There are two key ways in which businesses find the money they need to start up or grow. One is by taking out a loan. The other is finding investors willing to buy a share of the business.
But if you’re an investor, why would you put money into a member- or employee-owned cooperative? Unlike a regular business, no matter how much you put in, your share of the business is no bigger and no more important than every other member of the co-op.
“This is part of the reason why co-ops haven’t attracted institutional private equity,” says Rob Miller, CEO of VSECU, formerly known as Vermont State Employees Credit Union.
“What we found is that the tools that traditional businesses to use, whether in the form of debt financing or equity financing, just aren’t quite as sophisticated or readily-available for cooperatives.”
VSECU is starting a program called Co-op Capital to fill the void and make equity investments of the state’s cooperatives.
Credit Unions are a natural match for this approach because they’re member-owned cooperatives.
Miller says this is uncharted territory. Only a handful of states permit credit unions to make equity investments in other cooperatives, and VSECU is the first in the state to do so.
Cooperatives are the only instance where credit unions are permitted to make equity investments. Miller says studies show co-ops are a better investment risk than traditional businesses.
“We actually think it’s good business," he says. "Co-ops also naturally circulate money within the economy because the owners are the patrons."
Joe Bergeron, president of the Association of Vermont Credit Unions, says other members may follow suit.
“I suspect some may watch carefully and consider whether that’s a good path for them,” he says.
A newly-released census by the Massachusetts based Cooperative Development Institute says there are 130 co-ops in Vermont.
They include member food co-ops, farm cooperatives, housing cooperatives owned by residents, energy co-ops and credit unions. They also include employee-owned businesses.
Roberta MacDonald, with the farmer-owned cheesemaker Cabot, hopes the new investment program will give more employees “the ability to keep your job by owning the company."
VSECU says initially the size of the investments will max out at about $145,000. They’ll typically be structured like a preferred stock, with dividends paid out to the credit union.