Opportunity Development Co-operatives
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Opportunity Development Co-ops direct local capital back into communities and simplifies and reduces the cost of investing. Examples of potential products include: purchase of a business that is being closed due to retirement of the owner; conversion of a vacant building into a business incubator or commercial hub; or building a seniors facility.
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Opportunity Development Co-operatives
- 3. Presenter Paul Cabaj Director, Co-op Development Alberta Community and Cooperative Association 3
- 5. Agenda What is an Opportunity Development Co-op How does it work What can it do for you Examples Risk versus Reward More on structure, shares, RRSP eligibility Potential next steps? 5
- 6. Background • 5 years of research • CEDIFS in Nova Scotia • Canadian Worker Coop Federation – RRSP Program • Canada Revenue Agency - Income Tax Act Section 136(2) 6
- 7. What is an ODC? Local Leadership + Community-Based Financing = Opportunity Development Co-op (ODC)
- 8. Opportunity Development Co-ops are pools of capital, raised from many investors, that are directed towards local viable business opportunities. Barn Raising in the 21st Century 8
- 9. Opportunity Development Co-op Local Eager Business Entrepreneur(s) Community Investment
- 10. How does it work? Define the need Assemble the Champions Select a business Incorporate and organize Sell shares After-care It is not linear! More like Snakes and Ladders 10
- 11. Nova Scotia Over 100 Community Investment Fund Co-ops All sectors Approx. 50% are co-ops Less than 3% default First choice investments/habit of local investing Examples across the world 11
- 12. Westlock Grain Terminals NGC 12
- 13. Battle River Railway NGC 13
- 14. Sangudo Opportunity Development Co-op (SODC) 14
- 15. Is there a Risk? ……….there has to be! • Local evaluation of local investment opportunities • High level of scrutiny/social capital filter • Need to disclose risk • Without risk, there is no reward
- 16. There Are Many Rewards • Spark economic development • Stimulate autonomy • Create jobs • Support young entrepreneurs • Aid in business succession • ROI to local investors • Active/Engaged investing • Community Pride
- 17. Why a Co-op? One member; One Vote – distributed investment, distributed ownership Patronage & Word of Mouth Transparent to investors Eliminates cliques/domination Less vulnerable to take over 17
- 18. Using ODCs in Saskatchewan 1. Basic Co-op Membership Model Saskatchewan legislation allows a maximum member investment of $1000 up to a maximum of $100,000 2. Co-op can Leverage Member Investment – borrow additional funds 1.Issue prospectus to raise capital via larger share value ( when raising in excess of $250,000) 2.Financial Services Commission will set precedent for exemption with the first ODC that applies to them for market exemption 18
- 19. Investment & Shares • Research indicates $5K - $10K (range from $500 - $25K+) • Simplified Offering Document • RRSP/TFSA/RESP eligible: New self-directed RRSPs Transfer existing RRSPs ***need to be a for-profit co-operative
- 20. There is no power for change greater than a community discovering what it cares about. Margaret Wheatley
- 21. Q&A Please send your questions via the Chat or Question widget on your dashboard.
- 22. Stay in Touch Thank you for joining us! Verona Thibault President, SEDA @saskecdevassoc @growourregion verona.thibault@seda.sk.ca 306-384-5817
Editor's Notes
- What is an Opportunity Development Co-op? This is a friendly, patient capital - an investment opportunity in your own local community. You will be guided to invite your trusted friends, family, and close business associates to invest in the fund with you, and to have some fun with you as you support viable businesses in your community that may otherwise be abandoned or lost. It is an investment in your community with the specific intent of providing you and your neighbours with a return on your collective investment. This is a for-profit model. This Opportunity Development Co-op model has been extremely successful to support succession of an existing business, where the business owners are wanting to retire, yet younger entrepreneurs don ’ t have access to the capital required through conventional sources. The co-op fills the financing gap to make this happen. Our research indicates that these projects work best, at least for the first one in a community, when it is this type of scenario, because there is an existing business, with a product or service, with existing clients. However, it can also be used successfully for expansion of an existing business or a new business.
- Here ’ s how it works. incorporate your own Opportunity Development Co-op. The fund acts as an anchor organization in your community to connect a good business idea on the right hand, with local entrepreneurs on the left hand, and to support the union through a contribution of cash or equity, mentorship, and business patronage. How do you do that? It ’ s as simple as gathering a group of your friends and neighbours and deciding to do it. The co-op is your own local capital invested in community-based businesses or co-operatives. What ’ s important is what this project can do for you in your community.
