Startup Life/Opinion/ Making an impact before profit: how to ditch the VC rat race and become a steward-owned, mission-driven company Christian Kroll, founder of Ecosia, shares his insight on becoming a mission-driven company that prioritises impact over profit Image: Tree planting in Brazil © Ecosia Image: Tree planting in Brazil © Ecosia \Startup Life Which SaaS products are getting cut? By Tim Smith 22 February 2023 Startup Life/Opinion/ Making an impact before profit: how to ditch the VC rat race and become a steward-owned, mission-driven company Christian Kroll, founder of Ecosia, shares his insight on becoming a mission-driven company that prioritises impact over profit By Christian Kroll Wednesday 12 October 2022 By Christian Kroll Wednesday 12 October 2022 Patagonia might have long been the uniform of venture capitalists and startup founders alike, but the outdoor clothing company received a big cheer from the European climate tech community earlier this month when founder Yvon Chouinard announced he was handing ownership of the $3bn company to a trust and non-profit in order to channel its profits into fighting the climate crisis. It’s fantastic news to see an established and successful company like Patagonia make such a binding decision to put the planet before profit and reinforce the business case for a purpose-driven economy. We have made a similar commitment to impact at Ecosia, putting 100% of our advertising profits from search towards solving the climate crisis. Here’s how we did it, and what you might need to consider before becoming a steward-owned company as well. Put your cards on the table early From the start, I decided that Ecosia would be a business that was focused on solving the climate crisis, not creating billions of euros in profits or making myself a billionaire. It helped that we didn’t take on any VC investment when the company was founded in 2009 so we didn’t have any obligations to external investors. This was still the case a few years later when business angel Tim Schumacher came on board as our first and only investor. I was clear with him from our first conversation that Ecosia wasn’t aiming to maximise shareholder value or go for an exit — instead, we were going to plant and protect trees around the world to combat the climate crisis. When it came to becoming a steward-owned business, it was a lot easier to make the legal transition because we had the backing and support of Tim. If he had blocked it, we might not have been able to buy him out and it would have prevented us from committing to our mission. Unlike standard businesses which are owned by shareholders, steward-owned businesses can’t be bought and they can’t pay dividends. Often they can be owned by a third party that is committed to achieving a specific purpose, usually a trust or foundation, that ensures that they exist to serve this purpose and ensure that wealth cannot be extracted from them. But that doesn’t mean that all investors would hate this decision from a portfolio company. For instance, Tim had other for-profit companies in his portfolio and he believed in our mission. Angel investors and ESG-focused investors would also likely be more open to investing in a company with this kind of aim. It’s all about having those conversations and being clear from the start. Be aware of the cost Making the transition to being steward-owned isn’t like going through a fundraising process. There isn’t a definite playbook out there and it was an expensive and time-consuming endeavour with much time spent with lawyers to find an ownership model that would suit the business and our mission. It was only when an employee suggested that we work with the Purpose Foundation, a part-consultancy, part-advisory group that helps businesses become steward-owned, that we found the right path. The critical missing piece here is that regulators now need to get on board and help foster economies that prioritise the success of impact — be it climate change, social justice or any other mission-driven business model. Businesses have to craft an extremely complicated legal and tax structure, which is why organisations like the Purpose Foundation (which is itself a steward-owned organisation) exist to support this transition. In Germany, there are an estimated 300 steward-owned businesses, yet the numbers are much larger in Denmark, where these businesses employ up to 5 per cent of all private sector employees and make up more than 50% of private investment in R&D. The market cap of all foundation-owned businesses combined in Denmark accounts for about 70% of the total capitalisation of the Copenhagen Stock Exchange (CSE). If transitioning to steward ownership was simple and more accessible, like in Denmark, there would be more momentum to adapt to this model. This is why more than a thousand entrepreneurs are calling for a new legal form in Germany, a so-called “Gesellschaft mit gebundenem Vermögen” (company with tied assets). The new federal government has promised to implement such a legal form. Fighting your own demons Unsurprisingly, our employees were really excited about the decision to ensure that Ecosia couldn’t be sold and no profits could be taken out of the business. Being a steward-owned company helped them to feel more control and pride over the business. Research gathered by the Purpose Foundation backs this up; steward-owned companies report higher employee satisfaction, employee loyalty and environmental standards. As a founder, however, I had to think hard internally about what this meant for me. I had to push back against that little voice telling me that I needed a big yacht and a fancy car. Instead, I realised that what I wanted was to be able to pay my rent and go out for dinner every once in a while, not fly to space and cause thousands of tonnes of carbon dioxide emissions. It’s not easy to go against what is deemed as “success” in society but I believe that businesses that are truly impact-driven will be the driving force toward a regenerative future. Purpose-driven is a spectrum There is no one-size-fits-all structure and not every business can make the transition to being 100% steward-owned. If you’re a high-risk startup, you will need to raise funding to invest in growing the company. But as the groundswell picks up and we come to consider different ways of building businesses, we hope more founders take the plunge. Research has found that foundation-owned companies perform better, survive longer and treat their employees better. We’re actively lobbying the German government to make it easier for businesses to become steward-owned. Instead of focusing solely on maximising shareholder value, we need to champion new models for business. I believe success should be measured by the positive impact a company has on the planet and people, something which has already been proven to be not just a financially viable way to run a business but also the only way to future-proof our societies. Christian Kroll is founder and CEO at Ecosia. 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