Conversation: Which rights for investors? 

Another conversation that you will have to have is which rights investors will have. Again, this really depends on the way you present your case to investors – for some, this is pre-answered because they have already decided on financing instruments and exact terms. For others, the conversation might start with the investor’s perception that they will absolutely receive a large share of the voting rights. Either way, one hint to go about this is to have a role-based and relationship-focused conversation and find out which rights investors should have to represent the role they want to play and the relationship you want to have with them.

 

Points that are crucial here: 

• There is no automatic correlation between capital and control in steward-ownership-aligned financing. Instead, the question is in the room who should have power (and which type of power) and why?

• Sometimes it does make a lot of sense to involve investors in some way – find out together what works for both parties.

 

Possible conversation topics: 

• What role does the investor want to play in the company (solely investing, supporting entrepreneurial)? Why are they investing? How can this be represented in the investment relationship and rights for investors?

• If they want voting rights: Why do you feel the need to have voting rights? (Is it because it’s the “norm”, is it based on a fear, is it because they actually want to contribute?)

• Could the need also be answered through different non-shareholder rights (e.g. consultation rights, red lines, veto rights, etc.)?

• Talking about specifics of non-shareholding rights, aka the situation in which investors will have information rights, consultation rights, approval rights, etc.

• Which securities does the investor need (e.g. they need to know that they will be consulted in specific situations, …)?

• Talking about the investment relationship and which connection points and what kind of relationship you and the investor want. Remember that you don’t only receive capital but also start a relationship with an organisation or individual – and make sure that it’s a relationship you want to begin.

• If there are concerns about the entrepreneurs being sufficiently supported, what governance solutions could address this? Who might be the right people to share decision-making with them, and why? Even beyond financial considerations, involving other individuals or experts can bring valuable perspectives, provide balance, and support the entrepreneur-stewards in their role.