Integrating Mission Into Ownership

However, she said, many enterprises have solved this problem. For example, Equal Exchange, a worker-owned fair trade co-op, enacted a bylaw providing that if the company is ever sold, its net value must be given to another fair trade organization. In addition, it sells preferred shares that offer greater voting rights to employees than equity investors. These elements, Kelly said, “create a container around the mission.” Echoing back to Paul Millman’s recollection of Chroma Technology’s founding in the previous day’s panel, it’s critical, Kelly said, to put the question of who controls the company in place at the moment of financing. The retirement of Baby Boomer business owners represents a unique historical opportunity to structurally embed social mission, as 70% have said they do not plan to pass on their businesses to family members.
Picking up on that theme, Will Raap agreed that “legacy is the biggest opportunity we will ever have in our lifetime as it relates to transitioning the way business in fact can impact the world.” If we all lived like Americans, Raap said, we would need the natural resources of five Earths to sustain our lifestyles. “We have a fundamental problem in that the design that guides our economy is not capable of dealing with the situation we’re in,” he continued.
“If you’re really creating solutions,” Raap said, “the question is: are those core services and those goods and the solutions they represent being guided by some kind of a mission that recognizes that we’re consuming 50% of the Earth’s resources and that gets embedded into the design of the firms?” He suggested that in addition to asking a new acquaintance, “What do you do?” we might also ask, “What problems do you solve?” and “How is your mission embedded in the structure of your organization?”
Vermont is unique, Raap said, and is a very good place for businesses and other enterprises to explore different ways to embed mission. There are about thirty companies with employee stock ownership programs in Vermont, and a movement toward worker co-ops gained strength after the economic collapse in 2008.
Gardener’s Supply, Raap said, started with five key principles:

  • employee empowerment and ownership,
  • servicing customers and the community,
  • a focus on more than just financial success,
  • accepting outside capital only when it made sense for the mission, and
  • improving the world through gardening.

Finally, Raap tantalized his listeners with the announcement that he is working on an incubating enterprise related to Gardener’s Supply, which will be seeded with friendly capital and imbued with founders’ control. He hopes to accept angel investments in 2015 and to later take advantage of the Vermont Small Business Offering Exemption (VSBOE), an intrastate exemption described in more detail by the next speaker, Michael Pieciak.
Pieciak begain with a quick overview of the origins of federal and state securities laws, then focused his talk on several new forms of direct investment enabled by the rise of social media. After the creation of federal securities regulation in the early 1930s, VSBOE was created as an intrastate exemption; under VSBOE, Vermont regulates all intrastate offerings made by Vermont businesses to Vermonters.
But since it wasn’t being used much, it was recently modernized to allow a broader base of Vermont investors (i.e., nonaccredited investors) to make investments up to $10,000 in Vermont businesses and to allow businesses to raise up to $1 million (if they do not have audited financial statements) or $2 million (if they do). Accredited investors are not limited by the $10,000 cap. (Sound familiar? Maybe you read our other article about it.) VSBOE, Pieciak said, makes a lot of sense for Vermont, since there are many businesses that want to raise capital and many investors who want to lend to them, a market enhanced by the state’s enthusiasm for keeping commerce local. (Entrepreneurs, be warned: for now, at least, the SEC has taken the position that you can’t put such an offering on your website, since that would be an out-of-state solicitation.)
Crowd funding is similar in concept to VSBOE, Pieciak said, in that both are a means of raising small amounts of money from large numbers of people. Ben & Jerry’s started out with a Vermont-only securities issue.
Final rules are still being written for the crowd-funding equity provisions of the 2012 federal JOBS (Jumpstart Our Business Startups) Act. Its proposed thresholds are lower than Vermont’s, allowing audited $1 million businesses and unaudited $500,000 businesses to participate. But rather than wait for SEC rules to be finalized, a number of states have started to create internal crowd-funding equity laws. Pieciak’s department has been asked to look into it and will produce a report by January 15.
Many people are familiar with Kickstarter and IndieGogo, which are non-equity crowd-funding sites where solicitors can take donations while offering noncash rewards. There’s also crowd funding at the accredited investor level.
Crowd funding really makes sense at this local level, Pieciak said, although there is a lot of concern from federal regulators that it’s ripe for fraud at the national level (a concern we raised here in 2012). But at the local level, you can check out a business firsthand, he said. The new rules will enable companies to make equity offerings.
Pieciak also spoke about peer-to-peer lending, which eliminates the middleman role played by banks and other financial service institutions. Lenders can invest in increments as low as $20, for a typical return of 5 or 6%. The maximum loan amount is $35,000. It can take around five days to receive funding and cuts out much of the red tape of borrowing through a bank. Two leading players in this space are Lending Club and Prosper, which have together originated $5 billion in loans (both are approved to operate in Vermont). Some expect peer-to-peer lending to grow into a $1 trillion industry over the next 10 years.
A video of the panel is available here. Presentations were followed by twenty minutes of Q&A (which begin at 70:00 in the video).