This assumes all founders act as rational economic actors. Yes, it's hard to pivot from a traditional corporation to a co-op because of capitalism, but there are plenty of people who love the idea of a co-op but either don't have the capital or where the available capital is not evenly distributed among those interested to found the co-op with them. Amazingly, most humans do not do primarily what has the biggest economic advantages for them but what they think aligns best with who they think they are or want to be.
Speaking from personal experience, as a founder who does not come from wealth the biggest reasons not to pivot to a co-op are that you're giving up control over something you created, you have a lot of money caught up in it that could have instead gone towards your personal life and that someone you hired as an employee is not necessarily interested in becoming a co-owner (e.g. if your country has workers rights they might be losing access to certain guarantees and benefits by doing so).
Your wording is also needlessly abrasive. The government subsidies a large part of the economy like agriculture and fossil fuels (this is true in Germany and also seems to be the case in the US). Calling subsidies "free government money" suggests this is unheard of and unrealistic. If we want to go full utopia, the government could not simply subsidize co-ops, it could mandate them, e.g. by enacting a law that requires non-publicly traded businesses above a certain size to be worker-owned (with all liabilities to the founders being converted to standard loans) and prohibiting natural persons from holding more than a given percentage of any publicly traded company to shut down the potential loophole of just going public. It's the government. It's what allows corporations to exist so it could also restrict them.
