The Liechtenstein Venture Cooperative: Cooperatively Creating Capital

Katharina Drechsler and Leona Chandra Kruse (University of Liechtenstein)

What is LVC?

The Liechtenstein Venture Cooperative (LVC) offers a novel approach to starting a new venture or developing an innovation. The LVC provides a legal framework to protect an innovative idea and collaborate with partners to develop the idea, while lowering the financial and legal barriers. The legal form offers an easy setup, limited liability, and a flexible system to measure the contribution of each involved party in the venture. Entrepreneurs, innovators, and other contributing parties can agree on their share of the venture based on their contribution to the venture–that is, their initial investments. The contribution can be in the form of working hours, capital or other resources. In return for their investment, all parties receive their fair shares, a unit of the venture that reflects their contribution. Once the venture grows in size and stability, the shareholders can decide if and when they want to transform their LVC into another legal entity.

A brief history of the cooperative

The idea of a cooperative, a jointly owned enterprise operated by its members for their mutual benefit, can be traced back to the middle ages. For centuries people formed cooperatives (or Alpgenossenschaften) to work together in managing and cultivating common grazing land in the Alpine region. Major roads and other infrastructures were built by and for cooperatives, one of them is the famous Via Mala, an important connection path in the Canton of Graub√ľnden. Via Mala was renovated and maintained by a road and transport cooperative in order to promote trade.

In the 19th century, the Welsh entrepreneur Robert Owen revitalized the idea in the industrial context by founding the cooperative movement to improve the working and living conditions for textile workers. Today, known examples of cooperative are especially prominent in the agricultural, banking and retail sector. The Swiss retail sector today is dominated by two cooperatives, Migros and Coop. With the establishment of the LVC the cooperative idea is now applied to a novel context with the goal of empowering entrepreneurs and innovators to develop creative ideas, bring them into reality, and begin their capital creation journey.

Cooperatively creating capital

The LVC enables the entrepreneurial minds to valorize a combination of different types of capital. Interested readers can consult the blog on Capital Creation and Organizational Innovation for further explanation on capital types and capital creation mechanisms. We can even go one step further and argue that cooperatives in general, and the LVC in particular, support cooperative capital creation. Let us elaborate this argument in three brief points.

#1 Lower hurdles, increased legitimacy

Innovators are often reluctant to go through the bureaucratic processes associated with founding a firm. Moreover, not all of them have sufficient economic capital to invest solely in their firms. But without a registered legal firm, they lack legitimacy. Opting for LVC, entrepreneurial minded people are endowed with symbolic capital–reputation, prestige, and above all, legitimacy. The LVC also provides a platform to codify routines and contributions, enhancing organizational capital. With the symbolic capital in hand, LVC partners can enter the startup scenes with their heads held high. Being part of the scenes increases their chance at extending their networks, enhancing their social capital. You never know when you will meet your future customers, partners, and investors, do you?

#2 Collectively cooperative, changed lone wolf mindset

When facing the financial hurdles in founding a firm, some innovators may decide to found one-person companies instead. These really are one-man shows operating with the lone wolf mindset. Now there is the LVC with its low hurdles, supporting innovators and entrepreneurs. More importantly, it promotes cooperation, a collective collaboration among its members to increase their capital productivity. Scholars and experts have been fascinated by the phenomena of collective intelligence and the wisdom of the crowd. Some even suggest that wicked problems can only be tackled when people collectively invest their human capital in addressing them. So, why innovate alone if you can do so collectively and cooperatively?

#3 Entrepreneur-centered, an homage to the people

The LVC helps put the entrepreneurs–the people–back to the center of entrepreneurial ventures. The LVC Contribution Regulations acknowledge investments in terms of work performed, waiver of salaries, provision of financial capital, infrastructure, and other tangible assets, and provision of contacts and access to networks. The acknowledgment of the two italicized investments–work performed and provision of contacts and access to networks–recognizes the indispensable value of the people behind the ventures. This approach differs from the common practice that tends to put economic investments before intellectual and social investments. The LVC helps reverse the order, raising the importance of human capital to the level of economic capital, if not higher.

Nevertheless, the acknowledgement of different types of investment may not come without its hurdles. The valuation of different types of investment may be difficult, as some of the units are not directly comparable. Consider the following questions:

  • How valuable is the provision of access to a social network compared to hours of work performed?
  • Is the value of providing contact to ten people inside a company tenfold compared to introducing someone to one person?
  • Should all types of work performed be equally valuated? Imagine stakeholder A spending twelve hours preparing an animated slideshow for an elevator pitch, while stakeholder B presents it within less than two hours (including trial presentations, waiting period, etc.).

Even if these questions are solved, the cooperation might turn into coopetition (cooperative competition). Entrepreneurs, innovators, and other contributing parties may compete to receive the biggest share in the new venture, and the newly founded company. As a result, they would then focus on activities that maximize their share in the venture, while losing track of the focus and goals of the venture. We need to empirically study this phenomenon in order to understand its dynamics and make informed recommendations as to how we can alleviate potential adverse effects. The evidence-based insights will in turn help sustain the original noble intention of the LVC, that is, to allow innovators and entrepreneurs to cooperatively bring their creative ideas into reality and to cooperatively create and transform capital.