EQUITY

Traditional equity investments involve investors acquiring shares in a company during funding rounds, granting them voting rights and a share of the company's profits. The extent of their decision-making power and investment valuation usually depends on the size of their investment and the specific terms of the shares. With each financing round, more ownership – and typically more control – shifts to these investors. The liquidation of such investments typically occurs through a sale of the company, with the market valuation at the time of sale significantly determining the return for investors. Until the sale, investors theoretically have unlimited access to their share of profits – contingent on two factors: agreement among all equity investors and the availability of sufficient profits.

Although equity investment initially seems unsuitable for steward-ownership-aligned financing, it can be structured to adhere to steward-ownership principles. While some companies might view equity investment as misaligned with their philosophy of independence, it can be an advantageous instrument depending on the company’s needs. For example, early-stage companies might benefit from the mentorship that often accompanies equity investments. Companies might value its acceptance and clear communication strategies when identifying suitable investors or funding programmes, or it can provide an easy way to restructure previous (equity) investments to align with steward-ownership principles. Equity investments have the advantage of being widely known, accepted, and well-regulated. This can come in especially handy if a company plans to engage in several financing rounds, during which more complicated, less well-known instruments might increase communication efforts and reduce the potential pool of investors. If equity has already been issued in previous financing rounds, adjusting the financing structure to align with steward-ownership principles can be quite challenging. But even in such situations, there are ways to reclaim autonomy and regain control over a business and financing solutions. A key advantage of this type of investment is that it is unequivocally recognized as equity. However, this benefit comes at a cost, as it is typically the most expensive financing option, with additional expenses such as notary fees further increasing the overall cost.