I'm sure you've already seen Juno's attempt at this experiment[1].
- Drivers said they joined Juno on the premise that they would receive equity from the company.
- Gett acquired Juno for $200 million and the equity program was done away with.
- Drivers are suing for breach of contract, false advertising and securities fraud.
In order for that structure to work, the company would need a new fund structure that would make it both scalable and impossible to dilute the worker. From my limited knowledge, most of the funding power goes to investors and since these types of businesses generally rely network effects, it seems difficult to kick this system off. I'm not saying it's impossible, I'm just not smart enough to figure out how to get the ball rolling.
It seems to me this example has nothing to do with the parent's comment. He is talking about co-ops. Companies that are owned by workers. It implies the company cannot be sold without a majority of workers to agree.
But you're right the funding scheme would be more challenging. But if the service sold is of very good quality, it may work. And the "not for private investors" model may also be something good to promote for (some) consumers.
Juno was owned by the workers - They had equity in the company based on when they started.
> But the icing on the cake is Juno's equity offering: 1 billion of the company's founding shares reserved just for the drivers. [1]
It was all stripped away when the company was sold off to Gett because of liquidation preference because now.
> But drivers were soon informed by emails from Juno that the stock plan was void. They could instead receive cash payouts amounting to less than what they could make in a day of driving. [2]
>In order for that structure to work, the company would need a new fund structure that would make it both scalable and impossible to dilute the worker.
Why not make it a non-profit corporation, then there is no ownership (stock) and the company can't be sold.
Basic structure: You have members (drivers), they vote the board and in turn the board votes the officers who run the operations (corporate compliance). There would obviously be salaries for the officers, but they wouldn't/couldn't exactly get out of control because they would be set/approved by the Board, and if the Board would be put in check (voted out) by the members (drivers). And that is just the default, you can get far more creative with the actual business agreements and corporate governance documentation to ensure no funny business for the get go.
if it's impossible to dilute the worker, it's impossible to fund the business.
Lets say your startup sells 20% to an investor (round A), keeps 50% for founders/direct employees, and allocates the remaining 30% to "workers", i.e. drivers, employees. Now you run low on money and go out for round B.
Where is the equity for the round B investors? Say they want 50%, who takes the dilution? Just the round A investors and founders, taking them down to 6% and 14% respectively so workers can stay at 30%? Thats never going to happen, the B round investors aren't going to give funding to see founder incentives massively reduced (unless they plan to replace founders). They want the people they think are most likely to make their investment successful to have the most skin in the game, and that's very unlikely to be workers/drivers.
Also when an investor gives a management team and workers a big round of financing, they typically expect preference in future rounds. Especially if you don't achieve your promised objectives, your A round investor doesn't want to take the same amount of punishment as you will.
Whether you are an employee or a driver, you will almost always get common stock. Investors will get preferred stock. Preferred stock can have all sorts of negotiated rights, but almost always it means that they will get their investment back before common shareholders get a dime. This kind of structure actually makes venture capital possible, the vast majority of investments fail and being able to recover some of their investment from many of them instead of a huge smoking crater keeps funds going until they finally book a big winner. So if your company takes $200M in funding and then sells for $200M, the only payout employees can hope for are retention bonuses for key players.
What Juno did looks really sleazy, given they supposedly only raise $30M and sold for $200M liquidation preferences should have nothing to do with it. And drivers got restricted stock grants, not options for common shares. The difference is options are worthless until the option price is reached. RSUs are typically structured so you always get value, you don't have to reach any exercise price. No idea how they could only end up with 2 cents per share unless Juno had 20 billion shares, which is ridiculous.
- Drivers said they joined Juno on the premise that they would receive equity from the company. - Gett acquired Juno for $200 million and the equity program was done away with. - Drivers are suing for breach of contract, false advertising and securities fraud.
In order for that structure to work, the company would need a new fund structure that would make it both scalable and impossible to dilute the worker. From my limited knowledge, most of the funding power goes to investors and since these types of businesses generally rely network effects, it seems difficult to kick this system off. I'm not saying it's impossible, I'm just not smart enough to figure out how to get the ball rolling.
[1] - https://www.cnbc.com/2017/06/19/drivers-sue-uber-rival-juno-...