Natural Finance competitive advantage for startups

This is part 5 in the series of comparative advantages of natural finance over traditional finance tools.  Part 1 and 2 focused on traditional small businesses that frequently finance through loans.  Parts 3 and 4 focused on capital intensive companies that frequently finance through equity/shares.  Although startups also typically rely on equity financing, they differ from traditional capital intensive companies in that they need relatively little funds, and offer a much more speculative business proposition.

Natural Finance Soft Loans are business loans without fixed repayment terms.  Instead, they are repaid when business cashflow materializes.

 the major advantages of natural finance:
Advantages for borrowers,

• Cashflow from investment similar to equity investments in that repayments are only made when revenue/income permits.
• Control of the organization and incentives for profitability and success are retained by borrower/founders.
• Open loans, and queued priorities, make it simple for a successful business to reduce its borrowing costs by inviting lower interest loans, ultimately achieving a perfect competition market from lenders by facilitating loans from the most willing bidders.
• Permits continued expansion project financing without causing existing investor objections.

Advantage for lenders,

• Being more attractive to borrowers means that buyers are more likely to accept higher loan rates.
• Many risks and types of fraud or lapsed insurance can be eliminated.
• Loan payment priority can never be supplanted or diluted.  It is impossible for traditional finance debt covenants to fully anticipate or satisfy objections to future dilution.
• Risk profile of investment is much more clearly assessed at time of loan.  Much fewer things can go wrong.  For instance, generous management salaries, bonuses and perks cannot be implemented at greater risk to lenders.

Startups as one of the few paths to great wealth

Technology startups have created significant wealth for some founders and initial investors.   Some have even created that wealth without creating a profitable company.  The primary reason for the wealth success stories of startup founders is their relative strong bargaining power in both needing very little funding, and having good business stories suitable for IPOs (Initial public stock offering).  The bargaining power permits founders to retain control of the company, and the IPO prospects allows them to conspire with initial investors and IPO sales partners to prevent takeovers and dividend payments.

The issues with traditional financing of startups

Many startup businesses will never generate profits to pay anyone but its founders, and many more startups do not even achieve that level of success.  Since there is a high failure rate, investors typically require a story that allows them to hope for a 10x or 100x return on investment, and so traditional loans is not a possible option since startups could not possibly afford an interest rate that provides those returns.

The key comparative advantage of natural finance for startups

Compared to the traditional finance goals of turning a startup into an IPO, the founders of a company using natural finance must have confidence in making eventual profits, because they will need to repay investors in order to collect those profits.  The IPO game just needs a story to be successful, and establish an empire for the founders.  The reason for founders to prefer natural finance is that investors are idiots or corrupt to prefer an IPO.  Public markets exist to trade minority stakes in companies which are always worth less than the company itself, and the empire of majority control of the company.

Natural finance tools for startups

The main natural finance tool is soft loans.  It is recommended that a total cap on interest of 100% be in place, and that the interest rate never exceed 30% per year.  The reason for the total cap is to permit predictability of repayment for all lenders, and prevent runnaway indebtedness that prevents future investment.  When a loan reaches its cap, the cap acts as distress-limiting function that would help the company survive and repay its investors.

Another key feature of natural finance is its encouragement of communal partnerships.  The ideal organizational structure a business should aim to eventually accomplish is that of ownership by equal partners.  The advantages are the prevention of abuse by majority owner(s), and the power of shared supervision to prevent any other abuse.

The tool most handy for startups is deposit options which allows one (or communal partnership of) owner(s) to promise a future equal share at a locked in buy-in price in exchange for monthly payments.  The buyer of the option has the right to abandon it at anytime, by not making the next monthly payment.  The "strike price" (buy in price) of the option is based on a specific total value of the company divided by however many partners happen to exist at the time it is exercised.  The strike price is adjusted down based on the monthly payments made and/or dividends paid.

