Mobilizing Capital for Collective Ownership in the US
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Mobilizing Capital for Collective Ownership in the US

Overview and Findings from the Collective Ownership FEL 2022

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Status 3 February 2023: The P6 Capital Cooperative website is now live! Please sign up and refer others in your networks.

Table of Contents:

🏛 Background: Mobilizing capital for collective ownership

The goal of this project is to mobilize more capital into collective ownership structures in the US.

Zebras Unite conducted it in collaboration with Zebras Unite Co-op founding member SecondMuse, and partners National Coop Bank and One Project.

It ran through the end of 2022, and we are now transitioning to launching the platform and product(s) that came out of the design process. For more information, please email us at p6capital@zebrasunite.com

🔬 Approach & Findings

We used a facilitated, participatory approach developed by SecondMuse Capital —the Future Economy Lab—as the container for our exploration of the challenges and opportunities around mobilizing capital for collective ownership structures.

🧪  The Future Economy Lab

The Future Economy Lab (FEL) is a global research and design lab focused on innovating how we create financial mechanisms and collaborative strategies across regions, impact sectors, and communities around the world. It is built on the belief that economies can generate more than financial returns for a select few. We believe economies of the future will need to benefit people and protect the planet. Building these economies requires a new, collaborative approach.

For too long, the financial tools at the heart of our economies have been developed through exclusive processes and without diverse perspectives and input. This has led to a narrow set of values and principles incentivizing fast financial returns over social and environmental impact or long-term sustainability of investments. The Future Economy Lab is a global research and design lab with a new approach to challenge these norms.

Instead of creating a financial mechanism for a specific sector/region we create it with the stakeholders of that economy. This collaborative process is grounded on research of both the supply and demand sides of capital to ensure that the mechanism created meets the needs of investors, entrepreneurs, and the community at large.

The Future Economy Lab developed a collaborative research and learning process that actively engages the communities and stakeholders directly involved in the economy that the Future Economy Lab hopes to shape.

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  1. We start by envisioning a market opportunity with a landscape assessment of public and private actors in the space as well as the community itself that is most impacted by the economy.
  2. Second, we define the challenges, biases and gaps in the economy through research, interviews, and visioning workshops in direct collaboration with our partners, communities and all active stakeholders, including investors, governments, and entrepreneurs.
  3. Next, we design new financial mechanisms and identify the need for complementary ecosystem development programming to address the gaps and catalyze new solutions to the challenges we’ve surfaced.
  4. Lastly, we launch these new solutions. We refine the financial and impact models in order to raise new capital mechanisms and begin new programs with the support and collaboration of the communities themselves.

To learn more about the FEL, please contact SecondMuse Director, Natalia Arjomand at natalia.arjomand@secondmuse.com.

🔍  Definition of the challenges and opportunities

Here are the findings from the DEFINE phase of this project, which we published at the end of July 2022:

Narrowing Down Financial Solutions (July 27, 2022)
Collective Ownership DEFINE Phase Workshop (August 3, 2022)

✏️  Designing a solution

From August to December 2022, we then worked on designing solutions to the suite of challenges we identified. To follow along and get involved, please review the following items:

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This deck is the source of truth and record of the design workshops that took place from October to December 2022. It captures the characteristics and specifications of the instruments and institutions we explored.

💡 Additional Insights & Activities

The FEL provided the container for a group of stakeholders across the cooperative economy ecosystem to work together who had not previously collaborated in this way. As a very desirable side effect, we soon identified some patterns and opportunities for coordinated action over and beyond the focus on financial products of the FEL. These include:

  • We seized the opportunity to harness the group to put together policy recommendations to the CRA regulators that are aligned with our goals of mobilizing more capital into this space, effectively prototyping what a future policy program of a standing solidarity entity might do. That letter is attached here:
  • Zebras Unite Co-op et al. CRA comment letter FINAL.pdf1129.8KB
  • A study trip to the rich cooperative development ecosystem in Italy in September was attended by representatives of Zebras Unite, NCB, and several other stakeholders participating in the FEL. It spawned some additional thinking about what a cooperative financial intermediary might look like, and brought home the importance of creating a platform (entity), not just a financial product.
  • Over the course of 2022, we have seen Crypto 1.0 imploding around us in a mushroom cloud of irrational expectations, poor governance design, and rampant fraud. This creates an opportunity to mobilize co-op principles and capital to turn web3 into an authentic force for good in the next economy

🎁  Platform & Products

What emerged is a nested solution that combines a platform for continued engagement of key stakeholders and a suite of capital products that it would offer.

