What if you had an opportunity to invest in a great, locally owned company? Too risky? Well, what if that company had been around for 75 years and had an excellent reputation for service? Sound better? Now, what if I told you the company was owned by local residents who use that company’s services, and investing was as easy as paying your electric bill? Would you do it?
Co-ops have been raising money from members since our founding, when advocates would go farm to farm, ranch to ranch, offering membership for $5. This is the origin for the third co-op principle, “Members’ Economic Participation,” or what I like to call “Skin in the Game.”
I think we can take that concept to a whole new level.
Crowdfunding has become a globally successful way to finance everything from small projects to new inventions to start-up companies. Over the past few years alone, billions of dollars have been invested through services like Kickstarter, Indiegogo, and GoFundMe, all premised on the idea that people want to help and partner with businesses they feel a strong connection to.
It could be a tailor-made solution for locally run, member-focused, community-engaged electric cooperatives.
“I see no reason why electric co-ops can’t raise money from their members,” says Dave Swanson, an attorney with the law firm Dorsey & Whitney, which has clients in all co-op sectors, including electric and food.
Such a funding source could underwrite all kinds of co-op projects, from community solar to broadband, and would have the additional benefit of creating another channel for us to engage with and show value to our members. A member who invests in a co-op is likely to be a stronger supporter of its mission, and co-ops that have done crowdfunding typically offer better rates of return than local credit unions or banks; somewhere between 1 and 4 percent.
Coast Electric Cooperative in South Carolina and Hood River Electric Cooperative in Oregon have experimented with member-investment programs. Other co-op sectors are ahead on this model as well. A Wisconsin food cooperative, for instance, recently raised more than $1 million from members to build a second store location.
There are a few small investment vehicles like the Cooperative Fund of New England and Shared Capital Cooperative that give people the opportunity to earn a return while supporting cooperatives, but it is not enough. Cooperatives in the United States directly employ almost a million people and serve more than 150 million members, but it’s nearly impossible for these people to invest in these businesses that are such a vital part of their communities. I think it’s about time we let them have some skin in the game.
Editor’s note: Unlike an agricultural or general cooperative act, an electric cooperative act might not permit paying members dividends or similar amounts. Similarly, the Internal Revenue Service has noted that, depending upon the facts and circumstances, a tax-exempt electric cooperative issuing nonvoting, dividend-paying stock may violate a cooperative principle under federal tax law. Further, if an electric cooperative is regulated by a state utility commission, then commission regulations may impact the cooperative’s ability to pay dividends or similar amounts. Federal or state securities law may also impact an electric cooperative’s ability to issue stock. For these reasons, among others, an electric cooperative should consult its legal and tax counsel before engaging in a crowdfunding program.
Adam Schwartz (@AdamCooperative) is the founder of The Cooperative Way, a consulting firm that helps co-ops succeed. He is an author, consultant, educator, speaker, and member-owner of the CDS Consulting Co-op. You can email him at firstname.lastname@example.org.