Very early stage financing

Deposit option premiums of $1500 or $10k per month  paid to the startup founder act as a salary that the business need not pay to the founder.  The lack of expenses by the business means greater financing flexibility (capacity for new loans) for it.  Whether the strike price is in the millions or billions, for very little investment, the founder is "sponsored" for further research/development, and the investor can hold a future claim on the business which he can materialize in value by further assisting the company.

Deposit call option premiums of $4000/month buy a much lower partnership share strike price than does an $2000/month premium.  These premiums are paid directly to the founder and not to the company.  The founder might accept both offers if the lower immediate "salary" justifies a much higher future partnership share sales price, and he is confident in achieving that future value.

Another option that necessarily suits the founder, and likely is more attractive to the potential partner is a call option premium of $4000 with the added condition that $2000 of that premium received by the founder be reinvested as "low interest" loans to the business to cover sales, travel, and other investment acquisition expenses.  The re-investment condition ensures that the founder is focused on generating revenue so that he may have those loans repaid.  Compared to a $2000 option premium and a $2000 additional monthly loan investment into the company, the investor is much more likely to prefer a lower future purchase price of a partnership share over the potential small returns on small monthly loans.

Recent post on communal equity options is most focused description of communal equity options.  Deposit options are most likely to help design-type startups, and does so without hampering the company's borrowing capacity. 

Organizing a company with external sales and investment agents

While traditional companies favour keeping sales, marketing and investment acquisition functions in house, there is no obvious requirement that they be so, since the performance and compensation of such departments is relatively independent of the actual operations.  Natural finance facilitates that separation mainly through its comptrollership function which ensures that payments owed, are made when able to.

While sales and investment functions can be separated from a company, it is not completely clean to do so.  Both sales and investment have a tendency to over-promise on what can be delivered, and the concern is amplified if sales and investment teams are external to the company.  There is also often the need to get the operations department involved in a sale to both negotiate on what is possible how fast, and help close the sales or investment.  The only other major issue in using external sales agencies is you likely need that they are not involved in any competitive companies.

To control the investment sales over-promising tendency, its compensation can be based on investor repayments.  Natural finance can completely align the interests of investors and their solicitors by ensuring they are paid by the same transaction.  It should provide the investor with confidence knowing that a soft loan he "buys" only results in a payment to the salesman when the investor himself is repaid the loan with interest.

To form a closer partnership with marketing sales agents, you likely want them to intend to become partners in the business through deposit call options, and/or reinvestment of sales fees into soft loans for the business.  The benefit to the sales agency for such arrangements can include territorial exclusivity or other favours.  To handle the involvement of the operations department in closing and negotiating sales, the sales agent can "hire" the operations department (with fees conditional upon closing sale).

The benefit of external agents is lower fixed costs, which tends to be important for a startup.  The benefit of having the function in house is tighter control over people's lives and behaviour.

How a 30% interest initial loan for almost any venture is profitable

30%/year interest loans are very expensive and usually unsustainable.  Natural finance makes such loans possibly sustainable in 2 important ways.  First, there is a 100% total interest cap, so the amount owing on a 30%/year loan will stop growing after a little more than 3 years. Second, all natural finance loans are open, meaning that anyone who offers a lower interest rate can replace the loan.

For someone that invests in a natural financed startup at a 30% interest rate, he has an immediate interest in becoming an investment agent for the company, and needs no formal agreement with the company to do so.  This is fundamentally the same conflict of interest that exists within the traditional financial industry: creating hype for what they own.  But, the behaviour benefits the startup, and the financial promoter's help is likely much needed.

The advantage of accepting exploitative and onerous loans from investment or sales agencies is that you get their services for free.  They become instantly motivated to promote your startup so that they may be repaid their high interest loans.

If the company takes a few years before earning revenue, then whether a loan is at 30% or 10% won't matter too much because of the total cap of 100% interest.  The importance of the cap is detailed here

Hiring a first employee

The example near the bottom of the paper on communal equity put options shows how using natural finance securities can lower the cash compensation costs of employees by over 70%.  Providing employees with deferred compensation (soft loans), deposit call options to become a partner, shares, and put options on those shares, replaces the cash costs.  Lower cash costs in a startup business enhances its sustainability and investability.

