Entrepreneurial power in steward-ownership-aligned financing

In conventional equity investments, investing usually means giving capital and receiving (next to economic rights) power over the company in the form of voting rights. The voting rights granted to investors are no different from the voting rights that entrepreneurs hold over the company. This means the entrepreneurial power over the company can be speculatively sold to the highest bidders. 

In steward-ownership and aligned financing structures, this automatism is broken with; money does not automatically equal power. With the company’s needs and wellbeing as guiding stars, the first question becomes: “What form of stewardship does this company require to thrive?” From there, entrepreneurial control over the company is allocated based on the question of: “Who should have power over the company and why?”, shifting the answer from “whoever puts the most money on the table” to “whoever are the stewards best suited to steer the company in the future and to actively take on entrepreneurial responsibility for the company and which governance mechanisms are needed for their success”.

This starts the discussion around entrepreneurial power off with a room of possibilities. And, while the final entrepreneurial control, usually in the form of the majority of voting rights, always remains with the stewards of the company, investors are important partners. They are considered enablers, and can be included in the governance (if wished for on both sides) in ways that go beyond traditional voting rights.

However, their involvement is distinct from the primary stewardship of the company. Their rights and influence stem from their role as financial partners – providing the capital needed to sustain and grow the business, with sometimes also contributing beyond mere capital provision (e.g. experience, networks). In return, investors understandably want to know that their own needs are met, too. For investors, it is often less about holding voting rights, just to hold voting rights, it is more about providing entrepreneurs with sufficient governance and checks and balances to achieve the best outcomes for the company. At the same time, investors want to ensure their interests are protected and that they are treated fairly alongside other stakeholders. This is the reason why power in the form of voting rights still matters to many: they provide a say in decisions, like whether profits are distributed. Without voting rights, the question for many becomes, for example: how can I be sure I’ll get paid? But fortunately, there are many ways to address such needs without granting voting rights (more in the next sub-chapters!).

So, the point of governance in steward-ownership-aligned financing is that the mechanism of automatism existent in most conventional equity investments today is broken with, allowing for a more nuanced discussion of “who should have (which form of) control and why”. Investors can be part of the governance, but in a way that the entrepreneurial control can never be overtaken (bought) or blocked.