4.2.3 Stapelstein®

The challenging process of reclaiming independence

 

In a nutshell

Stapelstein®, registered as joboo GmbH, is a German company that produces a simple yet innovative, versatile and sustainable element for children (and adults): the Stapelstein® (~ stacking stone). It aims to revolutionize the way children play and interact with their environment to foster their development and creativity. During the founding phase, founder Stephan Schenk took on business angels as shareholders. By doing so, he gave away two-thirds of the company ownership early on without quite realizing how much decision-making power he was ceding. This became problematic when several conflicts around prioritization and decision-making with the business angels highlighted the discrepancy between Stephan's vision for the company and the angels' interest in an exit and dividend payouts. In a challenging process, Stephan and his co-founder, Hannah König managed to establish independence of the organization by buying out the old shareholders and setting up an aligned ownership and financing structure with steward-ownership.

 

Enabling creativity and play

During his university studies Stephan was looking for ways of bringing movement into children's everyday lives through playful means. He noticed that children have an incredible urge to move but mobile, multifunctional objects with a call-to-action character were often missing. This gave rise to the idea of the Stapelstein® – a very simple, colorful, and robust stacking element that opens up an infinite number of interaction possibilities for play, movement or as a design element.

Within two years, Stephan turned the idea into a product and series production, together with his co-founder Hannah, who devised fitting communication and marketing strategies. The company quickly gained recognition for its flagship product, the Stapelstein®, renowned for its versatile usability for children and adults.

In addition to the desire to encourage and enable more movement, Stephan and Hannah wanted to take value-aligned decisions for Stapelstein® from the beginning. Acting and thinking carefully, with focus and foresight, as well as reliability and transparency hold great value to them. Locally produced in Germany, the stacking elements are made from resource-saving expanded polypropylene (EPP), using only pure air and water vapor, free from plasticizers, additives, or any other substances. The Stapelstein® is designed to be timeless, durable, gender-neutral and fully recyclable.

 

The journey into dependency

Stephan was supported with equity by two business angels to establish the company and for the initial product development of the first officially produced Stapelstein®. Furthermore, the angel investors provided guidance and advice in building the operational structure. In return, they each received a third of the shares of the company: voting and dividend rights were evenly shared among Stephan and the investors. This gave the angels the majority of voting rights and the power to dismiss Stephan from the company. It is noteworthy here that Stephan had transferred his intellectual property (Stapelstein® concept and design) to the company, so owning shares in the company also meant controlling the concept itself.

After an initial phase in which financial resources as well as sweat, blood and tears had been invested, Stapelstein® was able to record its first profits in 2019. It became clear here for the first time that Stephan and Hannah, and the business angels, had differing views and visions for the future of Stapelstein®. While there was no question for Stephan and Hannah that profits would be reinvested to pursue Stapelstein®’s mission at this early stage, the business angels opted for dividend payments. With a combined two-thirds of the voting rights, they were able to outvote Stephan.

After this incident, Stephan and Hannah decided to try to regain control over Stapelstein®. Researching ways to regain autonomy of the organization, they stumbled upon steward-ownership in the media. The model was a legal framework for the type of company they had intuitively wanted to build.

Predictably, the co-owning business angels were not fond of transitioning their shares into a steward-ownership structure. As they were not actively involved in the company, they would have needed to transition their shares into financing instruments that ensured the repayment of their investment with a capped upside and without voting rights. Stephan and Hannah were not able to proceed with the business angels owning the majority of voting rights. Seemingly a dead end – and an incredibly tough and emotional situation for them.

To Stephan and Hannah, this was the moment when they realized the problem that the initially somewhat naively created ownership structure posed for them and the future of the company. Due to their initial investments, the business angels had controlling power over Stapelstein® without being at all involved in the operations of the company – and were no longer aligned with the founders’ values and vision. This was a huge challenge.

Up to this point, Stapelstein® managed to grow without further external financing. Its growth and success were based on self-generated profits. As Stapelstein® was highly profitable in 2019, Stephan and Hannah were able to buy out one of the business angels using financial resources from the company. The shares including dividend rights and voting rights were divided equally between Stephan and the remaining business angel. However, the second investor proved reluctant to sell and the financial resources were not sufficient yet. This is where the conflict really heated up. With a division of the voting right of 1:1 and the investor’s son established as CEO next to Stephan, Stephan and the investor had arrived in a stalemate. Many decisions were put on hold. A painful situation, particularly considering the high growth phase that Stapelstein® was in, with the share value – and thus the price for buying back the company – increasing every quarter. While Hannah and Stephan were continuously working for the purpose of Stapelstein®, they knew that everything great they were working for would be reflected in the shareholder value for the business angel.

 

The solution

While many investors offered their help, it became clear early that most would only provide financing in return for voting rights. But Stephan and Hannah were looking to regain control over the company due to their prior experiences and wanted to set up steward-ownership and an aligned financing structure.

After considering their options, Stephan and Hannah decided to collaborate with Purpose Ventures and Purpose Evergreen Capital, capital providers focused on investments in companies in steward-ownership. One condition included in the investment contracts was that Stapelstein® had to complete their transformation to a steward-owned company in the forthcoming months. After settling the terms and conditions of the investments, the financing deal was completed in 2022 using redeemable shares. With capital from the new investments (58%) and also with available profits (42%), the second business angel was finally bought out in 2022 – a giant success after long and delicate negotiations.

Photo: Stapelstein

 

 

Through these different share types and a fitting founder compensation, Stapelstein® created well-aligned financing structures. This is an essential, yet challenging step during the steward-ownership transition. Chapter 05 & 06 are all about finance and you can read the full case study of Stapelstein® steward-ownership.com/stapelstein.

The transition to steward-ownership was also an opportunity to reallocate voting rights. It was especially important to reflect Hannah’s vital role in the company through legal–decision making power.

Today, the steward-shares are divided between Stephan, who holds the majority of voting rights, Hannah, and a golden-share for securing the principles of steward-ownership with the Purpose Foundation. A strict catalog was established defining which decisions require the approval of both, Stephan and Hannah. These include financial, strategic and value-based decisions like the dissolution of the organization or election of CEOs.

 

The relief of success

The long-lasting conflict that Stephan and Hannah had to endure was worth it as they were able to reclaim the organization. They are back in full power and committed to make the best out of it! The path was long, bumpy and emotional, often pushing them to the edge of giving up Stapelstein®. Until the last angel investor was bought out, it was not clear whether they would ever be able to steer Stapelstein® into the future they envisioned for the company.

Stapelstein®’s case highlights the significance of ownership and finance from the beginning. Especially in the context of early-stage financing, entrepreneurs need to consider the effects on power distribution early on. Nevertheless, the case also demonstrates that opportunities to reclaim autonomy and regain control over a business exist.