Co-operatives: The Best Legal Framework for Startup Investment
We’re constantly trying to move with the times, making sure we embrace positive change to avoid being ‘stuck in the past’. But sometimes there’s a good reason to look back and take lessons from history as we try to build the future.
In the last few years, there’s been a whole range of legal frameworks popping-up, each claiming to offer the optimal company design and structure to raise funds through Securitized Tokens. But I believe we already have the best legal framework, and what’s more, it’s actually one of the oldest legal frameworks in the world: the co-operative: it is available throughout Europe.
A short Dutch-history lesson
To understand co-operatives, let’s go back over 400 years to the creation of the Dutch East India Company, Vereenigde Oostindische Compagnie (VOC). In 1602, with the backing of the Dutch government, the VOC was established by amalgamating six rival trading companies, and it was granted a 20-year monopoly on trade with India and Southeast-Asia.
But, the real ground-breaking genius of the VOC was in its funding, money could be loaned to the company in exchange for permanent shares and membership. The VOC was the first-ever company to use initial public offering (IPO) and this allowed it to raise capital for outfitting its first fleet. Voyages were funded through the sale of bonds, leading to the VOC becoming the world’s first publicly listed company on the Amsterdam Stock Exchange (also the world’s first stock exchange). And from 1606, VOC shares could be publicly traded.
Enter the co-operative
The VOC’s simple idea of investment in exchange for shared ownership and management of a company grew into the model that we know as the co-operative. This is distinct from a limited company, or Besloten Vennootschap (BV) here in the Netherlands, as it gives greater flexibility of profit-sharing and voting allocations. In a co-operative, profit-sharing and voting rights can change and evolve as a company does, without involving a notary — whereas in a BV these are strictly tied to the number of shares owned.
Here in the Netherlands we already have some of the world’s largest co-operatives including Rabobank, one of Europe’s largest banks; FrieslandCampina, one of the world’s largest dairy producers and distributors; and Royal FloraHolland, the world’s largest flower auction. But we’re not alone in this either; in fact, six out of ten of the world’s biggest co-operatives are in Europe, four in France and two in Germany — with French banking giant Groupe Crédit Agricole comfortably holding the global top spot.
It’s clear to me that the co-operative is already well entrenched in the world of European business.
Why we shouldn’t ‘reinvent the wheel’
It’s my belief that a co-operative structure is the ideal way to set up the legal framework for digital security offerings, and this is all part of our mission to transform startup funding. A solid legal framework will help Europe move away from fragmented venture capital and towards the creation of a Single Digital Market.
Using this legal framework, shareholders form the co-operative, which is the owner of the BV (the limited company), and this offers some undeniable advantages:
· New investors can be brought into the cap-table easily, without the use of a notary, and the co-operative framework offers flexibility of profit-sharing and voting allocation.
· The co-operative keeps its own fully digital shareholder register — crucial for regulatory compliance incl KYC/AML.
· The framework provides an easy way for internal exchange of shares — this could possibly be extended to external exchange platforms.
With the popularity of co-operatives across all European countries, articles of association are almost identical from one jurisdiction to the next. We can simply take advantage of local law already in place to create near-parallel legal frameworks in each country.
Creating a Single Digital Market
At Venturerock, we’re working tirelessly to transform startup funding in Europe by putting founders first and ensuring great ideas aren’t lost in the wilderness of securing equity investment. But I want us to think even bigger and change the way we invest in Europe to create a Single Digital Market.
This is the right environment to grow the big tech-companies we need — and already have the expertise for. This way, we can cooperate with established markets in the US (Delaware LLC is almost identical to a Co-operative and has many advantages) and emerging ones in Asia, all whilst keeping talent and technology firmly rooted here in Europe.
Want to get in touch, email me at marc@venturerock.com