Closer partnerships with suppliers

If your startup is ever likely to pay one company $1M or more for products or services, then that supplier is a good candidate to invest in your business, by becoming a full partner or participating in soft loans.  For soft loans, it may be possible to tie lower interest rates to continued purchases from the supplier.

Part of ongoing operations of a natural finance company is to fund large projects with new financing rounds that are placed in last payment priority.  Getting the people and companies that will receive what the funding will be spent on to help fund the project provides benefit to both the buyer and sellers.

Partnerships with customers

Kickstarter is a popular crowdfunding site that lets people fund art and gadget startups by letting them buy advanced copies of merchandising, promotional meetings, or the gadgets themselves.  The problem with the service is that customers have no guarantee of ever receiving what they supported.

While getting a product among the first is likely the most compelling reason for a customer to fund a startup, natural finance loans can provide the same features as kickstarter pledges by allowing lenders the option of redeeming their loans for products, collectable gimmicks and promotions.  While that practice can slightly violate the natural finance rule of always repaying investors at the head of the queue before repaying those behind them, it is excusable if the profit margin on redeemable loans for products is high, and it is fully justifiable if the intent of the loan was for a specific product redemption at the time the loan was made, and if not, also fully justifiable if replacement financing is obtained to produce what is necessary to honor the loan redemption.

Natural finance loans, in addition to providing any kickstarter ability, also allows business customers that may be able to profit from your product to help support and improve it.  It further provides customers compensation for delays in developing the product, and the opportunity to withhold product redemption until the next generation product is released, or otherwise change their product redemption intentions based on new collectibles or promotions offered.


(see the grocery cooperative example near end of paper)

Partnerships with society

If your startup wants to develop an AIDS medication that doesn't cure patients but requires a daily dose to keep them alive, and you gain monopoly power to charge whatever people will pay to stay alive, then even if you are improving society by giving it an option it did not previously have, its a stretch to think you deserve social approval, support or funding.  Pure financial interests can support you.  If on the other hand, you want to research the effectiveness of a natural or unpatentable AIDS remedy that cures patients, with say a mixture of grasses, aspirin and red wine, then there is great social interest in the success of the research or any future effort based on the research.  Health insurers, patients, wine marketing associations, people at risk of being patients and humanity, all have reason to support such research without any serious concern for a financial return of their investment.  In fact the social interest is usually best served if the support keeps prices down, and the returns on investment are in kind, but for supporters higher prices and/or moderate prices means that the net cost is kept low due to the refund of profits on top of a reasonable priced cure..

I define strategic investment as investment for the benefit of seeing something accomplished rather than out of concern for the direct profits possible, or their distribution, from that accomplishment.  Helping a company get oil or copper out of the ground has the strategic benefits of lowering the price of oil and copper.  Helping society build roads gives me the strategic benefit of customers and myself getting to my place of work easily.

We often think of proposals with social strategic benefits as worthy of petitioning government to assist with.  In the case of developing an affordable cure for AIDS, government can be corrupted against such a social interest, by the financial interests of an expensive life prolonging established solution.  

Social sponsorship of projects whether they are high profit, low profit, or non profit is made easier through natural finance.  "Donors" can treat their contribution as a donation, but if the project is successful they will receive a direct benefit from that donation whether it is through cheap social distribution of the innovation, or their share of the financial benefits from a not so cheap distribution of the innovation.

Another way to invite social commitment for your project is to grant a permanent right for any social institution to purchase your company at a fixed price.  It may or may not be generous to allow society the right to purchase your company for $100M or $20M, but it is still an explicit gift, than can be judged simply on its merits, and is unlikely to discourage the efforts required of you that might make society consider this opportunity.

