Driver-Owned Uber Alternative Looks to Crowdfund $1 Million

A worker-owned cooperative that competes with Uber in New York is hoping to turn grassroots buzz into business growth by raising more than $1 million from investors, drivers and potential passengers.

While most startups trade equity for venture capital funding, The Drivers Cooperative is issuing debt to lenders who would get a limited share of future revenue while keeping company ownership in the hands of its drivers.

Gig economy giants like Uber Technologies Inc. and Lyft Inc, have faced accusations of poor labor conditions, where workers are burdened by the costs of vehicle maintenance, loans and insurance. At the same time, the pandemic has led to a driver shortage, sparking soaring trip prices for riders. The Drivers Cooperative hopes to charge less while paying drivers more, an equation that would be made possible by low overhead.

Fundraising will allow the cooperative to scale and improve its business fundamentals, said Stephen Sleigh, a private equity professional who is helping the cooperative solicit participation. “This is not charity or a philanthropic donation, this is an investment,” he said.

Driver-Owned Uber Alternative Looks to Crowdfund $1 Million

Despite a nearly-nonexistent promotional budget, the cooperative has received some high-profile attention with a feature in the New York Times and support from progressive politicians like New York Representative Alexandria Ocasio-Cortez. Since launching in May, the group’s app, called Co-op Ride, has been downloaded about 30,000 times, according to Sensor Tower.

The cooperative hopes to capitalize on its momentum with regulation crowdfunding, a relatively new category of Securities and Exchange Commission exemption that permits funding from non-accredited investors, such as those making less than $200,000 a year --  a group often barred from early-stage investment.

Money raised will go toward salaries for engineering and operations staff, which have mostly been filled by volunteers. Funding will also help with marketing expenses, such as driver recruitment. Currently, there are 3,400 driver-members, many of whom plan to invest themselves.

Drivers have long called for their own worker-run service, and have been very receptive to the cooperative, says co-founder and longtime driver Ken Lewis. “Once we started to call up and tell drivers that we were doing this and sent out messages to drivers, everybody came on and we grew rather quickly,” he said.

Driver-Owned Uber Alternative Looks to Crowdfund $1 Million

This isn’t the first operation to try to rebuke Uber and Lyft’s business model. New York startup Juno positioned itself as a kinder, gentler ride-hailing app and offered equity to drivers. But big driver payouts never materialized and the app was eventually shut down. Its drivers were invited to join Lyft.

The cooperative sees its trajectory differently. Initially, its organizers believe they can seize 10% of the market in New York, and are especially focused on overlooked niches such as non-emergency medical transportation and pre-arranged trips. They have also partnered with political campaigns to take people to voting sites.

“A lot of people are like, how are you going to put Uber and Lyft out of business? And I think our argument is, we don’t have to,” said Alissa Orlando, a co-founder of the cooperative and former Uber operations manager.

The competitive prices that companies like Uber and Lyft once offered have surged, with a ride costing customers 53% more in June than before the pandemic,  according to Rakuten Intelligence. These soaring costs could make Co-op Ride more appealing , said Leslie Zhang, a rideshare user who lives on the Lower East Side. “I think Uber and Lyft are kind of at this breaking point where they can’t offer the same dirt cheap prices they were a couple years ago,” Zhang said.

But Zhang said there were other reasons she would continue to use the coop service even if it was the same price as its more entrenched rivals. “Knowing that more of the money is going directly to the drivers would sort of be that incentivizing push,” Zhang said.

Riders like Ben Theunissen said that while wait times and technical glitches can hold back the Co-op Ride experience, he likes supporting drivers, and fares are often less expensive than the competition. “I’ve been recommending it to my friends and now I’m already meeting people that have already got it installed. So I think that they’ve got quite a bit of momentum,” Theunissen said.

A cash infusion will help the cooperative build capacity, reduce wait times, and smooth out technical growing pains, Orlando, one of the co-founders, said. And the crowdfunding strategy is a perfect fit for their values and base of support.

Orlando said the group found it was getting more support — financially and conceptually — from the general public rather than established funds or philanthropy. “Let’s build on the power of the crowd,” she said.

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