Case Study: Purpose and Organically Grown Company
Location: USA (OGC) and global (Purpose)
Investment type: Impact and institutional capital
Purpose is an international network supporting businesses and entrepreneurs on their path toward steward-ownership.
Purpose has worked with more than 100 companies and activated 250 million euros of investment to date across the European Union, North America and Latin America . The legal implementation of steward-ownership varies and depends on the jurisdiction and type of the company itself, but always incorporates the two principles:
- Self-governance: Control remains inside the company. Voting shares can no longer be bought or sold for profits.
- Purpose orientation: A capital lock ensures that the value and profits of the organisation serve the purpose of the company. Shareholders do not have unlimited access to the value of the company. Profits are a means to an end and not an end in themselves.
Shareholder value maximisation is no longer the main driver of company behaviour - fundamentally Steward Ownership works to structurally embed purpose as the driver of decision-making in companies, over profit. It is a business structure a range of companies and businesses have proven viable, including Patagonia, Bosch, Mozilla and Signal.
In conventional businesses and investments, the deployment of capital is usually linked to control rights or liquidity in that business but Steward Owned businesses need finance that keeps control and decision-making in the hands of the stewards, not the investors.
An example of this is Organically Grown Company (OGC), one of the largest independent organic produce distributors in the USA, founded in 1978.
The company transitioned to Steward Ownership in 2017 and Purpose worked with the OGC team and others, including RSF Social Finance, to develop an investment model that supported this transition and provided a responsible exit to founding owners and employees.
The investment raise was structured as follows:
- OGC's Steward Ownership structure meant all their 'voting stock' needed to be kept and held in the trust -so the team designed non-voting stock for investors to purchase.
- OGC wanted to attract institutional investors, so in order to make the shares look more like equity they designed an Upside Dividend and Cashflow Waterfall structure.
- OGC worked with prospective investors to design this structure so investors could understand and be comfortable with the decision- making of the company they were investing in, in which they had no voting rights.
- The Upside Dividend means that if OGC does well, this benefit will flow onto its investors and stakeholders (employees, suppliers, customers, community partners), in line with OGC's values and the recognition that all of these groups, not just the investors, provide valuable inputs and so all should share in the success of the company.
After laying all this groundwork, OGC successfully completed an $11 million Series A fundraising, allowing the company to transition to 100% perpetual trust ownership. In 2019, which was the first full year governed by the Cash Flow Waterfall, $406,000 was returned to stakeholders as part of the Upside Dividend.
https://purpose-economy.org/en/
This case study is an extract from Regenerating Investment in Food and Farming: A Roadmap.