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a better monday | Investor Memorandum
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1
How is the investment structured for LPs in a better monday?
We are adopting an agile approach for a better monday and will have prepared the business to be run as either a Limited Liability Company, or an Regenerative Fund Model.
Direct Model - via Limited Liability Company
Would be a direct investment vehicle. It would develop the relevant software, IP and make the acquisitions into the target companies and hold the equity until it is transferred to employees. A proportion of the profits will be held to reinvest into additional social impact.
Liquidity - we would have a ~10 year hold period and then distribute excess profits annually
Pros - lower establishment, regulatory compliance and management costs.
Cons - additional complexity in pursuing a localised social impact, which may be required by some investors
Regional Fund Model - via Regenerative fund
There would be 3 vehicles as part of this structure
Platform Co. would develop the relevant software, IP and deliver software and shared services directly to the aligned companies. This company would require an initial investment to fund the development and would provide liquidity in a similar manner to the Direct Model
General Partner Co. would be domiciled within the focus region and would manage the acquisition and transition activities.
Regenerative Fund. would invest in the aligned companies for the regions
Liquidity - we would have a TBD hold period and then distribute excess profits annually, less fund expenses. There are several mechanisms available to define fund cost structure and distribution mechanisms, that can impact the social and financial impact, which would be defined in parallel with the Anchor Investor
Pros - Easily scale to multiple funds & geos, aligns IP/software to a regional licensing model
Cons - Higher establishment, regulatory and compliance overhead,
The first principles we will use to inform our conversations with our Anchor Investors
The first principles to guide our ideal vehicle conversations
Investor
Liquidity
11/26/2024
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2
How does the process of transferring ownership to employees work over ten years?
At closing, retiring business owners retain 10-15% equity in the new business, while employees receive an initial 30% equity that vests over 3-4 years.
Each year, profits generated by the business are used to buy back more equity from the holding company, progressively increasing employee ownership. This process is managed through internal capital accounts to provide liquidity for employee-owners as they transition into ownership roles.
Employee ownership
Acquisition
11/26/2024
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3
What criteria do you use when selecting businesses to acquire for the employee ownership model?
We target small to medium-sized businesses with;
Acquisition
Transition
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11/26/2024
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4
How are returns generated for LPs in this investment model?
Returns for LPs are generated through five primary mechanisms:
Investor
Business model
11/26/2024
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5
5. How does employee ownership impact productivity and retention in the businesses acquired?
Employee-owned businesses typically outperform their peers by 8-9% and see a 4% increase in productivity in the first year of transitioning to employee ownership.
These businesses also have a 25% higher survival rate during economic downturns due to increased innovation and flexibility.
Furthermore, employees in these companies earn up to 33% more and have greater retirement savings compared to their counterparts in non-employee-owned businesses.
Employee ownership
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6
How do you measure social impact, and what specific metrics do you use?
Our social impact goals are twofold:
This will be extended by conducting longitudinal studies to compare wage growth within employee-owned businesses to industry peers over time.
Social impact
9/10/2024
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7
7. How does this investment model preserve the legacy of the retiring founders?
The employee ownership model ensures continuity with employees, suppliers, and community ties, which are often integral to the retiring owners' vision and legacy.
By asking retiring owners to roll over 10-15% of their equity into the new business, they remain involved during the transition period, supporting the preservation of their business culture and values.
This approach helps maintain stability and continuity, creating a positive impact on the community and ensuring that the business remains locally anchored.
Transition
Acquisition
11/26/2024
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8
How do you manage the volatility risk associated with investing in small businesses?
Small businesses can be volatile and more susceptible to economic downturns due to their lack of scale. To manage this risk, we employ a diversification strategy by acquiring a broad range of small businesses across various industries.
The investments will also be from a broad range of industries and customer sets that means that these acqusitions are not correlated
This diversified and non-correlated approach helps spread the risk for the fund, ensuring that if some businesses face financial challenges, others with stronger performance can balance the overall portfolio performance, providing stability and reducing overall risk exposure.
We aim to mitigate any risk in a number of areas;
Business model
11/26/2024
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9
What if employees do not fully engage with the new employee ownership model?
Prior experience of implementing Employee Owned organisations is that if the main barrier for employees in becoming owners is a lack of understanding regarding the model.
For the initial year or vesting, the employees won’t be explicitly on the cap table, but will have phantom equity, as we educate them on what ownership means for them and the business. After the first year we will be transitioning everyone into owners within the share holders agreement. Those who still do not want to commit to the new structure will be terminated with a full years notice period.
The success of the employee ownership model depends heavily on employee engagement and buy-in. Research has demonstrated that successful employee owned companies leverage these 3 elements;
We will developing software and IP to support these principles and implement them via our Transparent Operating Model (ToM).
This will need to be localised for specific markets and customised for each company. This is a core objective of the management services we will be providing to the acquired companies
Employee ownership
Transition
11/26/2024
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10
How do you ensure a smooth management succession during the transition to employee ownership?
Management succession can pose challenges if existing managers or potential leaders are not well-prepared for their new roles.
To ensure a smooth transition, we identify potential leaders early in the acquisition process and provide comprehensive training and support. This approach helps to build a capable management team ready to lead and maintain business continuity.
