.

“I have to explain what my job is a lot, even inside the company,” says Fireside. “When I was hired, I was told different people who’ve had the job [before me] have had different titles, like director of investor relations. I decided to keep capital coordinator, because I think it’s more reflective of what the job is, and [the title is] unusual enough that it often starts a conversation.”

Since the company’s founding, Equal Exchange has raised more than $16 million in capital from outside investors, about half of that since hiring Fireside in 2010. Coming from the cooperative world, he had to learn the investment world. In some ways, managing and cultivating investor relationships for a worker cooperative is the same as doing so for a conventional business — for example, frequent travel to places where current or likely investors are likely to gather; it’s why Fireside spends so much of his working life out of the office.

While the company isn’t publicly traded on the stock market, it does utilize a legal framework under U.S. securities laws (known as the 506 exemption of Regulation D of the Securities and Exchange Act) to sell ownership shares to investors during occasional periods known as private offerings. Unlike standard ownership shares, however, these shares don’t come with any rights to vote or otherwise exert control over the business.

When Equal Exchange decides to have an offering, it’s Fireside’s role to make sure investors are in place, ready to sign checks as soon as possible. You can’t just call someone who expressed interest five years ago and hope they’re in position to make an investment.

“A lot of it is networking,” says Fireside. “I’m selling our stock even when we don’t have an offering. My job is to make sure the capital is available. Whatever plans management has, I don’t want access to affordable capital to be an obstacle.”

The last time Equal Exchange made an offering to investors was a one-year period from 2014 into 2015, and the company raised $4.1 million. It was Equal Exchange’s largest offering ever, and to date remains the largest private offering by any worker cooperative in the United States.

Fireside doesn’t do this all by himself. It’s not only logistically infeasible — investors hail from 36 states plus the District of Columbia — but the legal costs associated with a company marketing directly to most investors would be exorbitant. Instead, Fireside works with partners to raise the capital, partners such Andy Loving, a Louisville, Kentucky-based financial advisor with Natural Investments LLC. When Fireside has an offering for investors, he calls up Loving and a few other financial advisors at Natural Investments and other firms, and gives them each a target dollar amount to raise. Natural Investments doesn’t charge Equal Exchange a penny for the service it provides.

“I’ve been doing this for 25 years now,” says Loving. “I’m an old social activist mostly among more progressive church folk. I tell people when I was a little bit younger I tried to create social change by organizing people, and I decided I’d give a try to organize money.”

Loving’s clients are the people with money to invest. They come from a variety of backgrounds, he says, including folks who have worked in government for many years. Some have inherited money, some are fellow social activists, environmentalists, lawyers, even social workers. His clients aren’t the super-wealthy; most hover between $1 million and $2 million in net worth, and they come from 25 states and counting.

(Credit: Equal Exchange via Facebook)

A net-worth of $1 million is an important threshold under the Securities and Exchange Act. Unlike with the stock market, in a private offering, the law says companies can only sell shares to up to 35 investors who have a net-worth less than $1 million. But companies can sell shares to an unlimited number of investors with a net-worth of at least $1 million. It’s a measure meant to protect less wealthy investors from being scammed, although some — including Fireside — believe it’s worth exploring meaningful ways to expand that unlimited pool to include less wealthy investors.

What ties all of them together, what brings clients to Loving and financial advisory firms such as Natural Investments in the first place, is the desire to invest in ways that link some type of social returns — creating living wage jobs, advancing clean energy and investing in historically under-invested communities — to financial returns.

Twenty-five years ago, when Loving first got into financial advising, he worked with a few investors who only cared about maximizing financial return. (“Because I wanted to do things like eat,” he says.) Nowadays, he has more than enough clients to keep him busy (and fed) by investing only in opportunities such as Equal Exchange.

Instead of charging companies like Equal Exchange for raising capital, Loving’s clients pay Natural Investments an annual fee equal to one percent of the assets that fall under the firm’s management. The firm currently has around $500 million in assets under management. Of that, around $90 million comes from Loving’s clients. Loving says around 70 of those clients have invested in Equal Exchange. Other Natural Investments advisors also have clients invested in Equal Exchange.

“As a financial advisor, my fiduciary responsibility is first to my clients,” Loving explains. That means meeting his clients’ financial expectations, which includes not losing any money; but as with most investors, Loving’s clients want to at least beat inflation and grow the value of their assets over time, for the sake of retirement or passing along wealth to the next generation. Beyond that, Loving’s clients aren’t as interested in how fast their assets grow as they are in the social returns of those investments, a philosophy that makes sense from Equal Exchange’s perspective.

“One of the things Equal Exchange always wanted, and why they wanted to work with us, was they wanted values-aligned investors,” says Loving. “They were looking for folks who understood fair trade, who understood worker ownership.

To be as sure as he can about values-alignment with investors, Fireside has a conversation with each potential investor before taking their money. Besides alignment with fair-trade and worker cooperative ideals and philosophies, Fireside checks the investor’s long-term perspective. Equal Exchange’s outside investors must hold on to their shares for a minimum of five years, and can only sell shares back to the company.

“I tell people I can’t guarantee you’ll make a financial return, I can’t guarantee you won’t lose it, but I can guarantee you’ll feel good either way, because we’re doing the right thing,” says Fireside. “That message, after the financial crisis, suddenly meant a lot more to a growing number of people.”

Fireside may sound modest, but the reality is that Equal Exchange has paid an annual dividend to investors for 28 straight years and counting, even during the Great Recession. And during Loving’s tenure selling Equal Exchange shares to outside investors, he’s seen only a tiny handful cash out.

“I’ve spoken to some of our long-time investors who’ve said they thought Equal Exchange was their crazy pseudo-charity, but [then] the financial crisis hit and their 401k’s fell by half in value, while [Equal Exchange] kept paying positive returns, because the business was moving along and it was all based on reality,” Fireside says.

It helps that Equal Exchange shares, while not “tradeable” in the stock market sense, never go down in value. The share values don’t go up, either — each investors’ share price stays fixed at whatever their investment was during the offering. The share agreements allow the company to pay an annual dividend between 0 and 8 percent of the value of each investor’s investment every year. So far, over the past 28 years, annual dividend payments have been between 3 and 8 percent, and the company sets 5 percent as an annual target dividend payment for each year.

Those returns don’t attract investors in droves. But in his time as capital coordinator, Fireside says he has had to turn away investors from multiple offerings, or in some cases he has capped the amount a single investor could purchase to make room for other, usually smaller investors. More recently, Fireside has referred other worker cooperatives to Loving and other financial advisors in order to raise capital, co-ops such as Boston’s CERO or Denver’s Namasté Solar (where Fireside is a board member). Namasté Solar, which provides residential and commercial solar installations in Colorado, California, and New York, raised $3.1 million in its second private offering, which concluded at the end of 2016.

“We think the way we do business is great, and we think more people should be doing it,” says Fireside. “We don’t want to be the cool outlier.”

One key limitation: while Fireside and Loving have yet to reach the limits of how much capital investors are willing to move to outfits like Equal Exchange or CERO or Namasté Solar, Loving says he doesn’t feel these investors are the best for startups. It’s too risky for investors who, although they have some flexibility with their wealth, aren’t in a position to invest at the earliest stage of a business, worker cooperative or not. Even in conventional investing, Loving points out, the vast majority of startups fail.

“We really feel like our folks can’t lose all their money in a deal,” Loving says. “Cities and governmental bodies are some of the people that need to help get [more worker cooperatives] off the ground and [give them] technical assistance to get them to work [so they can] establish a track record.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter.

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Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.

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Tags: economic developmentworker cooperativescooperatives

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