If your cap table is already complicated or heavily diluted, where significant control has been ceded to early investors, it is important to assess whether it is still possible to transition into steward-ownership. In the checkpoint for proceeding, you have already addressed the key questions relevant to this topic.

It goes without saying that a situation with a tangled cap table and/ or significant rights granted to investors can complicate governance, dilute the control you have over your company, and hinder the transition to a steward-ownership model. The more capital you raise (and potentially the more investors you bring on board) and the higher the dilution (i.e. the lower the voting rights you still hold), the more complicated it will get to transition into steward-ownership and also when setting up a steward-ownership-aligned financing round. Also, traditional cap tables often do not distinguish between different types of rights, such as voting and dividend rights, or clauses like drag-along and tag-along rights. Untangling these elements and addressing them individually is essential to understand and potentially simplify governance and pave the way for steward-ownership.

The ideal scenario, of course, is to integrate existing investors into your steward-ownership-aligned financing round. This avoids the need to raise additional capital to buy them out and ensures that you already have aligned investors on board – ideally, ones who contribute beyond just capital.

To make this transition attractive and support investors in their decision, it’s important they not only understand the implications of converting their shares into steward-ownership-aligned instruments but also recognize the value steward-ownership brings – to the company, and thus to their investment, and to them.

What changes for investors?
First, investors may see a shift in voting rights — these could be reduced or transformed into new forms of participation. The goal: keeping control with the company’s stewards – those who are most committed and closely connected to the company and its mission. That said, investors can still play a meaningful role in governance, depending on what’s agreed.

Second, yes, their financial return will be limited. However, this happens in a way that is fair, risk-appropriate, and aligned with the company’s business model and growth potential, and with the return expectations and needs of the investors.

What might they gain?
While these shifts certainly mark a departure from conventional equity logic, they come with potential benefits for investors: namely, the assurance that the company will remain mission-driven, and the continuity of leadership by people with a deep connection to the business. Structured exit options can offer stronger downside protection. Additionally, it helps avoid disruption from future funding rounds that might otherwise introduce large, non-value-aligned players and shift the company’s direction. In this setup, investors become part of a sustainable growth journey – and part of a growing movement in the investment world. They join a path where all key stakeholders, including the founders, are aligned in long-term purpose and principles. And even if they choose to exit later, it will be on terms that safeguard the company’s future. And perhaps steward-ownership even offers an answer to challenges in the market or sector the company operates and the investor seeks to make an impact in. ( → more on benefits of steward-ownership aligned financing for investors).

While these are just examples of what the investor at hand might see as a benefit in steward-ownership, the goal is to find a financing structure that works –  for the company and the investor. It may still be necessary to negotiate terms that balance the interests of both the company and its investors. Key variables in such discussions can include appropriate return variables, investor rights, and the path to liquidity (→ more on this in the last milestone). These elements can help compensate for the absence of voting rights, for example through higher returns, seniority in redemption, or discounts. The goal is to create alignment between investor expectations and the company’s mission, while maintaining a fair and transparent process.

Such negotiations often require a high level of mutual understanding. It’s not uncommon for a moment of stalemate to arise: investors cannot move forward without the entrepreneurs, and entrepreneurs depend on the investors. Acknowledging this interdependence can be key. It shifts the conversation from a position of bargaining to one of co-creation – where both sides work toward a shared solution that aligns with the company’s purpose (→ you can read about this kind of stalemate in Stapelstein’s case study, where a similar deadlock was navigated successfully in the shift to steward-ownership.)

Transitioning or buying out old investors can be particularly tricky when there is a large discrepancy between the market valuation of the company and the actual performance in terms of profits.

While less central for the transition, it also makes sense to engage with existing non-equity investors (banks, grant providers, …) and tell them about the type of financing you are about to raise as well as your transition into steward-ownership if this applies to you. This way, you engage them directly, can answer questions and hear about their potential concerns.

In some cases, it might even be contractually required to seek their formal approval – especially if change of control clauses are in place. These clauses often grant the right to modify or terminate the contract if there is a significant change in the ownership or control of the company that originally entered into the agreement. 

While much of the focus is often on involving equity investors in the transition to steward-ownership, it’s important not to overlook mezzanine or hybrid financing instruments. These can also carry governance rights, blocking mechanisms or may grant investors a degree of control that may pose challenges during the transition.

In addition to dealing with existing investors around the topic of steward-ownership, your cap table will also impact the conditions you can offer in your next financing round. If you have existing liabilities, they must be factored into the liquidation waterfall. If you have equity investors, they might need to be offered a discount (better conditions than new investors) to transition their conventional equity into the new financial instruments. They might also want seniority in the liquidation waterfall which means later redemption for new investors. All of these terms are negotiable.