Financing Your Startup Without Selling Out Your Values
Interview by Tim Armstrong with Rich Bartlett, Loomio cofounder. Reposted from The Socialist Entrepreneur with permission.
Loomio is a fascinating project. The web and the internet have fundamentally altered how people around the globe network and share information, but up until now these technologies have not much changed how people make democratic decisions together. Loomio is a new online tool that aims to fill that gap.
Loomio was created by a group of Occupy activists, social entrepreneurs, and software developers who met at Enspiral. Their aim was to create an open-source tool that would allow disparate networks of people to communicate, and then to turn that communication into radically democratic plans for action.
As such, Loomio might be an interesting tool for worker-owned start-ups who need an online space to communicate and to make decisions, but Loomio is also of interest because it is being developed by a group that is itself a worker-owned start-up, one that is structured as a radically democratic, horizontal cooperative.
To learn more about this cooperative and how they organize themselves, I spoke on the phone to Rich Bartlett, one of the founders.
Tim: So the first question I have is about capital. Raising capital is one of the central problems for new worker cooperatives. You’ve raised capital for your business in a number of innovative ways. In the beginning you held two successful crowd funding campaigns and then more recently you raised half a million dollars from investors using redeemable preference shares.
Rich: Yes, that’s right.
Tim: I’m specifically interested in that second financing instrument. Could you explain a little bit about how these shares work and maybe talk a bit about the risks involved in this type of financing with respect to preserving worker ownership and control, and also how you try to mitigate those risks?
Rich: Sure. It’s one of the most important questions, right. The way that we have approached the capital question is in keeping with the way we’ve approached every question about how we structure ourselves and our business model. Being the kind of personalities that we are, we have a reflex to reject everything that already exists, and then to start from a blank slate, to ask: if we could do everything with a pure commitment to our ethics, how do we do it? Then we go on a research journey and try and balance our idealism with some pragmatism and come up with something reasonable.
That process last year landed us on the redeemable preference shares, which I had never heard of ― I don’t know much about investment ― but when I actually got talking with people, it turns out they’re not so rare. They have a long history and people were more or less familiar with them. Obviously, they’re not super common in the start-up financing world, but in co-ops they are.
I’m not an expert, but as I understand it, here is a handful of people who have invested in us, in a social mission that they care about deeply, and in a group of people that they trust to be credible, a group of people with a track record that makes them think that we’ve got some shot of delivering social impact in future.
In mechanical terms, it’s basically a very generous loan, a loan on very generous terms. There’s no trading of investment for governance rights, so the governance is still 100% with the workers, and the risk remains with the investors. If we default for some reason, then the risk is on them. It’s extraordinarily generous.
As for the risk of losing ownership, losing worker control, this is a relatively small financing round as far as they go. To some investors, I think it’s probably a ‘getting to know you’ kind of loan. The investors might be up for some more in the future, but I would expect that they would only be up for more if they can have more of a stake in the governance. We’ll design that relationship according to our principles and balancing idealism and pragmatism when we get to that. We’ve got a constitution that is pretty explicit about putting our social mission ahead of any other kind of mission, so we feel pretty confident about that.
The other component is that the product we’re building lives in the commons, so it’s open-source software. The decision to put the software in the commons really says, “look if at any point in the future the community feels that we’re not doing an effective job of stewarding this product, then anyone else can just take it, fork the code and do their own version.” This creates quite a strong incentive on us to maintain our ethics.
I can certainly imagine at some point in the future that we might do a different kind of investment or we might change the terms in some way that gives the investors a seat at the board or a role in some other kinds of decision making spaces. We will just have to design that in a way that is in alignment with our principles. It is a never ending challenge of being an enterprise that puts social impact over financial impact. You’ve just got to continuously be evaluating the impact you are having in the world and the resources you need to get there and try to make your best judgement calls about designing systems that work for you and still make progress every day.
Tim: Excellent. I think it would be worth it at this stage asking a second question, and that is, from the beginning, your business has had a radically horizontal structure based on direct democracy and consensus. Could you talk a little bit about the benefits first of this type of organisational structure and also about the challenges this structure presents and how do you work with those challenges?
Rich: The benefit would be … it’s a long list. Because we have a central organising principle that no one can tell anyone else what to do, we’ve excluded force from the equation. That creates a fundamental shift in what the organisation looks like in practice and it’s quite a big thing. It’s hard to just summarise into a bullet point, list of five benefits or something like that. When you exclude force you immediately get to the question of what do people want to do and why do they want to do it and how do we align what we each want to do into something that’s actually more or less coherent, and productive and progressive? As far as I know the only way to do that is for the individuals involved to actually care about each other.
So our organisation requires people to care about each other.
I mean there’s a real emphasis on care and it’s just a lovely place to be. It’s tremendous for us to be in an environment where everyone really cares about each other, where your feelings are legitimate information that is taken into consideration in decisions. Compared to any other job I’ve ever had, it has fundamentally changed my quality of life to go to a place where I’m expected to feel fairly good most days.
In previous jobs the expectation was that work sucks but that’s why they pay you for it: a trade-off that me and most of my friends were not happy with but we just sort of conceded that’s just what work’s like. But to be in a place where you’re deeply engaged with the work and deeply engaged with each other and doing it due to intrinsic motivation, not extrinsic motivation, doing it because you believe in the outcome and you’re surrounded by people that you trust, actively working for your goals, that is really an incredible work environment. It’s quite remarkable and I attribute much of that to the decision that we’re going to organise without force.
