Part 1: The context of raising finance as a platform co-op

Platform capitalism

Platform co‑ops offer a viable and ethical alternative to platform capitalism, a system where global organisations capture huge profits from the online transactions between consumers and vendors, who have little or no control over the platform and company they use to trade. 

Platform capitalism is both the product and the fuel of the unequal economic system we live in, where wealth is concentrated in the hands of a few through the abuse of workers’ and privacy rights. It is driven by the incentive to maximise financial returns for investors, rather than benefit users.

Venture Capital financing

The most dominant platforms we see today are supported by Venture Capital, a financing model that aims for extremely high financial returns. Venture capitalists (VCs) place large investments in early stage businesses with prospects of high growth. Their business model involves investing across a range of high risk companies with the expectation that only a few will succeed. High returns are expected from those that do, to cover the cost of those that don’t. 

VCs bet on a speculative future valuation of a business and usually aim for a successful “exit”, which happens when the business is sold to another company or launches a public offer of shares, also known as an Initial Public Offering (IPO). If the sale or the IPO is successful, VCs gain huge profits due to the increase in value of the shares they held. 

As a result, the story start-up founders are being told is that their company’s primary aim should be a successful “exit” and that maximising shareholder profits should be prioritised, no matter what effects that might have on the users of the platform or the externalities the platform may cause on society and our planet.

The start-up ecosystem today

The current start-up financing ecosystem is also exacerbating gender and racial inequality. 

A study from 2017 showed that in the UK 83% of founding teams receiving VC funding were all-male teams. Only 4% were all-female teams and they received less than 1% of the total investment. 

Data on founders from minority backgrounds is lacking in the UK, but from the US we know for example that only 0.02% of venture capital is allocated to Black female founders. 

The VC workforce is in itself far from diverse. In the UK only 24% of people working in VC companies are non-white and only 30% are women – of which only 13% in senior roles. This data shows us that the success of a founder’s journey still depends too much on social capital and on investor-bias.

Platform co‑operativism

Not all founders are driven by the sole interest of building up wealth for themselves and their investors at the expense of others. Many are genuinely driven by passion and the intent to build products and services that can truly improve people’s lives as well as the conditions of the planet we live on. 

Platform co‑ops offer a radically different route. A platform co‑op is set up to benefit its members, who are those that give it life and depend on it the most. The pursuit of profit at all costs is not the goal. Instead surplus is reinvested in the organisation or shared with its members so that the platform’s community can continue to benefit from it.

To start, grow and flourish, platform co‑ops also need external finance, but they seek forms of funding aligned with the co‑op principles and values. 

They can access ethical funding opportunities that are emerging from the start-up ecosystem as well as adapt existing funding models successfully used by the co‑op sector.  

Co‑ops might not grow as rapidly as “unicorn” businesses (start-ups valued at over $1 billion), but they can be attractive for investors as they are generally more resilient and less risky than other forms of businesses.  

Co‑ops are needs-driven ventures, with strong relational ties with their stakeholders who are invested in seeing the co‑op succeed. 

As a result 76% of co‑op start-ups are still flourishing after the first five years compared to 42% of standard business. This percentage increases to 92% for co‑ops that have raised finance through community shares – a type of equity specific to the co‑op and mutual sector.