Yvon Chouinard, the 83-year-old founder of outdoor apparel company Patagonia, which is valued at $3 billion, recently decided to continue his mission to save the planet. transferred all shares of the company to a newly formed trust and non-profit organization.
Chouinard writes:
“We are not going public. We are going purpose. We will use the wealth that is created to protect the source of all wealth.”
Patagonia, which is certified as a B Corp, has already donated 1% of its profits. However, this time, in order to contribute to the fight against climate change, he has decided to sell all of his shares in the company to the non-profit environmental organization Holdfast Collective and other organizations, and to donate the profits that are not reinvested in the company to the collective. did.
Bloomberg reports that the decision would eliminate Chouinard’s tax burden, which could have reached $700 million.
Entrepreneurs will undoubtedly be inspired by Chouinard’s decision to let go of the stock. But following in Patagonia’s footsteps is no easy task.
So Insider spoke to eight investors about why it’s hard for VC-backed startups to replicate the Patagonia model, and what they can do otherwise.
Uncomfortable territory for VCs
Felix Capital’s Frederic Court sees Patagonia’s decision as an exciting one that is clearly “in line with the ethos that the brand stands for.”
But he also said the move would challenge the current VC model, making it impractical for VC-backed startups. A VC’s primary responsibility is to use other people’s money to help entrepreneurs, thereby generating returns for investors.
As Arne Morteani, founding partner at Kiko Ventures, points out, investors always ask how to exit.
“In the past, the founders were looking for something similar[with Patagonia]and investors eventually pulled out of the deal,” Morteani said.
World Fund founding partner Danijel Višević commented, “There are very few, if not zero, companies where these decisions make sense.” leak.
VCs are also considering alternatives
The VC model has its limitations, but VCs are also exploring alternatives.
Morteani, mentioned earlier, cites European examples such as Bosch, which sold 95% of its company to the Robert Bosch Foundation, and Ecosia, which also turned to steward-ownership in 2018. rice field.
Ecosia operates a unique search engine that plants a tree for every search. Founder Christian Kroll has promised never to sell the company or make a profit since it was founded in 2009.
With funding from the World Fund’s Tim Schumacher, who subscribed to that ambition, Ecosia turned the corporate entity into a non-profit organization.
Nazo Moosa, managing partner of European growth funds at Energy Impact Partners (EIP), says that if entrepreneurs want to steer money in a climate-friendly direction, they should make structural changes. There is also a way to add
“There are also ways to distribute stock options on one side of the spectrum, or set aside certain stocks for some social cause,” says Musa.
LocalGlobe’s Suzanne Ashman recommends getting a B Corp for startups.
“If you’re a founder-owned, highly profitable company like Patagonia, one option is to become a non-profit organization. Alternatively, you could become a B Corp, or partner with a VC with a similar philosophy. Uka” (Ashman)
William McQuillan, a partner at Frontline, says change can come from a different perspective. It’s hard for VCs to imitate Patagonia, but instead they should look more aggressively at websites in the non-profit sector.
VCs also have the option of raising money from charities and universities, says McKillan. Such VCs are still in the minority in America, but they can reap big financial returns towards the same goal-oriented cause.
If you want to go non-commercial, do it early
Ecosia’s Kroll (now a venture partner at The World Fund) says there’s a hybrid path if you’re looking to eventually go non-commercial. Investors provide capital, get a return, return control to the founders, and transform it into a steward-owned company.
“With this type of investment, you have to agree upfront on what terms you want to buy the initial investment,” Kroll said.
In other words, the founders have to decide very early on what they want to do with the business.
“It’s not something you can decide after the fact,” Kroll says.
PactVC founding partner Tong Gu also emphasizes the importance of charting a path for startups to achieve their goals in the early stages.
“It’s important to have a strong value system in place at the early stage, not as an afterthought.”
[Original: Patagonia’s charitable change will inspire founders. We spoke to 8 VCs about how startups can create their own climate change legacy.]
(Edited by Ayuko Tokiwa)
Source: BusinessInsider
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