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So this model only works if the laid-off employees can self-fund the new company, right? and they can afford to lose the invested capital if the startup fails?

whatshisface 4y ago
Maybe that explains why there aren't a lot of co-op grocery stores or hardware companies compared to the number that used outside investment or the capital of one individual rich person to get started, but software engineers are in a better position to do this than most professions that I can think of.
- drexlspivey 4y ago
  Can you explain with some detail how would this work? Because I can’t make it work in my head. Say you find 100 tech people that can afford to put $100k each to start the company. Then what? Do they put up money and work for free? If you have to give the money back in 1 year as a salary what about the second year? How about marketing budget, office space, equipment etc?
  - whatshisface 4y ago
    In a startup with investors you have money coming from the investors and equity going to them, expenses leaving the company, and money going to and work coming from employees. For a co-op you draw that diagram but have the equity and money arrows that were connected to the investors connect to the employees, with some of the money cancelling out (working for equity, not for free.) As for why the employees would work for equity, well, they'd value it for the same reasons the investors would. If 1M shares is worth $20M to a group of investors it should be worth the same to 100 employees. You're obviously going to be using personal runway, which millionaires have more of than average workers, but SWEs have been making enough money over the last 30 years that it will be easier for them than almost any other profession.
    - Kalium 4y ago
      Equity is valuable to investors in no small part because they have the expectation that they'll be able to sell it should the enterprise become very successful. That isn't usually available to a cooperative - there generally isn't a liquid market. Something is only worth what you can sell it for. If you can't readily sell your equity to anyone but your fellow worker-employees, how sure are you that it'll be worth the same to them as it might be to investors?
      - whatshisface 4y ago
        It depends on the business. For one with steady recurring revenue and a predictable future, they could value it on a risk-discounted basis. I agree that the unicorn model wouldn't work well for someone who was going to put most of their money in a single opportunity. Fortunately, any given business is virtually guaranteed not to be a unicorn.
        Kalium 4y ago
        Yes, you're right. I think that's the problem here. Worker-owners can't value their equity for the same reasons investors would. Those reasons aren't available in this hypothetical context. I think you need a different explanation for why worker-owners would value equity if they can't expect to be able to sell it for a profit. Might I suggest avoiding the question of equity and financial value entirely? Successful worker-owned coops seem to handle it mostly by making shares the thing that gets you voting rights with the rest going into wages.
        AndrewKemendo 4y ago
        >I think you need a different explanation for why worker-owners would value equity if they can't expect to be able to sell it for a profit Because you believe what you are doing is more important than maximizing how much money you can make
        Kalium 4y ago

whatshisface 4y ago

Maybe that explains why there aren't a lot of co-op grocery stores or hardware companies compared to the number that used outside investment or the capital of one individual rich person to get started, but software engineers are in a better position to do this than most professions that I can think of.

drexlspivey 4y ago
Can you explain with some detail how would this work? Because I can’t make it work in my head. Say you find 100 tech people that can afford to put $100k each to start the company. Then what? Do they put up money and work for free? If you have to give the money back in 1 year as a salary what about the second year? How about marketing budget, office space, equipment etc?
- whatshisface 4y ago
  In a startup with investors you have money coming from the investors and equity going to them, expenses leaving the company, and money going to and work coming from employees. For a co-op you draw that diagram but have the equity and money arrows that were connected to the investors connect to the employees, with some of the money cancelling out (working for equity, not for free.) As for why the employees would work for equity, well, they'd value it for the same reasons the investors would. If 1M shares is worth $20M to a group of investors it should be worth the same to 100 employees. You're obviously going to be using personal runway, which millionaires have more of than average workers, but SWEs have been making enough money over the last 30 years that it will be easier for them than almost any other profession.
  - Kalium 4y ago
    Equity is valuable to investors in no small part because they have the expectation that they'll be able to sell it should the enterprise become very successful. That isn't usually available to a cooperative - there generally isn't a liquid market. Something is only worth what you can sell it for. If you can't readily sell your equity to anyone but your fellow worker-employees, how sure are you that it'll be worth the same to them as it might be to investors?
    - whatshisface 4y ago
      It depends on the business. For one with steady recurring revenue and a predictable future, they could value it on a risk-discounted basis. I agree that the unicorn model wouldn't work well for someone who was going to put most of their money in a single opportunity. Fortunately, any given business is virtually guaranteed not to be a unicorn.
      - Kalium 4y ago
        Yes, you're right. I think that's the problem here. Worker-owners can't value their equity for the same reasons investors would. Those reasons aren't available in this hypothetical context. I think you need a different explanation for why worker-owners would value equity if they can't expect to be able to sell it for a profit. Might I suggest avoiding the question of equity and financial value entirely? Successful worker-owned coops seem to handle it mostly by making shares the thing that gets you voting rights with the rest going into wages.
        AndrewKemendo 4y ago
        >I think you need a different explanation for why worker-owners would value equity if they can't expect to be able to sell it for a profit Because you believe what you are doing is more important than maximizing how much money you can make
        Kalium 4y ago