• Maike Kauffmann (Purpose Foundation): Aunnie, you’ve been at the forefront of innovative finance. Why do you think the world really needs these new ways of funding businesses?

Aunnie: The reason that innovative finance – a different way to think about how we allocate capital towards entrepreneurs – is necessary, is that the old system doesn't work – or rather, it does work for a very small select set of people. The truth is, the dominant models of equity and debt push the majority of companies to become something they were never designed to be.

Originally, impact investing was envisioned to be revolutionary for finance. This idea of doing well and doing good was itself revolutionary, but the financing structures replicated the traditional system rather than changing it. So it was just impact plus finance.

But what impact investing is trying to do at its core is to create different outcomes from traditional finance. To get those outcomes, we need different models, different mechanisms, different strategies. We can't just add impact on top, but need to address the root problems around inequality, power, ownership, governance, equity timelines, etc.

Particularly when it comes to ownership, the traditional ways in which we think about financing don't create a pathway that considers the long term from an ownership, from a governance perspective, and really from a community upliftment perspective.

 

• How do you see the relationship between ownership and financing? Can you talk about one without talking about the other?

You can talk about one without the other, but increasingly, I don’t think you should.

The more I’ve learned from the Purpose team and others that have done incredible work in what we call “alternative ownership” – a term I hope we won’t even need to use in the near future, the more I see the connection.

A lot of focus in investing is on the tenure of ownership: the investor’s time engaged with a company. In finance, we often assume perpetuity: that the access to say healthcare will continue indefinitely after the investor has exited while the company continues to exist. But I’ve come to believe that traditional exits and conventional ownership structures can easily work against that mission. If a company isn’t structured to distribute power, governance, and returns in alignment with its purpose, the long-term impact is limited.

For me, it’s harder to see a true impact story when wealth, power, and ownership are concentrated. In a world of extreme and growing inequality, how can we claim that impact investing is truly disrupting the status quo if it ends up concentrating wealth in the hands of a few? Even if impact investors ostensibly are trying to create wealth for an underrepresented set of people, if it’s just another small, select set of people benefiting, it doesn’t feel like fulfilling the promise of impact. That’s not what we set out to do.

Instead, we need to look at the question of how our investments are actually pushing towards the creation and distribution of power and value in a regenerative instead of an extractive manner.

 

• What have you learned about innovative financing since you wrote your book Adventure Finance in 2021?

The world has changed in these past five years, obviously. And the willingness to listen to ideas outside of the traditional venture capital model, even for venture capitalists, has changed significantly. I teach a lot of venture capitalists and the idea of innovative deal structures and fund structures is increasingly being brought into the center of conversation. I have learned so much about really courageous and brave fund managers and other capital allocating vehicles that are really choosing to do things differently, that are actively designing new funds with a different set of rules.

My belief is even stronger that traditional fund models are not correct for the change we want to see. We need to re-evaluate every single element of how we set up funds.

 

• Why is the traditional fund model not working?

Let’s look at both sides. For entrepreneurs, closed-end equity funds create a fixed horizon

– usually five to seven years – because the fund has to return capital in ten years. That timeline often has nothing to do with the life cycle of the business. Companies might be on the cusp of a new discovery or growth, and suddenly they have to sell, or try to sell. It creates an artificial timeline and forces exits where there might be none naturally. And that’s not even considering the barriers to getting into these funds in the first place – the criteria, track records, all of that. Many companies are excluded directly – particularly those with alternative ownership structures.

It’s similar for fund managers, especially in emerging or challenging ecosystems. How do you tell someone in Ukraine or Palestine that they must return their investor’s capital in ten years? That rigid schedule simply doesn’t match reality.

Across the board, the system is designed for Limited Partners, for the investors in these funds: incentives, timelines, governance, cost of capital; it works for them, but often fails everyone else.

 

• Speaking of companies with alternative ownership structures, let’s move to the relationship between steward-ownership and the whole innovative finance field. What excites you most about steward-ownership through your lens of innovative financing?

So I think one of the cornerstones around innovative finance is fit for purpose and long-term thinking. So how do we create the mechanisms and infrastructure for these types of entrepreneurs, founders, communities? Steward-ownership adds value here by clarifying the role of capital, the role of investors.

In steward-ownership, investors aren’t “kings of the castle." Their role is defined, limited, and focused on support, while being able to receive financial return. That clarity is powerful: it creates a set of circumstances for innovative financing to design deals or funds so that capital can play that specific role.

Steward-ownership gives companies, communities, and stakeholders the role they deserve, while still letting investors contribute meaningfully. Because the legal structure ensures the company’s mission and impact continues, we as investors don’t have to build restrictive safeguards ourselves. From an innovative finance perspective, by reducing the investor’s role, steward-ownership actually opens up creative ways to support businesses.

 

• What would you tell entrepreneurs currently struggling to find steward-ownership aligned investing for their business?

What I hope is that as the market shifts from this hyper infatuation with venture capital to a more wholesome understanding of the spectrum of risk capital, the options for small and growing businesses as well as medium-sized businesses will grow. The big gap between grants and investments as well as debt and equity that is currently limiting funding opportunities for many businesses will be filled up.

As things like structured exits, like revenue-based financing and redeemable equity become more commonplace, the ability to find investors that are able and willing to finance these types of companies will increase because there will be more templates, more understanding, more stories.

There will also be a better understanding of the benefits for investors – like the aspect of liquidity when investing in companies that can create cash flow over a period of time instead of waiting for only winners.

We are at a really pivotal moment with the “silver tsunami”, large amounts of business owners passing on their business, in the US and in Europe. This is an opportunity to transform businesses – whether it’s toward employee ownership or steward-ownership.

I think steward-ownership has to be a significant element of how entrepreneurs think about businesses going forward – from small community businesses to much larger organizations.

 

Thank you, Aunnie, for sharing your perspective.