PORTRAIT OF A WORKING WORLD INVESTOR: ALEX PAYNE
Views Wealth Holistically / Innovative, Adaptive Responsive / Honors Community & Place & Empowered Participation
Alex Payne, Twitter’s former platform lead, acquired a considerable fortune following the company’s IPO in November 2013. “I found myself with a lot of money to think about, and some time to think about the best ways to deploy it,” he recalls. He began exploring ways to take a more active role in his personal investing and giving, and started out by looking into the growing “impact investing” space. There, however, he never quite found a home for himself. Then, on a random Google search, he discovered The Working World. He was immediately intrigued by its solid track record financing worker cooperatives in Latin America and, more recently, in the United States. “I found it really refreshing,” Alex explains. “Here was this whole history and lineage of the cooperative model, with the Mondragon Cooperatives being the exemplar, that we know works pretty well.”
He contacted The Working World’s CEO Brendan Martin via the organization’s website and simply asked: “How does a person go about investing?” “I guess I happened to catch them at a good time when they were hoping to start a new investment fund,” he reports. Up until that time The Working World had been raising funds with the relatively low investor rates of return typical of social investment funds—one percent or less. In Alex’s view this limited the pool of investors to younger people who had extraordinary hereditary wealth or older ones who were comfortable spending down a considerable proportion of their fortunes within their lifetimes. Alex, on the other hand, was just starting out with his social investing and giving. He wasn’t looking for outsized returns from The Working World, but he wanted returns sufficient to enable him to continue investing more in cooperatives, and to continue to give generously to the political causes he cared about. In other words, he was not looking to make what amounted to a donation with a minimal return as a kicker.
Tweaking the Investment Model
Brendan was amenable to exploring a different structure for the new Working World fund—one that would give the investor more upside potential than earlier funds, but that would not put undo pressure on the funded entities to grow faster than would be sustainable. So, if, for example, an individual cooperative were experiencing a rough patch and required an additional investment or was going to take a few more years than anticipated to achieve profitability “they wouldn’t have investors breathing down their necks,” says Alex.
“Encoded into the language of the investment is a varying rate of return,” he elaborates. “So if the economy in general is pretty stagnant and/or the underlying businesses are having a hard time, investors know what to expect. And if things go really well for the businesses it works out a little better for everyone.”
Creating a term sheet that reflected these goals took a bit of time, but eventually Alex and Brendan found what they believed to be a transparent, winning formula—a variable rate product with a low minimum return but no maximum returns. However, the escalation of returns would be dependent on a variety of factors that ensured that returns to investors would never be at the expense of the cooperatives being nurtured. What was a bit more complicated for Alex was explaining the terms to his financial advisor, who was employed by a big bank and was used to assessing more traditional mutual funds and hedge funds. “This was a bit out of his comfort zone,” Alex admits.
This new investment model has indeed enabled The Working World to raise considerably more money in a shorter time period than had been the case with its previous funding vehicles. “I am sure a lot of this has to do with them being around for 10 years with a solid track record,” Alex reports, “but I am also sure the higher rate of return makes it a little more attractive as well.” Although he would probably have invested some money even at the low returns offered by the previous fund, he probably would have contributed less than the $1 million he did end up investing. As Alex maintains: “This structure appeals to the same groups of investors in earlier funds but, like me, makes them more comfortable putting more capital into it.”
Investing in Cooperatives as a Social Hedge
Alex continues to invest in early-stage tech companies. But, he reports, he has a really hard time identifying ones that are both viable financial investments and that also offer positive social impacts. Invariably this is because they are under extreme pressure from venture capital partners to produce profits quickly at the expense of more holistic values. He sees his Working World investment as “a social hedge” against these tech investments. “My hope,” he says, “is that investing in The Working World is keeping more wealth in communities long term, and it is investing in a vehicle that really cares more about the social outcomes than it does in returns. Over time I would love it if more and more of the investing I do is in things like The Working World.”
A Promising Future for the Cooperative Movement
Alex takes the view that the future of cooperatives, and for cooperative investors, looks bright. “There is a whole generation of business owners heading toward retirement and they don’t have a succession plan in place for their businesses,” he reports. “So it makes them good candidates for worker ownership. You keep the flavor and wealth in community...there is a nice continuity there.”
He would also love to see more companies in the tech industry go cooperative.
“I have spoken to founders who have been through the traditional for-profit, venture-backed cycle a couple of times and they are sick of it,” he maintains. “They have oftentimes had to give up control; and if there are profits made when the business exits the majority flows back to a small group of investors or a small group of managers, not to the employees. So I think skilled, white-collar workers are thinking about how the cooperative model could work for them, not just for the neighborhood grocery stores or factories that people think of when they think of cooperatives.”
A Pragmatist Assesses Capitalism
Alex defines himself as a democratic socialist and takes the view that capitalism is inherently flawed. “I think we have had eras of capitalism where there has been a very strong commitment to a social safety net and to regulation,” he reports. “Those models work better than not, but they are very vulnerable to political changes and people are ready to throw their commitments to them out the window when growth starts slowing. Until we move to a different economic system there will be constant cycles of disruption and a lot of people being left behind in the process. It is also really hard for me to imagine how we will manage natural resources using nothing but markets when it has clearly been a failure.” However, while he has little faith in capitalism, he is also skeptical that sweeping economic systemic transformation will happen in his lifetime. In the meanwhile, he says, “The Working World model points the way to a different future for our economy in some small way, and that is why I am supporting it.”