For a variety of (very good) reasons this group opted not to express their form of worker ownership as a cooperative corporation or limited cooperative association, but rather as a public benefit corporation. This meant hybridizing the corporate structure to provide for one-worker, one-vote governance, and profit allocation based on patronage. We have designed and structured countless “hybrid” corporate and LLC entities to operate on a cooperative basis. This PBC in fact has more democratic governance and labor-based economics than many cooperatives we have seen. All the while, this client knew they may want to bring on outside capital.
This PBC put strict eligibility qualifications on its voting common stock. They can only be held by full-time employee workers of the business. There is a minimum tenure requirement to become an owner. The common stock price is fixed at a $1.00 par value. Only one share can be held by a worker. If a worker resigns or is terminated, their share must be sold back and repurchased by the Company.
When they approached us with a term sheet from a venture capital firm, I have to admit I had my doubts that we could graft VC terms onto the democratic worker-owned PBC structure. This VC presented differently than most, however. For one, they are a strategic and “verticalized” shop; meaning they seek out and invest in companies in a specific market “vertical”, or segment. They are also a strategic investor, which means that in addition to contributing capital, they add value by making connections to other high value partners, and by offering strategic advice. This post will summarize the high points of the term sheet, which ultimately got signed. Both the VC shop and the client have consented to me writing about the deal.