At Fresh, we’re not simply looking to build impactful ventures. Our ventures are built to nudge the entire system into a more desirable direction, to make a positive impact that exceeds the narrow bounds of their surface-level activities. We want our ventures to be fundamentally mission-driven, working with a razor-sharp focus on achieving their purpose of accelerating the transition to a regenerative food system. We believe we need to rethink ownership to make that possible. In this article, we explain in more detail how we intend to go about that.
One of the interesting things about the startup studio model is that it allows you to fundamentally rethink every aspect of how a venture is built and run. Like Ford, who with his Model T production line radically innovated the way cars were produced so that the transportation system was forever changed, startup studios have the opportunity to completely rethink how we build and structure new ventures so that they can help accelerate the transition to a fairer and more sustainable world.
In order to achieve that, we need to break the prevalent conventional wisdom on how to build, structure, and finance ventures. In our search for ways to build truly mission-driven ventures, we have come across a number of ground-breaking new approaches to designing ownership, corporate governance, and investment instruments that help ensure that our ventures are mission-driven by design. And though we’re still only scratching at the surface and have much more to learn, we have been working with our partners and funders to develop a first answer to the problem of how to design financial instruments that align the interests of founders and funders towards achieving our mission to transition to a regenerative and circular food system.
The key question we faced was how to attract sufficient funding for the ventures that we will be co-founding during our four-month program early next year, while ensuring that they can always prioritize their mission - transforming the food system - over shareholder returns. One of the answers, we found, is to fundamentally rethink how we structure the ownership of the ventures we build so that the core purpose of the venture is structurally embedded in the organisation’s DNA.
Steward-ownership is an ownership and governance model which aligns the interests of entrepreneurs, workers, investors and society. It is based on two principles: Entrepreneurship equals ownership, and profits serve the company’s purpose.
Conventional financing tools and ownership models often do not work for mission-driven organisations for two reasons. Firstly, excessive return expectations lead to unrealistic growth trajectories and leave viable businesses (that cannot become “unicorns”) without funding. Secondly, equity financing is often designed so that investors gain as much control over the business as possible. This is counterproductive for mission-driven founders and could jeopardize the impact focus of the company on the long term when a company is bought.
Steward Ownership splits decision-making and profit-sharing rights. Founders and employees get exclusive decision-making rights, while their profit-sharing rights are capped in order to avoid conflicts of interest and, more importantly, mission drift. Investors, on the other hand, get no decision-making rights, and in return get greater priority over dividends and repurchase prices. The advantage of this is that the organisation is able to focus on fulfilling its mission, while still securing returns and liquidity for investors.
The conventional model of stuffing a promising startup with excessive amounts of capital in order to achieve frantic levels scale - a practice aptly called the “fois gras effect” - is at odds with the ambition of our entrepreneurs to achieve systemic impact in the food system. We aren’t creating ventures in order to make a quick exit, and we have designed our investment instruments to reflect that.
Steward-ownership, with its rebalancing of the power dynamics between founders and investors, requires a fundamental rethink of the way early-stage ventures are financed. This is where our second innovation comes in. Revenue-based financing offers a sustainable alternative to conventional finance approaches that allows founders to retain more ownership in their businesses while offering investors clear opportunities for liquidity and returns.
So, how does steward-ownership work at Fresh?
Fresh will work with about 30 entrepreneurs every year to co-found between 2-4 mission-driven ventures in the regenerative agri-food space. Successful ventures receive seed funding from our core investors. These investments are in line with the principles of steward-ownership and revenue-based financing. Rather than making an exit in future funding rounds, investors are repaid over time from a % of revenues, free cash flow, or gross profits until they have achieved a predetermined return on their investment, at which point their shares are automatically dissolved and the venture is able to operate independently again.
Below are the details of a typical investment in one of our ventures:
Structuring companies according to principles of steward-ownership requires splitting profit-sharing and decision-making rights into different share classes. At inception, our ventures issue four distinct share classes,, along with a mechanism for employee profit sharing down the line. The ownership of Fresh Ventures Studio itself is structured in the same way.
The four share classes are as follows:
On the face of it, ownership and decision-making with steward-owned ventures can seem more complex. However, in reality, this distinction between share classes is necessary in order to ensure that our founders maintain ownership and decision-making long into the future. Our co-founders are able to make almost all the decisions in their venture, even once they have raised funding from external investors. In the early stages, Fresh retains some decision-making rights to steer on red flags and to ensure succession in the case of early leavers - but these rights fade out within the first twelve months.
To recoup the investment in the ventures we co-found and make a marginal return on the venture building activities, which - in line with our own mission and purpose - we are re-invest in the building of future ventures, Fresh, as co-founder in the ventures, receives a stake in the ventures that we build which is valued at €100.000. We exit from the ventures over time, and are repaid from a predetermined percentage of revenues, free cash flow, or gross profits (whichever is most applicable to the venture’s business model). When we have earned a predetermined though modest return (4.3x on our initial investment), our shares are automatically dissolved, and the ventures continue independently of us. We expect that the investment will be repaid in full within eight years.
Below are the standard terms of Fresh Venture Studio’s co-founder stake:
Of course, our founders also get a stake in the ventures they set up with us, and this stake is worth a lot more than ours. However, following the principles of steward-ownership, we still want to try to split decision-making rights and economic rights in order to ensure the long-term mission of the venture. To achieve this, the founders receive non-voting redeemable shares (their decision-making powers come through other means, mostly by being the executives) that are solely for the Founding Team of the venture that are bought back by the company at a predetermined valuation and represent delayed compensation for the founding years, though external investors will likely get priority of repayment. Unlike Fresh’s stake, which has a predetermined return of 4.3x, the multiple over the founder shares will be determined on a case-by-case basis, depending on the nature of the business. Once they have been repurchased, other profit-sharing options will kick in to ensure that the founders benefit financially from their hard work and passion.
In our mission to transform the food system and build truly mission-driven systemic ventures, we are on a journey to rethink how mission-driven early-stage startups are built and structured.
We are now open for applications for the upcoming cohort in the venture building program. The program consists of a one month digital and part-time program starting this November and a live, full-time, three month program kicking off in february next year. We are bringing together a group of talented prospecting founders that have the grit, mission drive, growth mindset and ambition needed to transform the food system. A mix of people with a special edge coming from their technical expertise, their domain knowledge or their organisation building experience.
The program is designed with systems thinking at its core. With the goal to accelerate the process of finding a co-founder, understanding a problem that is worth solving, developing and validating a solution with huge impact potential. We leverage our expertise, ecosystems and tooling to help you succeed.
Join us and apply now
You can find more information on the program on our website or you can apply now via this link and start transforming the food system and economy with us.