Click here to read the first post in the series, The Marriage of TechCo and Co-op.
If traditional tech platforms are generally designed to maximize liquidity value, and cooperatives are generally designed to maximize use value, how can the #platformcoop movement successfully blend both models to meet the needs of all stakeholders involved? We think one promising solution lies in a re-frame of the traditional real estate development approach.
Let’s use a simple example to illustrate the analogy; the platform cooperative counterpart is in parentheses. When a real estate development firm (tech entrepreneur/founder) sees an opportunity, they assemble limited partners or members (seed stage venture capital investors) to an LLC and form a holding company (TechCo); this holding company is a place to park capital that will be used to acquire and invest in real estate (the platform technology, or tech infrastructure). Once the general contractor (CTO) hires and oversees the trades contractors (tech developers and engineers), and as the shovels are in the ground, the project concept is ready to be promoted (sales and marketing). Along the way, sales and marketing will pre-lease several units for residential and/or commercial use (alpha and beta customers) to show some initial monthly recurring revenue.
As the development begins to cash flow, the holding company (TechCo) either looks to recapitalize or sell the property (Series A or liquidity event). Depending on the investment parameters in the holding company, the recapitalization or sale can happen very soon after development is complete, or after a few years of income generation and depreciation. Generally and invariably, however, the real estate will change hands to an entity designed to operate the development for income generation (private equity). In the tech context, this is when the VCs start to push founders to sell the company to a private equity fund, a corporate buyer or to the public market to realize the appreciation of their investment.
I know this analogy is a gross generalization and is far from airtight. Real estate is tangible and non-substitutable, whereas technology is intangible and largely substitutable (one line of code can readily be swapped for a re-engineered line of code). You can’t squeeze an infinite number of units in a fixed set of physical dimensions, whereas one can find an indefinite number of uses for a tech application or components of code. Nevertheless, what prepossesses us to the ephemera of technology is in some primitive way the same instinct that tugs at our emotional attachment to space and place.
Enough with the metaphors and analogies for the time being.