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  • Fund Profile: Obran Cooperative

    Fund Profile: Obran Cooperative

    13 July 2021
    by Elias Crim, with Joseph Cureton
    image: Obran Cooperative Team members of CORE Staffing, the worker-owned business Obran Cooperative would be built around.

    A conversation with the co-founder of Obran Cooperative, Joseph Cureton, following on our June 15 webinar (co-hosted by Zebras Unite) on “Co-op Strategies for Reclaiming Human-Centered Healthcare”, at which Adam Rose, Obran’s COO, spoke.

    OM:

    Let me begin by saying this is a pretty amazing business you’ve got underway here. Obran is a co-op holding company with current or planned acquisitions in five verticals — health, construction, staffing, tech, media.

    JC:

    Thanks. And let me just begin by saying: this is an incredibly hard thing to do and I would not wish it on anyone. [Laughs.] Let’s also just start there.

    OM:

    OK, understood! You mentioned in another interview that the germ of Obran began in Baltimore in late 2018 with CORE Staffing, a worker-owned cooperative which placed workers in temp positions around the area. It was originally built by and for returning citizens who continue to face barriers to being hired.

    This co-op approach then inspired a different kind of business, a digital creative agency called Tribe Works for which you were also a co-founder. So two very different businesses with members from different social worlds, you might say.

    Looking to unite them, you looked at models of co-op collaboration: Mondragon, Evergreen Coops in Cleveland, the Arizmendi Association of Coops in the Bay Area. But you and your team chose to go a different route.

    JC:

    Right, we went for a holding company with industry groups, each of which is composed of underlying operating companies. Our strategy is to align each industry group’s resources and systems — which vary greatly — to benefit their companies.

    It is the overall holding company which is owned by all the workers of all the companies rather than the conventional co-op model of workers owning their individual companies. So you have the possibility of moving from one business to another.

    OM:

    So Obran is what you get when you cross a worker co-op and a private equity fund!

    JC:

    Yeah, I guess. Somebody recently called us “a socialist PE firm”! We’re just saying: take the best from both worlds, and not the worst.

    OM:

    Say a bit more about the holding company model, please.

    JC:

    So although we’re a co-op, we’re not a federation, although there are vestiges of local control in our operating companies. And in this model you have questions around subsidiarity. Our operating companies are not free to over-lever themselves, for example.

    And around worker rights and responsibilities in one business versus the same questions in a conglomerate. We have a lot to learn about executing on some of our core democratic processes, of course. And we’ve learned from lots of people, including non-co-op folks, including M & A practitioners. I’m a recent Start.coop graduate and I read people like Yale prof A.J. Wasserstein. Another influence is Tim Huet, founder of the Arizmendi Association, whom I consider a mentor.

    OM:

    Your entry point in this work was a staffing company, which gave you a window to look into other types of businesses.

    JC:

    Right, and that led to our first interesting failure: our construction business. Staffing took a big hit during the pandemic — the one thing people didn’t want was more people. We had staffed construction before so we felt we understood the business model and those were the kinds of jobs we knew people were looking for. That was the germ of our idea when we did our first acquisition.

    OM:

    So what were the lessons learned?

    JC:

    Well first, the business we bought was too small. And also: we didn’t install a replacement CEO at the outset to work with the owner for the 3-year period before exit. We learned it’s better on Day One to have an entrepreneur sitting beside the CEO than to try to elevate the current CEO.

    OM:

    How did the acquisition go?

    JC:

    In addition to the construction company, we bought properties and raised $1 million to do renovation work. So we ended up in construction, property management, and asset management: three businesses we’re trying to handle at same time. Luckily employees got some financial relief from a fund raised by Seed Commons, with whom we’re working.

    OM:

    A learning experience.

    JC:

    We knew if we truly wanted to become a rhizomatic entity [Editor’s note: rhizomatic meaning, “replicating ourselves and growing up from multiple roots”], there would be times we failed.

    And yes, acquiring the first company taught us an incredible amount. About corporate finance, legal structures, M & A, about our capacity to execute in all these areas.

    OM:

    But this strategy of acquiring instead of starting up gives you an entry into new markets. So now you have launched what you call the Search Fund Accelerator program.

    JC:

    Right. It’s intended to be a kind of shared learning experience in entrepreneurship for other members in Obran. We advertised at top schools, got lots of applicants, and ended up with 21 viable candidates, the majority of which were MBA graduates or working on one. Six people made it to the final round of interviews and we chose one as our new search coordinator or vertical lead.

    OM:

    This person will be your second search entrepreneur, the first being Adam Rose, the head of Obran Health, correct?

    JC:

    Correct. It was Adam who literally just found us on the web and then called us up. He had a thesis in mind and we asked him to present it to our board and management team. It was fantastic. We saw what he was describing as a model for replication which could take us into new markets where we could find new members. Keep in mind: we see the workplace as a pathway for membership.

    OM:

    Staying with Obran Health for a minute, Adam had a great background in healthcare.

    JC:

    Yes. And we are supported by Kaiser Permanente and a good relationship with Kaiser’s foundation and their impact spending team. We want to leverage the anchor institution strategy here in which you educate their vendor base about employee ownership. And they understand that we can help them ensure their spending is staying in the local economy, that they’re impacting the social determinants of health there, etc.

    OM:

    So Adam’s work is partly activating this vendor network of businesses and tying them to a group of entrepreneurs.

    JC:

    Right. We have partnered with Project Equity which typically looks at helping a company take an ESOP route or a worker-owned trust route. We’re offering a new option: join a co-op conglomerate as part of a legacy play.

    OM:

    So what kind of target companies do you have in mind for the new search person?

    JC:

    All kinds. We’re looking at security companies, window washing, call centers, construction firms, HVAC companies, insurance. The target needs to have a minimum spend of about $1 million, and a certain number of employees.

    OM:

    And you are working on a fund to support the strategy.

    JC:

    Our dry powder will be a new $30 million acquisition fund — we’re about halfway there and we’re working with Mission Driven Finance, who will host the fund, and with Seed Commons.

    OM:

    And this is a mezzanine fund, using debt. What’s your anticipated return?

    JC:

    We look for around 9% annual return with a fund lifetime of 10 years.

    OM:

    Do you have plans for another search fund process?

    JC:

    We are recruiting now for the next cohort in mid- or late September, looking for possibly two more search people.

    OM:

    Awesome. Lots of folks rooting for you — good luck.

    JC:

    Thanks!

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