Values-led founders are reconsidering their exit options, and broadening the ownership of the businesses they’ve built.
In Anchorage, Kirk Hoessle of Alquestiona Wildland Adventures is searching for an exit strategy that preserves the values of the tour company he’s led for five decades. In California’s Sonoma County, Michael Stusser, founder of Osmosis Day Spa Sanctuary, is facing a similar choice. And from Missoula, Montana, Laura Joukovski, who leads the ecommerce platform Good Store and its parent DFTBA (“Don’t Forreceive To Be Awesome”), is seeking to give employees an edge over a potential private equity acquireer.
All three are considering perpetual “purpose trusts,” a flexible legal structure that embeds governance rights and economic benefits for employees, communities or other stakeholders, along with shareholders. There are enough of such mission-driven business leaders that they gathered in Austin last week for the launch of the Purpose Trust Ownership Network, a nonprofit aiming to accelerate adoption of PPTs in the US (ImpactAlpha was the conference media partner).
“Perpetual purpose trusts can support mission-driven organizations stay mission-driven forever,” RSF’s Dana Stranz and Issie Corvi of Purpose Trust Ownership Network, or PTON, wrote earlier on ImpactAlpha. Purpose trusts “weave impact into the fabric of the organization,” they argue, unlike other ownership models that remain vulnerable to takeovers.
Trust-owned businesses
Some 75 US companies have adopted forms of perpetual purpose trusts. That’s more than double the number PTON co-founder Mark Hand (author of the popular ownership economy newsletter, The Stakehold) counted when he launched tracking such conversions in 2022.
The most visible conversion has been Patagonia’s shift in 2022 to transfer ownership to two nonprofits dedicated to fighting climate modify.
At the gathering in Austin, Everet Chenevert of Organically Grown Company, Brad Hermann of Text-Em-All, Rick Plympton of Optimax Systems, Kevin Clegg of Clegg Auto and other leaders of established trust-owned firms shared lessons with founders considering the transition.
Clegg is now building a cooperative to provide shared services to indepconcludeent auto shops that meet employee ownership thresholds. “Some of the hardest parts of a transition aren’t the deal itself,” Clegg informs ImpactAlpha, but culture, governance and best practices.
Financing vehicles
Purpose trusts and a variant, employee ownership trusts, both differ from employee stock ownership plans, or ESOPs, in that shares are held by the trust, not directly by employees, who instead receive payouts in the form of dividconcludes or profit-sharing.
In a typical purpose trust transaction, an owner sells shares to a trust financed by bank debt or a seller loan. The trust repays that financing over time utilizing company cash flows. Employees, or other stakeholders, gain access to a share of future profits without capital or financial risk.
Financing barriers are launchning to fall.
Common Trust has supported at least 18 companies, valued at nearly $600 million, convert to employee ownership trusts, a form of perpetual purpose trust. Chicago-based Torana Group’s $18 million Essential Owners Fund acquires middle-market companies and transitions them to employee ownership, including through PPTs. “We are really focutilized on those huge parts of the economy, those huge swaths, where humans still drive a large part of value for companies given the critical nature of their work,” Torana’s Malini Ramanarayanan Moraghan stated on an Agents of Impact Call last year.
In Philadelphia, AllHold Capital is raising a $10 million fund to transition profitable businesses, and their real estate, into a single employee owned trust.
Established impact lconcludeers, including RSF Social Finance and Mission Driven Finance, are relocating into the growing market for post-transition capital. Massachutilizetts-based Local Enterprise Assistance Fund, or LEAF, last month, financed its first employee ownership trust conversion, expanding beyond its traditional focus on worker cooperatives.
To be sure, purpose trust-owned companies carry distinct underwriting risks. “Inherent in these transitions is a turnover in the management team,” states MDF’s Joe Pileri. “There isn’t a clear key person or set of key people to underwrite.” To mitigate that risk, states Pileri, “run a good business that can credibly state you’re going to produce cash flow. That is by far the best thing.”
To reach the next level of scale, the work must go beyond impact-oriented investors, states Matthias Pries of World Education Services, an investor in Mission Driven Finance’s Capital Partners Fund. “Our job as catalytic capital providers is to unlock the huge banks.”
Mission shiftments
JPMorgan Chase already banks more than 1,200 ESOP companies and maintains lconcludeing relationships with over 600.
“When we talk about supporting business growth and entrepreneurship, the first part of that is actually creating sure we’re not losing businesses, fading away or relocating into the hands of absent owners or leaving communities,” stated JPMorgan Chase’s Gwyneth Galbraith. “We’re excited about employee ownership trusts as another model to expand employee ownership’s reach.”
The promise of perpetual purpose trusts to distribute business benefits to a broader set of stakeholders has energized other mission-driven business shiftments.
Annika Schneider of Purpose Foundation sees PPTs as a vehicle for what the nonprofit calls “steward ownership.” “In traditional ownership, money equals power, and that leads to shareholder value taking over the purpose,” she stated. By sharing control and benefits of a business among stakeholders, states Schneider, “the power remains in the hands of the people who are actively involved.”
Purpose Ventures, the foundation’s inhoutilize investment vehicle, is exploring whether to raise outside capital to expand the nonprofit’s mission.
Purpose trusts also offer a legally binding way to protect companies with high social and environmental standards. More than 10,000 companies worldwide are now certified B Corps. “Once a company starts its impact management journey with us, then we can open the door to other alternative forms of ownership that lock in purpose in perpetuity,” stated B Lab’s Mike Emmert-Kantor.
Loren Rogers of National Center for Employee Ownership sees it the other way around. “I consider that giving people ownership is the gateway drug to good governance,” states Rogers.
Before co-founding PTON, Jenny Everett supported build the Aspen Network of Development Entrepreneurs and saw alternative ownership deployed to address wealth inequality, racial inequity and climate modify. What was missing, she stated, was coordination and infrastructure.
“That’s the kind of stuff that really excites me,” Everett stated to a crowded room in Austin. “Turns out, it excited a few other folks as well.”
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