How private investors can cause co-operatives problems

Co-operatives can face challenges of competition, especially if operating in a fast-paced world such as the technology sector.

Co-operatives can face challenges of competition, especially if operating in a fast-paced world such as the technology sector.

Founded in 1983, the worker co-operative Poptel provided online services, such as email and internet access, to the co-operative movement and non- governmental organisations. It even gave the Labour Party its first online presence and launched the world's first trade union website.

Towards the end of the 1990s, the rapid expansion in the internet access business meant that Poptel needed to invest heavily in new equipment to keep pace with demand and with competitors.

After being unable to find investment in the co- operative sector, the directors negotiated funding from private equity firm Sum International Holdings in 1999. The £1.5 million injection of cash gave the investor a 25 per cent stake in the business.

With this investment in place, Poptel was able to engage in its biggest and most ambitious project: a partnership with the National Cooperative Business Association in the United States, to create the top level internet domain .coop, for exclusive use by co-operatives.

There was a delay of almost two years in the launch of .coop, largely due to legal issues. Further investment was sought — this time from employee-ownership supporter Baxi Trust — and Poptel workers saw their holding drop to 51 per cent.

However a series of increasingly acute cash flow issues meant even this was not enough and eventually Sum International became the majority shareholder in the once worker co-operative.

Following the demutualisation Poptel was broken up into smaller businesses in 2002. Of these two eventually returned to co-operative hands: the retail ISP business ended up with The Phone Co-op, and Midcounties Co-operative purchased the .coop operation from Sum International in 2005.

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