Choose Conscious Investors or Risk Losing Your Dream

By Melanie Wright

It’s a tough decision. You are an entrepreneur or a seasoned business leader. You are running a successful business or a startup with great potential, and you are passionate about having your business serve a purpose beyond profit. But now you are at the point where you need investors to fuel growth. Or maybe you’ve been presented with a buyout offer for your purpose-driven company. What do you do?

John Mackey, co-founder and CEO of Whole Foods Market, warns: “Evaluate your investors very carefully. If you don’t choose the right investors and or partners, there will be a steep price to pay. Your dream and your company can be shattered.”

Mackey's advice is clear: Find investors who align with your values and your company’s culture or risk watching your dream being taken away from you.

Encouraging more consciousness in corporate finance

This was just some of the pointed advice shared at the annual Conscious Capitalism spring conference (CC2017) held in Philadelphia from April 18 to 20, where more than 350 attendees from the U.S. and abroad came to learn valuable lessons on how to deepen their practical application of the principles of conscious capitalism.

Through more than a dozen keynotes, intimate talks and practicums, participants learned that it’s not enough to just be a passionate supporter of elevating humanity through business. The conference emphasized the need to value and appreciate environmental and societal stakeholders, as well as customers, employees, vendors, shareholders and investors.

Kicking off the second day of CC2017, Tom Gardner, co-founder and CEO of the Motley Fool, moderated a panel discussion covering some of the financial implications of conscious capitalism. Mackey and Kip Tindell, ‎co-founder and chairman of the Container Store, offered their thoughts. During the session, the business leaders provided insights on what it takes to develop conscious capitalism at a new or existing business and spotlighted some of the challenges of this evolving territory.

Tindell acknowledged that all companies face tough times, citing his own working for two years without pay to help develop the concept for the Container Store. Eventually, he noted, the decision to secure investors becomes not an option but a necessity for a company’s growth and or survival. But he, too, warned about the ease of being lured by an influx of cash.

“Every company has setbacks and even well established companies often see their stock price drop as much as 50 percent several times over a 10-year period,” Tindell said. The underlying message? Investors alone can’t make or save a company.

Throughout the conference, many of the conference attendees expressed concern regarding the difficulty in securing investors of any type. Furthermore, if successful, the trade-off often means losing some control and the ability to stick to your purpose. They questioned whether it was more important to secure capital or retain full control of your company.

Financing lessons from leading conscious capitalists

Here are three Conscious Capitalism conference takeaways regarding the importance of finding the right investors for your business:

1. Capital can come with strings attached: “VCs are like hitchhikers on the highway with a credit card. As long as you are getting them where they want to go, they will help pay for the gas,” Mackey said. “But if you aren’t’ going where they want to go, they can hijack your car, throw you out and hire a new driver.”

One way to choose the correct investor is to have a strategy. Apply the same review processes that you use to select your board of directors and advisory board members. Find people who you can trust, with similar values and who understand and align with your purpose driven company. Try to retain as much control as possible and look for alternative ways to raise needed capital.

2. Seek long-term capital partners: “The ideal investor source is like having a rich uncle or relative,” Tindell explained. “They will help to develop you as an entrepreneur and provide advice in addition to capital, and they aren’t looking for a fast return on their investment.”

Make sure that you review and understand all investor contracts before signing. Pay particular attention to standardized clauses with liquidity demands, and capital funds with fixed time horizons with outcome five to eight years out. Make sure the investor is not looking for a quick return and will provide long-term capital, preferably for 10 years or longer. And provide investors with a good exit strategy. Investors have different attitudes and objectives about outcomes.

3. Stick to your purpose: When asked to give examples of making a hard decision to stick to their purpose, Mackey referred to the current news headlines about activist shareholders pressing the Whole Foods Board for a potential sale of the company or a merger or an alliance with another company.

While Mackey was not able to elaborate due to the confidential nature of the shareholder activity, the panel pointed to another speaker at this year’s conference, Dansko Footwear founder and CEO Mandy Cabot, who turned down a $100 million offer from Timberland and sold the company to her employees instead. Though Cabot initially accepted the Timberland offer, she and her board pulled out of the deal after fully considering how it would impact one of her company's most critical stakeholders, opting instead to create an employee stock ownership program (ESOP), in which the very people who helped Dansko become successful could share in that success.

Cabot held on to her conscious capitalism dream, and so can you.

Image Credit: Conscious Capitalism, Inc.

Melanie Wright is the Director of the PR Institute of Philadelphia, a communications professional development program, currently working with The Sustainable Business Network of Greater Philadelphia (SBN,) a nonprofit network of local triple-bottom-line businesses and social entrepreneurs. She also directs strategic communications at Ainsworth Communications. Where she provides brand strategy and stewardship, Corporate Social Responsibility (CSR) and crisis and issues management services to corporations, non-profits and individuals.