New Models for #platformcoop Design: The Marriage of TechCo and Co-op

Over the years, we have advised our clients on dozens of #platformcoop designs, formations, and fundraising campaigns. While the cooperative structure has been used for decades as a legal vessel for both collective asset ownership (e.g. affordable and market-rate housing, commercial real estate, electric generation and distribution, manufacturing, processing, etc.) and for collective distribution access (marketing, processing, purchasing, franchising, etc.), it has not until recently been applied to the data-fueled tech sector.

More recently, we have worked with several #platformcoops that seek to create community-based marketplaces for various types of data (social media, medical, visual art, music, etc.). In these #platformcoops, the cooperative entities serve many functions, but two of the most important are: (i) to provide a content platform for creation, collaboration, sharing, and distribution, and (ii) a member-centric marketplace to monetize the data underlying the content platform. Let’s call the former ‘infrastructure’ and the latter ‘throughput utility.’ The infrastructure is the framework through which the throughput data is processed. Think of the highway system: the asphalt track, lanes, exits, and signage comprise the infrastructure; the vehicles, trucks, origins, destinations, and value and type of goods being transported are the throughput. We think of roadways and the highway system like a publicly-funded and maintained utility. Or, think of skyscrapers: the iron, windows, elevators, and internal structure are the infrastructure; the lower level retail businesses, commercial tenant businesses, and even residential spaces are the throughput. The infrastructure enables families to build homes, businesses to provide services, and stores to market and sell goods.


An example of the infrastructure and throughput in a platform cooperative is a website cooperatively owned and run by web-developers and artists, where the website serves as the infrastructure through which the artists can sell their art. Think Stocksy.

When we design systems, we think of the purpose(s) for which various aspects of the system will be used. Infrastructural assets (for example buildings) are designed to enable and optimize throughput (the businesses and people it houses). Infrastructure development usually involves significant up-front capital investment. The infrastructural assets achieve fair market value that is independent of, yet related to, the value of throughput.

Thereafter, as the infrastructure components depreciate, the users and occupants of the infrastructure use it to generate new value. Once the $X00,000,000’s are spent to build the infrastructure, tenants each use the space to generate revenue, build businesses, grow families, raise kids, and so-on. If the infrastructure is sold, often the value is based on some underlying speculative (read ‘upside’) value or unique characteristic (e.g. location). Infrastructure users may benefit from, but are not always interested in, the speculative value or unique characteristics that drive the value of infrastructure (transactional value); they generally are more interested in maintaining access (use value).

The incentives of the various stakeholders to a system like this are inherently misaligned. Infrastructure developers may at first seek to maximize throughput value – in other words to increase usership of the infrastructure. Infrastructure investors, however, generally seek to add and then recognize increased value to the infrastructure itself. Users of infrastructure, however, seek to fix their use cost and maximize use value of the infrastructure for as long as they may need it.

Over time, these interests diverge further. Infrastructure developers may grow weary owning, operating, and servicing infrastructure (highway systems, skyscrapers, tech platforms). Infrastructure in fact depreciates; this is why the IRS permits infrastructure owners to deduct depreciation as an expense. Infrastructure investors may be ready to cash out and see a return on their capital (venture capital), and infrastructure users may be looking for new functional uses, service improvements, or more secure access to the infrastructure (highway lane expansions, re-paving, toll removal, longer-team space rent, or tech platform access without data exploitation).

In short, the interests of infrastructure owner-operators are, over time, likely to diverge from and conflict with the interests of throughput users.

Housing cooperatives sometimes address this challenge by adopting deed or charter restrictions on the value appreciation that members can claim or walk away with when they move out. Housing cooperatives are in fact based on asset value which fluctuates largely independently from how the house is used; land prices fluctuate due to macro and micro changes to the local economy and land is inherently unique. This creates an intrinsic conflict of interest for member-owners in a housing co-op – “how do we (current members) protect our investment (put capital at risk to purchase real estate) while preserving the chosen way of life in this home (affordable access and intentional living) of future members without creating a windfall (who and how should members receive distributions from sale of appreciated real estate)?”

Further and more to the core of the issue, #platformcoops have empirically struggled to attract and raise the up-front capital needed to develop and scale the platform (infrastructure). As a result, a disproportionate share of start-up #platformcoops either dissolve, restructure, or scale back the business plan prematurely. Early members are thereafter deprived of the valuable service, community, and marketplace to which they subscribed and committed. This is a missed opportunity.

By leveraging and blending what works from traditional VC-backed tech world with the co-op sector, we believe a disaggregated, multi-entity model may in certain circumstances and instances best serve the needs of the various stakeholders that are integral to build a successful and scalable #platformcoop.

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In this series, I am going to introduce and explain a burgeoning re-invented model for #platformcoop formation that involves a multi-entity structure designed to address and mitigate the potential divergent interests of infrastructure and throughput stakeholders.

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