Introducing:

The P6 Capital Coop

  • A financial co-op that would serve as a collectively-governed means of raising, governing, and deploying capital to the collective ownership ecosystem.
  • Overview deck here. P6 Capital operates the:

P6 Capital Fund

  • A diversified fund that achieves a blended return by investing across collectively-owned and governed enterprises at different stages of maturity, aiming for a weighted expected return of 9 percent annually. Grant capital raised for the Fellowship is managed outside the Fund, and administered by the Fund team.
  • Financial model is here, and sample deals in appendix here
  • Summary of fund economics:
Type
Allocation within the fund
Terms
Low return
High return
Expected return
Fellowship
N/A (grant capital)
$120K grant for one year 
N/A
N/A
N/A
Co-op credit fund of funds
10
Fixed interest rate
0%
5%
3%
Equity for conversions
70
Seven year fixed payback at 8% annual dividend, subordinate to debt
5%
11%
8%
Growth capital for established cooperatives
10
Fixed dividend
5%
8%
7%
Equity for DAOs
10
Uncapped payback
15%
27%
21%
  • There are three pillars of P6 Capital’s work:

Co-op Catalysts Fellowship

  • Fellowship that would allow co-ops achieve the next stage of viability and business maturity — whether from 0 to 1, or from seed to growth.
  • It would, for example, provide funding for entrepreneurs who are working with existing groups of service providers to create new co-operatives.
  • Detailed description here

Co-op Credit Collaboration

  • Raise institutional capital for co-op focused CDFIs
  • Source and syndicate deals with CDFI network (as outlined here) to facilitate larger ticket size deals and reduce administrative burden for operators
  • Fill capital gaps or provide guarantees post-syndication
  • Share learnings to be leveraged for new product development

P6 Growth Fund

  • Make equity investments (i) to cover the capital for large-scale conversions that cannot be debt-financed because businesses are above debt capacity at current EBITDA, and / or (ii) to remove need for seller financing, and / or (iii) to actively solicit sellers
  • Invest growth capital in established cooperatives
  • Invest in Web3 ventures that meet ownership and governance criteria

🗺  Next steps

  • We are continuing to refine the financial model for P6 Capital
  • We are looking for a time to meet with key partners and potential founding members of P6 Capital in early 2023.
  • We are looking for an opportunity to brief the “Coop Capital Dialogues” participants convened by Mike Mercer on our progress.
  • We have secured the domains p6.capital, principle6.capital, and principle6capital.com; once the entity is created, we can also get the .coop domain
  • We want to convene the large co-ops to come to the table, and ask them to become anchor owners of P6 Capital and / or investors in the P6 Fund.
  • More to come!

💌 Get in touch

To find out more or to get involved, please contact email us at p6capital@zebrasunite.com

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The P6 Capital Co-op

🧊 Archive

🧊 Various artifacts from the design phase:

  • 🗺 Here is a Miro board where we were riffing on emerging options.
  • 🧩  Here is a draft summary of terms for a credit enhancement facility that we considered as part of the Design phase.
  • 🧮  And here is an economic model for it.
  • 🎞 Here is a deck we are used throughout the Design phase to capture the characteristics and specifications of the instruments and institutions we are exploring.

Prior status updates:

Status 11 October 2022:

We are now in the active design phase of this project, and have posted some related resources. If you are, or know, an investor, financial institution or ecosystem builder who would like to participate in upcoming design sessions and / or stay in the loop, please get in touch with Astrid Scholz, Zebras Unite’s Capital lead.

Status 27 October 2022:

We began visualizing a credit enhancement facility for existing loan funds that included a fellowship for startups. We would like to get feedback on this initial draft (link) by November 1st. The next meeting will be November 3rd at 1:00pm (EDT) where we will discuss the capital deployment process with a diagram of how capital will flow through the facility. If you would like to join the meeting please contact Kate MacKenzie.

Status 3 November 2022:

We reviewed some sample diagrams on how credit enhancement would work and through our discussion we discovered that CDFIs would likely need a guarantee of 50% to truly unlock more capital for start-up co-ops and that 15% is a realistic loss rate given that we are looking to support early stage coops (and with any early stage business there are inherit risks). The next meeting will be November 10th at 1:00pm (EDT) where we will begin to codify roles and responsibilities and create a structural diagram for the facility. Additionally, we will review a simple model of what credit deployment could look like from an economics perspective in a capital stack. If you would like to join the meeting please contact Kate MacKenzie.

Status 15 November 2022:

The next design workshop takes place 1 Dec 2022 from 1 - 2:30 pm Eastern. A smaller group of us will meet to consider the governance of the product(s) and platform emerging from this process. Please contact Kate MacKenzie if you are interested in participating.

Status 29 November 2022:

We have made substantive changes to the platform & product proposals ahead of the next design workshop, which takes place 1 Dec 2022 from 1 - 2:30 pm Eastern.

Status 1 December 2022:

If you are part of the design working group, you are in the right place! Please mark up this page and the places it links from with your comments, questions, and concerns.

Status 13 December 2022:

We are now functionally complete on the Design Phase, and the core team at Zebras Unite and SecondMuse is working on integrating all the inputs and feedback we have received, which we will capture here and in materials linked from this page. — Please feel free to mark up this page and the places it links from with your comments, questions, and concerns.

Status 15 December 2022

We are now functionally complete on the Design Phase, and the project team at Zebras Unite and SecondMuse has integrated all the inputs and feedback we have received here and in materials linked from this page. — Please feel free to mark up this page and the places it links from with your comments, questions, and concerns! Have a wonderful, restorative solstice break! 💫

Status 13 January 2023:

We are now functionally complete on the Design Phase, and the project team at Zebras Unite and SecondMuse has integrated all the inputs and feedback we have received here and in materials linked from this page. — Please feel free to get in touch with your comments, questions, and concerns!