The great benefits of many partners

Having 20 or 20 million partners in your company provides energy for product, process and investment ideas, and creates an army of people with a vested interest in the company to help promote it.

As more partners join, the affordability of a partnership share improves.  For 1000 partners, every 1M in company valuation costs $1k for a new partner.  If it is affordable for more people interested in the viability of the company, then there is more demand for a partnership share, and part of the investment may become justifiable through intangible benefits of influence and status.

For the original owner(s), 20 or more partners means selling 95%+ of the shares in the company.  No matter how many partners or how long ago the founder gave up authoritarian control over the company, odds are that the founder's ideas and direction are still likely to be valued in some role, even if perhaps the huge salaries and perks he might be able to bestow on himself if absolute control were denied to him.

One advantage of large partnerships is decentralized governance where partners bid for the right to lead projects or perform functions rather than have them bestowed through a hierarchy.  Its similar to my natural governance principles for wider society, and creates competition within the enterprise that benefits all partners.

The control freak's guide to starting a commune

Even if you are sure of the best decisions needed for "your" company, and sure that having to listen to other input will be tiring and unproductive, partners can still benefit you greatly.  The best way to ease your concerns over having to deal with partners, is to make a condition of initial partnership, the protection of any key roles that you want to keep, for up to 5 years.

The benefits to future partners is that relief from your tyrannical ways is eventually assured, and so the attractiveness of a partnership share greatly enhanced, and so the rewards (monetary partnership share value) of selling future partnership shares greatly enhanced for you.  You gain the protection to make the right decisions for the company for the next 5 years so as to further enhance partnership value, and will continue to have significant advantages in having your ideas heard after your 5 year reign.

A company, and partnership share in that company, is always more valuable without a monopoly over ideas, including a monopoly on deciding the leadership's salaries.

The Power of the comptrollership function

The 3rd party comptrollership function permits much of the creative cooperative arrangements discussed in this paper by creating trust.  Investors and stakeholders are assured of being paid when revenue and cashflow materializes, without requiring audits, inquiries for payment, or management's discretion on whether to follow up on its promises.  Financial statements and repayment predictability  assessments can be produced daily or weekly.  The contracts between parties in a natural finance are much simpler from a legal perspective, because the elements of dilution risk is eliminated, as is the element of discretion in repayment, and so it is conceivable for very creative agreements to be agreed without legal representation from both sides.  The comptroller can act as a legal arbiter for both sides.

As shown in the next example, an even stronger benefit of natural finance is the preference for higher interest rate loans by the borrower, that is created by trust and flexibility.

Example wholesale venture

I want to buy 24000 drinks in 1000 cases for resale.  It will cost $24000 to get the drinks delivered.  I expect it will take 2 to 6 months to resell all of them, and total revenue will be $34000.  The financing options are I can borrow the $24k against my house from a bank (or from you) @ 6% (0.5%/month), with $3k/month minimum repayment.  Borrow a soft loan from you @9% (0.75%/month), or give you 20% of the shares in a corporation in exchange for the money.

Regarding the shares vs soft loan decision, if I plan on reinvesting the money, or sitting on it, instead of repaying you the money, then I prefer you take shares, and you should prefer the loan, because odds are you will never be repaid.  If I plan on repaying you quickly, then I much prefer the soft loan approach.  Since you want to be repaid, and I will say that I wish to repay you to sell you on the investment, then according to what we say, we both prefer the soft loan investment to shares.

The risks of the venture are:

• Product may be lost, stolen or break:  The most serious risk.  If I borrow against my house, I lose $24k if product is lost.  If it is a soft loan, I still lose the profit opportunity.  This risk can be mitigated with insurance.  For the lender, a soft loan can be seen as equivalent to a loan + insurance product.  The extra interest may compensate for risk, but insurance for the investor's benefit is an option that may be both less risky and still more profitable.
• There may be delays in shipment, personal or medical emergencies that delay my ability to sell the product:  Such delays could cause me to incur expensive credit card debt to meet fixed loan obligations.  Under a soft loan, if these are merely delays, then it is not a burden on the borrower, and results in higher returns for the lender.
• I may lose interest in selling drinks, or it is not as profitable as hoped due to competition: Solution options include selling the drinks in larger lots at less profit, or hiring/delegating the sales efforts to others.  Although I feel much more pressured to enact one of these options quickly under a fixed loan than a soft loan, there is still moderate profit opportunity sufficient to repay the investor under the soft loan option.