For those companies without an identified leader we could install a General Manager as part of our transition
As part of our model, these leaders get a higher proportion of the business, to reward the extra responsiblity and accountability that comes with the roles.
Below is an example capital table at the time of acquisition;
Employee ownership
Transition
11/26/2024
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11
How do you handle the risks posed by economic downturns or market-specific challenges?
Economic downturns and sector-specific challenges can impact the financial performance of portfolio companies. We mitigate this risk by maintaining a diversified and non-correlated portfolio across multiple industries, reducing exposure to sector-specific downturns.
Additionally, we apply conservative financial management practices, such as maintaining sufficient reserves and prudent leverage, to help the portfolio weather economic fluctuations.
Business model
11/26/2024
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12
What if the debt financing used for acquisitions becomes a burden due to underperforming businesses?
The acquisition model involves a level of debt financing, which could pose risks if acquired businesses underperform. To mitigate this, we work with the company to carefully balance debt and equity to maintain a healthy financial structure.
Our deal structure calls for Senior Debt from local banking institutions and subordinated mezzanine debt.
We will be pursuing 2 sources of mezzanine debt;
In both cases we aim to establish terms between the aligned company and debt provider that deliver returns for investors while giving flexibility for the aligned companies, ensuring they have the best environment for survival.
We stress-test our financial models under various scenarios to anticipate potential challenges and keep leverage ratios conservative to avoid over-leverage and ensure sustainable growth.
Business model
11/26/2024
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13
How do you address potential cultural integration challenges when transitioning to an employee-owned model?
Integrating diverse company cultures can be challenging, especially when transitioning to an employee-owned model. To address this, our Transparent Operating Model (ToM) will be localised within each geography and then customised for each company.
An example of some elements of the ToM will be to establish clear goals and objectives, emphasize clear communication of a shared vision and establish strong governance structures to guide integration.
We also encourage regular team-building activities and open dialogue to bridge cultural differences, creating a unified and engaged workforce.
Employee ownership
11/26/2024
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14
How do you plan to ensure deal flow ?
For the past 20 years we have been implementing dorect outreach tactics for B2B companies, enabling them to educate, engage and convert opportunities within their customer base. The processes we have implemented for the fastest growing SaaS companies will be the cornerstone for our process that will be technology enabled and optimised to achieve scale with our deal flow activities
Favourable global demographics. Statistically there is not enough supply of acquirers to meet the demand of the retiring owners who are looking to exit their business
Non-restrictive search profile. With a different return expectations and timelines, our requirements for a company to require aren’t as restrictive as traditional Private Equity, Search Funds or Holding Company builders, supporting our thesis that there are more companies for sale at a reasonable evaluation
Broker lead conversations. Brokers are playing an ever increasing role in listing companies for retiring owners. Local governments are leaning on broker marketplaces to advertise companies for sale. Brokers also educate the seller, managing expectations and supporting the process
Community engaged. There is an active community of country, regional and local government services who are tasked with addressing the Silver Tsunami by educating and providing services for retiring owners
Direct outreach. We have tested direct outreach to owners, via email and direct mail. We have achieved ~5% conversion of outreach to owner conversations
Social awareness. Our aim is to generate global demand through our podcast and social media activity, engaging our target audience directly will create awareness and top of funnel demand, which will be progressed through our acquisition funnel with content.
Search
Acquisition
11/26/2024
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15
How are you going to scale your due diligence activities?
Our aim is to streamline the process by deploying a simple & transparent valuation process, easy to understand documentation and operate with speed and communication to transact quickly and respectfully,
We have been inspired by companies like Tiny.capital, Teamshares and others who have created scalable due diligence and valuation platforms that are aligned to their target companies and their available information.
The nature of the companies we are aiming to acquire and our business model, means that we our acquisitions carry a different risk profile compared to traditional private equity firm of hold co. Our investments;
We aim to develop a proprietary platform based on our Value Assessment Methodology that can quickly assess a company with 35 points across a few key areas.
here is an output from the Transparent Operating Model (ToM) that we would continue to optimise over time
Example output from a review of an existing company
Acquisition
11/26/2024
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16
How do you finance each transaction?
We aim to use leverage to maximise our social impact and returns for investors.
Below you can see an example Sources and Uses for an indicative sale, where the sources come from a few areas;
Acquisition
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17
Who do you see as potential investors for the future rounds
We aim to deliver a social impact with PE style investor returns, albeit on a slightly longer time horizon.
Whether we pursue the fund or direct model, our profile will appeal to impact investors across a spectrum of Hig Net Worth Individuals, Family Offices, Corporates and Institutional investors
The type of impact we deliver - fairer redistribution of capital, increased earnings, stronger comunity and civic engagement - are felt locally and are more appealing for locally focused investors.
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18
What role does technology and AI play in the financial and social impact
There are many opportunities to optimise the proven practices of M&A and Employee Ownership transition and enabling the companies to thrive in an employee owned environment.
To do that we need to become a technology first social impact enterprise.
Even though a large proportion of the capital we raise will go towards acquiring companies we aim to build an AI enabled technology platform to help us to scale our impact efficiently.
Technology/AI
11/28/2024
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19
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