- The Opportunity Development Co-operative model is adapted from a program in Nova Scotia called the Community Economic Development Fund (CEDIF). These funds have been working for just over 10 years with incredible success
- Westlock is a small community northwest of Edmonton. Westlock Grain Terminals New Generation Co-op was created in August 2002, when Agricore was going to abandon the elevator in Westlock, forcing local farmers to truck their grain an additional 100km or more to the nearest elevator. Local farmers and business people created a $1.2 million fund to buy the elevator, upgrade the facility, and have been extremely successful. Since then, they have raised over $2million more in local share capital in four separate share offerings for expansion purposes. They have been providing a healthy return on investment to their local investors, besides supporting the local economy and creating jobs. This project was spearheaded and led by a small group of highly respected individuals in the community.
- In the Battle River region, southeast of Camrose a similar thing occurred. Battle River Railway New Generation Co-op was formed when the Canadian National Railway was going to decommission the railway between Camrose and Alliance, and sell it for scrap iron. Once again, this would have resulted in farmers having to truck their produce to larger centres. 350 local farmers and business people created a fund of $3.4million which leveraged an additional $1.4million to buy the railway, an engine, and have been operating very successfully. In fact they have far exceeded their expectations, and there is potential for the railway to be used in other ways besides grain transportation, such as other freight and tourism. Once again, the success is attributed to the leadership of a small group of dedicated, community members who gave the project credibility and were able to sell the idea in one of the worst recessions in history. These projects are New Generation Co-ops, which are only allowed for value-adding to agricultural products through production, processing, or marketing. But there is another way these CIFs can work, and this is where the Unleashing Local Capital project can work in almost any community – maybe your community. Here ’ s an example:
- Sangudo Opportunity Development Co-op (SODC) was incorporated in the declining community of Sangudo, northwest of Edmonton. The aging owner of the local abattoir had been unable to sell his business and was considering closing the doors. This would have had a negative effect in the agricultural community. A small group of local business people worked together to create a fund of local capital, bought the abattoir, and supported young energetic entrepreneurs to take over the business using a unique lease agreement that supports the entrepreneurs, the co-op investors, and the community. Since then SODC purchased the Canadian Legion building, and have supported creative entrepreneurs to renovate it and open Connections Coffee House, a much needed restaurant, coffee house, and community meeting space. SODC has recently completed their third project whereby they collected local capital to support the abattoir with a major expansion. These have not been large projects, yet local investment in local business to the tune of about $400k has had a significant positive affect in the community. The success of the co-op and the businesses has been as a result of a small group of community-minded people with a huge level of trust and belief in the potential in the community.
- Is there a risk? Absolutely. You could lose your money. Poll #1 - In the past, have you invested in mutual funds, stocks, bonds, outside of your community? Yes No These Opportunity Development Co-op funds could be considered high-risk investments in conventional banking terms. Your goal however will be to: access local capital, evaluate local investment opportunities, and make sound prudent investment decisions Reduce costs of offerings. And because you know your community and the people within your community, you already have a good idea of what works and what doesn ’ t. And with a group of successful local business people sitting around sharing their expertise, the chances of making dumb decisions are quite small.
- spark economic development in your community, stimulate community autonomy and accountability, create jobs or at least maintain them support young entrepreneurs to get started in their own business, aid in business succession, which is becoming a huge concern, not just in Alberta, but across the country provide a reasonable rate of return to local member investors from businesses within their own community, and provide a fierce pride and general sense of economic well-being. Sounds interesting, doesn ’ t it? There is an art and a science to this. And if you ’ ve got a small group of dedicated, committed, community-minded people who are willing to work together, you ’ ve got everything required. More than anything, the Opportunity Development Co-op is a relationship-building model combined with a community-based financing mechanism, which empowers you to contribute to the long-term economic viability of your community.
- Why the Co-op structure? Democratic – one member; one vote regardless of the size of the investment The investors usually have a variety of business knowledge and expertise that they can lend to the entrepreneur, which provides an advantage when it comes to hiring, contracting, and marketing. It instils a greater sense of ownership and connection to the community Because local people are invested in the business, they tend to patronize it, and tell their neighbours and friends about it. The member-investors have the opportunity to look at the business plan and understand what is happening It reduces the chance of anyone person, or group of people, from dominating, or running the organization It reduces the chances of outside takeover or from ownership going outside of the community
- Question to Paul – I am have to call our legislation guys next week to ask if a New Co-op would have to be established each time a new share offering was raised – aka – new projects – or can preferred shares be issued later by the same co-op for a different project? I have some other questions as well. I am not clear on the friends and family clause – may have to call financial services again next week – you are likely complaint with that clause - Also – does the co-op pay equity taxes or do the members have to??
- How much do you need to invest? Poll #2 - Thinking about those investments you made outside of your community, how much would have been your average investment per time? Under $10,000 Over $10,000 Never invested The investment amount is determined by your group, based upon the capital required and the structure you choose for your organization. Based on our research, the average investment is likely going to be between $5,000 and $10,000, yet ranging from as little as $500 to as high as $25,000 or more. So in most cases, investors are average income earners who do not need to qualify as eligible or accredited investors.