Explore

Corporate Vehicle for Impact Investment

As we are embarking on an innovative social impact venture, a key challenge is structuring an investment vehicle that meets the expectations of impact investors while providing the flexibility to achieve our mission.

To explore the most viable options, I’ve outlined potential structures for validation with investors:

Deal structure & Business Model

Our model involves acquiring companies using a mix of equity, senior debt, and mezzanine debt, with ownership transferred to employees over 10-15 years.

Key elements of the capital structure include:

Senior Debt: Secured through regional/local institutions based on the company's balance sheet strength.

Mezzanine Debt: Sourced through:

A dedicated mezzanine debt fund raised by A Better Monday.

Seller financing agreements.

Private debt markets on a deal-by-deal basis.

Here you can see a typical deal structure;

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Our business model monetizes this journey in 4 ways;

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Single Company Model

This example illustrates the cash flow generated by a single company. Our model provides liquidity throughout the ownership journey, offering a clear exit strategy to return capital to investors while delivering significant profits for reinvestment.

Management Fee: Collected while our ownership stake exceeds 50%.

Equity Buyback: Employee ownership is progressively facilitated by repurchasing our equity using the company’s profits.

Profit Sharing: Distribution of profits based on our ownership share when cash flow permits.

Software Deployment: Implementation of a system to support the employee ownership structure.

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Single company example

Single company example

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20 year vision

Our model drives significant cash flow over time, but requires substantial upfront investment to establish a scalable acquisition and transition platform. Ongoing management fees will support platform development and human capital needed for scaling.

Patient capital is essential to facilitate early acquisitions, platform buildout, and the subsequent delivery of returns.

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20 year vision

20 year vision

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Company Structure

We are evaluating multiple structures to ensure flexibility, legal compliance, and investor appeal.

The following first principles guide our decision-making:

The first principles to guide our company structure

Align with our mission of creating 10,000 employee owners.

Provide investors with confidence and security.

Legally enables a better monday and our investors to pursue the mission

Flexible to adopt to a country, regional or global approach to delivering impact

a better monday should be able to convert to an employee owned model over time

Here are the options we are exploring and will seek to validate with impact investors

1. Equity Investment into Limited Company | Growth equity, staged approach

Overview: We seek staged growth equity funding to recapitalize a better monday's ownership structure as needed.

The focus on this model would be to validate the model. We would be looking for a 4m investments at 18m post valuation. This would enable us to;

Acquire 3-4 cash flowing companies

Hire a founding team with 3-4 years run way

Develop the acquisition and Transparent Operating Model (ToM) platforms

Returns: Investors would receive preferred equity, with capital returned first and a hurdle rate before distributions to a better monday. Excess capital post-milestones will be reinvested in the mission.

Management costs and platform development: We would need to raise sufficient capital to establish our initial operations and build the platform, then make enough acquisitions to validate the model and then continue to reinvest

Mezzanine Debt: Any Mezzanine fund would be raised and managed in a typical PE structure, with the equity company providing the management services for the GP. To pursue this model, we would need to be relying on seller finance as the key source of secondary debt or investing a larger equity stake in the business

Questions

What is the minimum viable investment round?

How can we expand the IP across markets?

How can we manage multi-regional investments?

Can we establish a call option for unallocated capital, similar to an LPA in a GP fund?

Is there liability protection if a company underperforms?

Visualisation

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2. Equity investment info a Limited Company | with fund like capital calls

Overview: This approach involves securing all the funds needed to build our platform and finance acquisitions. Capital for platform creation and operating expenses would be released immediately, while committed capital would be called per acquisition in a blind pool.

Returns: Investors would hold preferred equity, with capital returned first and a hurdle rate before distributions to the company. Once certain distribution milestones are met, annual surplus capital will be reinvested in the mission.

Management costs and platform development: A predetermined management fee would be allocated to support platform development and operational costs. These costs can be managed within certain ranges of company revenue and assets under management (AUM).

Mezzanine Debt: Any mezzanine fund would be raised and managed in a typical private equity (PE) structure, with management services provided by the equity company.

Questions

Can we apply a GP-like Limited Partnership Agreement (LPA) to a typical limited liability company?

It is possible. Limited partners could receive distributions without triggering a taxable event, though specific conditions apply.

Via a limited structure, capital gains may be taxed at 20%.

Is there liability protection if a company underperforms?

3. Establish an evergreen fund with a Mezzanine fund side car

Overview: Raise a blind pool of capital into an evergreen fund to manage the building of the platform and acquisitions. Once the fund pays the management fee, it will re-invest a max of 10m of additional equity per year, it will then offer distributions to the LPs on an annual basis

Returns: Investors would hold preferred equity, which would return their capital, including a hurdle prior to distributions to a better monday. An impact-focused profit reinvestment strategy will be implemented to ensure that once certain distribution milestones are hit, annual surplus capital will be reinvested in the mission.

Management costs and platform development: The typical 2:20 PE model won’t work within our approach as we require longer time horizons and a significant upfront investment to build the platform. A predetermined management fee would need to be allocated, supporting platform development and operational costs. These costs can be managed within certain ranges of a better monday’s revenue and AUM or companies acquired.

Models we are exploring;

Management fees for the fund are aligned with our costs and we can generate returns on the carry, software margins, service margins and leverage this across multiple funds

AUM

Mezzanine Debt: A mezzanine fund would be raised and managed in a typical PE structure, with the GP of the evergreen and mezzanine funds engaging management to run operations.

Questions

What are the standard evergreen fund models? It doesn’t appear there is a standard.

Is there liability protection if a company fails?

How do we effectively manage the potential for investor fatigue in the long-term capital deployment?

What strategies can we implement to ensure effective deployment of capital to suitable companies?

How can we balance significant upfront investment needs with minimizing risk to investors?

Visualisation

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Preferred Option

At the moment I feel the Evergreen Fund with a Mezzanine Fund Sidecar is the preferred model for a better monday.

It aligns well with the our long-term goals of sustainable capital deployment and employee ownership while providing stability and appealing to impact-focused investors.

This structure provides flexibility and a vehicle that can consistently reinvest into the mission and the scalability needed for lasting impact.

Single Company Model

20 year vision

Company Structure

The first principles to guide our company structure

1. Equity Investment into Limited Company | Growth equity, staged approach

2. Equity investment info a Limited Company | with fund like capital calls

3. Establish an evergreen fund with a Mezzanine fund side car

Preferred Option

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