For me, a soft loan is well worth the higher interest cost to save the risk of bankruptcy, credit score, and credit card fees.  Its likely also worth the insurance premiums on top of the higher interest cost.  For you, as the investor, if there is insurance to cover the main risk, then higher expected and likely returns are also worth any slight delays to repayment.  The most important point is higher interest return for you that happens to also be preferred by the borrower.

Virtual corporations and open source

Open source software is usually offered free of charge to users.  It frees users from oppressive reliance on a monopolist for future features, fixes, and systems compatibility.  Open source software still has a business model in paid consulting, features, fixes from the original artisans that likely have the best knowledge of the product.

One reason not to collect product sales revenue, is that it would be expensive/complicated for partners in the software to audit sales, and decide how to distribute rewards based on contributions.  A 3rd party natural finance comptrollership, or 3rd party mediator, or internal committee can assist with that function.

A virtual corporation is one where there are no physical offices.  All the employees work from their homes or at client offices.  Software and web companies are suited to this model, as is any startup with either no revenue, or no strict requirement for customers to come to their office.  Any corporation  could technically benefit from the cost savings of virtualization, but ornamental office space can enhance trust by giving the impression of financial stability.

A far more useful trust and confidence enhancement tool than office space is 3rd party natural finance comptrollership of the company's bank accounts.  If employees and investors cannot see the customers, they need accurate information to base whether and when they can be paid, and assurances without requiring nagging and repeated requests that they will be repaid when they are supposed to.  Natural finance comptrollership is likely much less expensive than office space, and may have some of its costs deferred.  NFCs provide especially significant trust enhancement to international stakeholders.

Solar cell industry

Commercial solar installations are already more affordable in terms of cost per MW capacity than moderately clean/efficient coal plants.  That is before considering operating and fuel costs.  Solar power delivery contracts are being signed well below new coal projects and even below existing coal delivery costs (5.8 vs 6.7).  Despite this, there has been many high profile solar cell manufacturer bankruptcies due to overproduction and rapid innovation.

Natural finance soft loans can help somewhat stop overproduction by not having fixed repayment obligations, and so enable the strategic option of not overproducing, but more importantly because natural finance companies have lower fixed costs, the option of overproducing to drive competitors out of business is also an option.

Because investing in solar power, even in residential installations, is one of the lowest risk possible investments, where power savings is a tax free return for residences, and so should be competitive at 3% ROI over 25-30 years.  Natural finance's power to form cooperative agreements with customers, and delay cash outflows to meet inflows, and even get company investors to finance customer purchases.  If the problems with the solar cell industry can be described as under purchasing instead of over supply, then facilitating customer purchases/financing would cure the industry.

A Grocery store cooperative

Customer cooperative grocery stores have been done before.  I haven't seen them done right, and basically what you can do with a grocery store, you can do with any business.  There are 3 key stakeholders in a traditional coop model, and they are rarely all addressed quickly.  Customers, management/employees, and financiers.

The principal appeal of being an owner of a grocery store coop is likely to be the customer benefits.  Providing every owner with a discount such that there sales target (very slightly above) 0 profit, is attractive to heavy customers and does not disadvantage any other owner.  If that discount is 10%, then it would be a benefit to grocery store customers of $200 to $600 per year (tax free), and so no matter how many owners join the coop,  a floor price for a share should be around $3000.  

