Starting or growing a purpose-led business takes money. If you need more than you have, you could consider getting an investment. Investment is someone giving money to a business in return for profit. Find out how to decide on investment.
Businesses sometimes need investment to get started or grow. For example, you may need investment to buy more equipment or upgrade what you have, to buy a van to deliver goods or reach customers or to start another office. If your business simply isn’t doing well, that’s not a good reason to get investment. Investment can help start or grow your business, which means growing the positive outcomes your business creates.
Getting investment is a big move because you may give up some control of your business and possibly change how your business operates. And if you decide investment is right for you, the people you approach about it will ask lots of important questions.
These steps will help you think about investment:
People normally invest in a business to make a profit. But when someone invests in a business that makes a difference, they usually want to help society or the environment too. We call this type of investment an ‘impact investment’.
Often businesses get money to reach their goals by getting shareholders.
Selling a share of your business means giving away some of your business in exchange for money. This makes the buyer a shareholder. How many shareholders you have and how much of your business you give away is up to you.
Shareholders may want a say on how things work, but how much say they have depends on the size of their share. If they own more than half the company, they can tell you what to do. The more they own, the more say they have.
You’ll need to get your company valued before you sell a share, and shareholders will want you to increase that value.
Shareholders can offer other benefits too. For example, you may have access to their expertise. You may be able to tap into their network when you need help, eg with marketing. Or you may be able to discuss tricky decisions with them.
Jackson Rowland, Director, Invest, at Ākina Foundation
Investors who may become shareholders will probably be excited about your mission but they might also have their own ideas about it. You may need to protect your mission in a shareholders agreement so that they can't change your focus or priorities.
Your mission is closely related to your overall purpose, the key social or environmental problem you want to help solve. For example, if your purpose is to enrich the lives of people with learning disabilities, your mission could be to help them find jobs they want.
You’ll want to protect your mission before you allow anyone else to invest in your business. Protecting your mission (sometimes called ‘mission lock’) is important because your mission:
Try one or more of the following ways of using your shareholders’ agreement to lock in your mission.
Your mission statement is a sentence or two that summarises your mission. For example, ‘Our mission is to provide meaningful work for people with learning disabilities. We’ll provide the training and support necessary to help our staff build skills, self-esteem and confidence.’
You could include a short section (clause) that says everything about your business must help achieve your mission statement. For example, ‘We will only engage in business or activity that supports our mission.’
You could include a section that says strategic plans, business plans, or both, must help achieve your mission. You could even specify that a certain percentage of shareholders must approve them (eg more than 50%).
You could include a section that sets out how your business will tell shareholders if it’s meeting its mission. You could specify how often to report and what measures to include.
You could even specify that these reporting measures are part of the leadership team’s key performance indicators (goals).
You could include a section to say what happens to business assets. For example, you could say the business must keep a certain proportion of profits in the business to meet the mission instead of paying them to shareholders. You could also specify what happens to the assets, eg the business must reinvest in a certain activity.
You could include a section to specify what any existing shareholders think about before they agree to take on a new shareholder. For example, you could say they must consider if the new person supports the mission. If the person does not, you could allow your existing shareholders to stop them from becoming a shareholder.
You could include a section that says shareholders can force another shareholder to sell their shares if they’re doing something that harms your mission. You might specify what percentage of shareholders would have to agree before a forced sale happens.
You could include a section to protect all the other sections that protect your mission. This clause could say that shareholders must carefully consider any changes to the shareholders’ agreement. Businesses usually need more shareholders to agree to such changes than to general decisions, eg at least 75% or even 100% of shareholders must agree.
The best way to protect your mission is to find investors who agree with it.
Mohammed’s purpose-led business runs workshops to help people get jobs. His empathetic, inclusive approach and sound advice have made his workshops hugely successful. He’s delighted he can help so many people and would like to expand his Auckland business into Wellington. But to do that, he requires money to hire more staff and rent an office.
He’s asking his long-time friends Pita and Chloe if they want to be shareholders in his business. He knows they will invest because they support his mission. So he’s confident this meets the first rule of protecting your mission: find investors who support your mission.
Still, his accountant suggests he includes a few protections in the shareholders’ agreement, because that’s best practice. He goes through his accountant’s suggestions.
Put your mission statement first. Mohammed refers to his mission statement, "We will improve people’s wellbeing, health and dignity by helping them find jobs."
Commit to your mission statement. He writes, "All operational and ownership arrangements must help us achieve our mission statement. We will not take part in activities outside the scope of our mission statement."
Make sure plans help achieve your mission. He writes, "Shareholders who together have a total amount of shares over 50%, must approve strategic and business plans."
Ask for reports. He intends to keep Pita and Chloe fully informed anyway, so this is easy. He writes, "The business must provide quarterly reports to shareholders. As a minimum, reports must:
Protect assets. Because the only assets are their computers, Mohammed does not think this applies.
Mohammed looks over the other suggestions: specify who can invest, decide if someone must sell, and protect your protection clauses. He does not think he needs to worry about these points because he will keep 60% of the company. Also, he knows Pita and Chloe very well. But to be safe, he will ask his accountant if he can ignore those points.