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Who Invests in You?
And the way to say "steward ownership" in German
Photo by Miikka Luotio on Unsplash
The VC Model and Its Demise
Welcome back from summer break everyone. Today’s newsletter is about business financing and a show we made with a new kind of investment fund.
Before COVID and the Russian invasion of Ukraine, when interest rates and prices were low, the venture capital way of doing business seemed mostly fine. You know how this works: A few zillionaires (and a bunch of angel investors) gamble on new ideas in the form of startups. The deals are set up in a way that young companies get cash to build their ideas, and in exchange, the VCs get a big chunk of ownership. The VCs spread their risk across as many companies as they could afford. Profit is prioritized over everything else. Every VC wishes for one unicorn in their portfolio that will not only pay off all their other investments, but also make the principals mega-zillionaires. The startups, of course, want to be those unicorns and be zillionaires too.
Zillionaires all around, fantastic.
Since interest rates and prices started to go up, this model’s felt some pressure. From the VC side, cash has gotten more expensive. And from the startup side, founders started to ask themselves if it was really the best deal. Is giving up 50% of your company - your ideas, your value, your voice - actually a fair deal?
Conflict and ugly situations abound. Prioritizing profit over everything can lead to nasty consequences. VCs, like any investor, want to secure their investment, and seek as much influence and control as possible. Even companies that are bought or go public can be gutted or turned into its founders’ worst nightmares (see, for example, what Bending Spoon does to the companies it buys). In a classic VC exit, employees watch as their bosses become zillionaires, and they get new bosses, or in the worst case – get fired.
What’s become increasingly clear is this: Every startup’s history is a history of its relationship between the business and its financing.
Purpose, Impact, and Beyond the Buzzwords
Of course, there are a huge range of VCs and investment models beyond them. Alternative financing models have existed forever. Some are better than others. But in the last decade or so, as we start to see and feel the consequences of prioritizing profit on our businesses, our employees, and our planet, different financing approaches have become popular. Indeed, it’s become such a trend that even oil companies talk about their purpose and impact and so on. Here’s a short list of related ideas and buzzwords:
Community investment
Crowdfunding
Impact investment
Patient Capital
Regenerative Finance
Revenue-Based Finance
But some interesting ideas have staying power. For example, there’s the idea of degrowth, taken from ecological economics. What if we could decouple the success of a business from its growth and profit?
There are purpose-led businesses. Where a company’s purpose and impact has as much influence over its success as its profits.
And there’s steward ownership, Verantwortungseigentum in German. The core of steward ownership is to legally guarantee self-determination and purpose-orientation within a company. So it’s exactly not the VC model of prioritizing profit over everything.
There’s a whole community being built around it, as more and more businesses and investors seek new solutions. There’s a steward ownership conference in Berlin in October we hope to attend, for example.
As you can tell, we’re very curious about new financing models and we’ve produced a show (DE) with Karma Capital, an investment fund in Berlin investing in media companies and steward-owned companies.
They’re trying something different than the VC model. Instead of spreading investments to make the most profit, they’re focused on other ways to use money for influence: “What would our world look like if money always had a positive effect on society?”
We interviewed six founders for the show’s first season, from a diverse range of companies covering markets as broad as breakfast and menstruation. Its been rewarding and inspiring to see smart, ambitious, and brave entrepreneurs build successful businesses without having to make compromises that damage their vision, their employees, or the planet.
Listen here (Spotify) or here (Apple). It’s in German but if you want the translated transcripts just let us know.
“Steward ownership means the company owns itself, and its profits are bound to its mission, so they serve the purpose in the long term.”
What we do
Here are some of the previous editions:
Introducing Kollo Media: “Let’s Really Look at the Thing”
Announcing our first audiobook and thoughts on the audiobook market
Considering Dan Hicks’s writing and drinking out of a skull
Thanks for following along so far. We appreciate your support.