Natural finance soft loans can also be used for a coop.  Small customer loans can be taken at very low interest rates if part of the repayment options includes using the same discount available to owners.  Loan balances are lowered by the actual value of the discount.  Loans are still repaid in queue with profits, but the repayment can be with store credits.  Interest should just need to be better than bank deposits, or equal to after tax mid-term government bond rates, to be attractive.

Employees and management can have part of their compensation be variable, and based on sales and profitability.  This "management performance bonus" should be included in the calculation for the owner price discount.  Employee and management performance for quality, service, selection and price is unaffected by whether sales are made to owners or non-owners, and so management/employees deserves compensation for making the store an attractive shopping option.

As mentioned earlier, the customer discount benefit of ownership alone may be worth $3000 per owner, and so $3M communal equity with 1000 owners with no profitability.  Every time an owner joins, all of the other owners are paid directly with the proceeds.  This means that there is significant incentive for a non-customer investor to get in early.  If initial capital and inventory costs are $500k, even if initial 50 partners are brought in at under 1M communal equity, and next 200 owners buy in at $2M, there is significant financial profit opportunity just from growing the network of partners.

The difference between what allows a 1000 owner (customer) coop and 10,000 member coop is not only price and quality performance that draws people from further away, but also store capacity.  A supermarket can serve more people than a smaller store.  Wider product selection means greater value in the customer-owner discount.  Expansion into a larger store or more locations increases customer-owner capacity (going from 1000 owners to 2000 owners at $3k/share, raises an additional $3M for ownership pool, and so 1000th partner would get most (about $2250) of his purchase price back).  Expansion into other retail categories (pharmacy, brewing supplies) increases selection and so the value of the discount.  Expansion into warehousing and wholesale services, or buying store location instead of renting would increase either profit or the discount percentage.  All of the above either increase the value per share or increase the capacity of owners and customers that can be served.

To expand from a 1000 member small store coop to a potential 10000 member supermarket coop, and raise the initial investment to do so, 1000 additional shares could be sold at $6000 each, with most of the proceeds set aside for development, or individual existing shareholders or outside investors can lend to the coop for any part of the development costs.  Growth from 1000 to 10000 owners still provides substantial profit opportunities for the 1000th and 2000th partners.  A 10000 member coop with $3000 owner discount benefit is worth $30M even if it makes 0 profit.

One issue with the grocery store owner discount benefit is that is worth much less to a single person, than to a family of 12.  Its not necessarily a major issue as it would simply make large families more eager to be shareholders, but there is an actual solution that is an overall improvement. If a 10% discount to owners results in 0 profit, then an 7% discount results in a 3% surplus that can be distributed to owner partners.  The small shopper that is an owner (or lenders) profits from the large and average shopper owners, while the average shopper owner is unaffected.  This is an overall improvement because it makes the value of a share more attractive to more people, while still providing a great deal for large and average shoppers.

A bigger issue, is that for simple customers the thought of investing over $10k or even just $3k is not a typical conscionable occurrence regardless of the potential benefits.  The natural finance solution is deposit call options.  One solution might be to offer customers a (version 1) call option with strike price of $3.5M where premiums are based on 7% of purchases.  This would mean that any customer that spends $50k in the store would automatically become an owner after 1000 other owners exist.  They automatically gain ownership after spending $25k if 2000 other owners exist.  From the existing partnership perspective, they prefer the first scenario to the second, and they don't like the lack of a fixed commitment to the option.  Because the owner discount provides a unique value to a share that is independent of the number of owners, the partnership may feel cheated if it receives less than $3k for one share.  A solution that keeps the customer simplicity of the first option is that if a customer either spends $50k, or pays the difference between 7% of what he spent and $3500, then he will receive the 7% discount in the future, and when there are at least 1000 partners, he will become a full partner.  Another alternative is to allow the customer the option of purchasing a share at $500 more than whatever the partnership wants to sell it for but allowing the customer to deduct 7% of all past store spending.  All of the above alternatives have no cost to the customer, and no benefit until a share is acquired.  Its like a long term rewards program, but may be too long to seem attractive.