I think ― and this is a hypothesis ― but I think that in the long run it’s also a more resilient and a more innovative way to work. When you include the widest perspectives in your decision making, you tend to develop decisions that are better than the decisions any individual could develop their own. That’s the core hypothesis that we at Loomio are testing. Right now I can report that it feels really good! In the long run, we’ll see whether it actually delivers results. It seems like it delivers results just in terms of the amount of the impact that we’ve had compared to the resources that we’ve put into it. Because people are so engaged, they really give an awful lot more than the meagre wages would account for, because they’re engaged with each other and engage with a mission that they actually believe in.
It gives us a kind of resilience as well that’s been quite remarkable. This kind of work of starting a cooperative it’s stressful and difficult like starting any business is stressful. We’ve had times where say one of our key people had said, “Look I need a little rest; this is too much.” Because we’ve got quite a high degree of overlap between the different kinds of work people are doing, we can handle it when someone says, “I need a rest.” We can rearrange and cover it. Sure there is some specialisation and there are some people that would be harder to replace than others, but no one is completely irreplaceable because we’ve got an emphasis on distributing power and influence around which means we’re distributing context around and distributing relationships around. Not endlessly, but there’s always a couple of people that know more or less what needs doing in any job. That gives us a kind of long-term resilience that I hope will pay off. It’s early days for us but I think it will pay off in the long haul.
As for the challenges then … man! It’s incredibly challenging because for one thing we’re inventing everything from scratch. I mean, we do our research and try and not reinvent the wheel, but the process of bringing, well now it’s 13 people along for the ride of: “Okay what would a good investment structure be or what’s our conflict resolution process going to be?” All that sort of stuff. We have systems to delegate work out to different small working groups, so we don’t have to get full consensus every step of the way. We’re quite fluid and dynamic in that regard. But still it’s a lot of work. You spend a lot of time in communicating and then synthesizing diverse inputs and hopefully in the process coming out with stronger outputs but still the work of synthesizing is complex. It requires emotional intelligence and I’d say probably political nous.
In any organisation, regardless of the structure, you’ve got those kinds of challenges: How do we structure ourselves? What policy makes sense? What strategic decision? That’s always difficult. But it’s definitely made more difficult because our structure is less common. Consider the ludicrous start-ups in the United States that get funding at the drop of a hat. If you’re willing to structure yourself along traditional corporate lines and fund yourself with traditional venture capital funding, there are doors that open a lot more rapidly than if you choose to do things like: “Well we’re not a charity but we’re not a traditional profit-maximising company either. And, ah yea, by the way, the thing that we’re building: that lives in the commons, and oh yes, we live in New Zealand… Yes, we’ve got a pretty much iron-clad commitment to ethics over everything else.” It really does make it harder than if we were willing to play it by the traditional set of rules.
But it’s not really a choice for us. If it weren’t for these ethics, we wouldn’t be doing it. It’s just a reflection of who we are. So it’s a huge challenge but it’s also so rewarding. The sense of solidarity is it’s unparalleled. I’ve had a little bit, not a lot, but a little bit of experience with different activist groups and the solidarity there is pretty amazing. When I was participating in the Occupy movement, that was my first taste of solidarity, where I was part of this collective identity called Occupy, and then I saw these people on the other side of the world that shared that identity, and then their struggles were my struggles. When I saw them getting beaten by the cops that affected me in my guts. It was like, “OK, this is what solidarity feels like.”
It was a tremendous experience, but it expired. That collective identity expired. With other activists projects that I’ve been involved with, the community so often expires because it’s up against such a huge foe and it’s always coming out of people’s volunteer time and surplus energy and what they can manage to squirrel away from the boss or whoever. So people are forever burning out because you’re relying on people volunteering. So to have an enterprise that is on track to sustainability means that we get that sense of solidarity in participating in activist project that is mission driven. We keep getting to do that day after day after day. That sense of solidarity is deepening to an extraordinary degree, that I know that these people deeply care for me and can turn that care into really practical support when I need it.
Tim: Excellent Rich, that was really inspiring answer and we’ve spoken for about 20 minutes. If it’s okay I’d rather keep the interview relatively short and on those points that you raised. But I wanted to also ask, before we end, if you have anything else you wanted to add or if there was a question that I should have asked that I didn’t ask, that you wanted to answer.
Rich: The question that’s on my mind at the moment, is about scales: so Loomio was one co-op that is a member of a collective of companies called Enspiral. There’s about a dozen different companies that are siblings and we are mostly based in New Zealand and we’re now exploring how to scale out across the rest of the world. One of the tracks we’re exploring that seems most promising is not for us to expand our collective identity globally but actually to just make good friends with the others, to find others and connect with them.
I guess really a simple question is: I’m really interested to hear what’s happening in your hemisphere that you’re finding it exciting or that’s got some promise or is worth connecting with. I’m on a mission at the moment of connecting with all the interesting people that are trying to invent this new economy and supporting each other to do so.
Tim: Maybe it’s a question for readers of this blog, is that fair?
Rich: Yes. My sense is that we’re trying to do something very challenging, to invent an economy that’s based on ethics. One of the ways that we can increase the likelihood of success is by supporting each other’s work. We’re all so busy doing our thing that it’s hard to get our heads up sometimes and pay attention to what else is happening. So I’ve just in the last couple of months sort of opened my ears a little bit to hear what else is going on. So yes, a question for people reading the blog is a great idea.
Tim: Excellent. Rich, thank you so much for taking this time to talk to me.
Rich: It’s a real pleasure.
For more information on Loomio, see:
Reposted from The Socialist Entrepreneur with permission.