A more balanced deposit call option terms is to offer a $4M communal equity strike price for premiums of $400/year ($34/month).  This is using the version 2 deposit call option formula.  Assuming an initial (arbitrary) 360000 non-voting shares, the call buyer gets in return for his $400/year in premiums in addition to the call right, 36 shares per year, and an 8% discount (1% higher than owners) while he maintains the option.  Because, in this scenario, the owners and company are paid each month/year for the benefit of the discount, they benefit if the customer doesn't spend very much, and they benefit if they spend a lot.  Whether there becomes 1000 or 2000 partners before the option is exercised, there is no loss to the owners from granting the option.  Note that although the option is for a $4M total equity value, the option buyer is accumulating non voting shares at the cost of $400/36 ($11.33).  With 1000 owners, once he owns 360 non-voting shares he gains full owner status, and so after 8 years of the option he has accumulated 288 shares, if the communal equity market for a full share is at $3M, he can abandon his option and pay $600 for 72 remaining shares that he needs instead of $800 over 2 years for those shares.  There are significant advantages to the partnership of granting such options.  For one, if a happy target value of the company is $3M in the future, then selling shares today at a $4M value is good for the partnership.  Also, non-voting shareholders do not receive any proceeds from communal equity transactions when new buyers join the partnership, and so early partners are not diluted by option holders when it comes to sharing new share buy ins or option income.

Yet another option for financing share purchases that is useful both when there are very few partners and very many is to create a natural finance soft loan queue to finance the share purchase.  Since buying a share involves paying cash directly to the partnership group, the partnership giving a loan to the purchaser instead is always an alternative.  The partnership would be advised to take at least a small deposit, but it can then finance the rest of the share purchase at say 12%/year.  Under natural finance principles, anyone and any individual partner can underbid the collective partnership by offering part of the loan at a lower interest rate and thereby receive higher payment priority.  The terms of the loan are likely to include a payment schedule, and the new buyer/borrower may abandon his share at any time by stopping the payments.  Let's say the founder who spent $500k on creating the business will sell you the next day half the business for a total equity value of $1M, and so your required payment would be $500k.   If the founder allows you to leverage that investment by only putting down $1k, and having a $499k loan at 12% with $50k/year in payment obligations.  One way to meet the payment obligations is by having new partners buy in.  If a 3rd partner paid cash ($200k) for a $600k equity value, although you appear to be losing money because the company value is going down, $100k of that $200k would go towards paying down your loan, and you have no payment obligation for 2 years as a result.  If instead the 3rd partner bought in at $1.2M equity but used a $400k loan instead of cash, you may be ahead on paper, but you have not received any liquidity help in making your required annual payment.  Incidentally, you becoming the 2nd 50% partner at say $600k equity value with very little of your own money would be a sensible proposal if you were going to manage the operations.  It can be great for you because you have so much leverage, and can walk away without losing much.  It can be good for the financial partner because of the high interest returns or getting back their share while keeping any payments if it doesn't work out.

For a smaller partnership buy-in fee of $3000 (1000+ partners), some people might still prefer a loan.  A $300 annual payment and 5% interest.  Doing so purely for the benefit of the owner discount may make sense, and if you don't want to shop at the store often after some years, you wouldn't really lose anything if you abandoned your share, and neither would the partnership or company.

Cooperatives Advocacy
Communes and cooperatives are always worth more than the same company under traditional corporate structure because first, communal equity values shares at the median owner value rather than the most pessimistic owner's opinion, and second and more importantly, equality of ownership prevents the systemic bias towards a majority owner.  That systemic bias necessarily pushes actions towards corruption and oppression even if those actions don't cross a thin binary moral/legal line that defines corruption and oppression.

IMO, it is a mistake to advocate for cooperatives on the basis that they are a near charity to the employees.  This places employees above and in opposition to investors and customers.  Instead, the proper way to reward the contribution of labour in a broader more open commune is through a performance bonus "tax".