Investing in our future

Putting Library of Things’ mission at the heart of a journey to find patient, purposeful funding

Emma Shaw, Co-founder of Library of Things

Introducing friends, funders and partners to the new-look Crystal Palace Library of Things — Nov 2019

Why raise money?

Starting with strong foundations

Traditional finance doesn’t fit

  1. Grant — appealing as it’s non-repayable, but highly competitive to secure and often restricted to new projects rather than overheads and salaries. We couldn’t bank on it.
  2. Debt — to secure a loan we needed predictable income, but as a young company with an experimental business model, our ‘riskiness’ meant we’d be charged prohibitively high expensive interest rates (10%+ per year) and wouldn’t have surplus to start repayments for a few years. Plus, we needed valuable assets to secure a loan against, which we didn’t have.
  3. Equity — attractive as the funding is entirely at the investors’ risk, so we would have no liability to repay until we could afford to. Selling shares meant sharing ownership, which we felt hesitant about.

Institutions: the need for conversation & tailored finance

  1. Polarised market ignores the middle ground between for-profit and not-for-profit — we found institutions tended to be either profit-maximising or impact-maximising. Environmental funds wanted aggressive growth plans, fast returns (2 year exit) and couldn’t get comfortable with our mission-locked governance structure, which could theoretically break their fiduciary duty to maximise returns to their own investors. Social impact funders tended to take a single issue approach — “we’re here to help the poor and needy” — rather than address the root causes of complex problems like consumerism or inequality.
  2. Poor pitching experience neglects founders — this needed to be a two-way conversation to co-design an agreement that fit our needs, not just the funders’ (and remember we’re not finance experts). The process felt extractive — some investment networks charged us thousands just to pitch to them.
  3. Siloed funds and aversion to innovation — institutional funders pointed us to their debt or equity team rather than consider our Demand Dividend as an alternative risk-reward sharing instrument.

Individuals: understanding the confluence of interest between profit and purpose

Co-creating a new type of mission-first investment agreement

  1. The agreement hard-wires LoT’s mission as the company’s primary purpose, mirroring its unique articles of association (and counter to legal norms).
  2. The mission is legally locked in by a Guardian shareholder, which is party to the agreement and holds veto powers over key matters (like agreeing an exit) to ensure robust accountability for LoT’s mission in the long term.
  3. The principle of ‘fair returns’ recognises an exchange for the financial risk taken by investors, whilst safeguarding the mission. It navigates the scenario of an exit event, where preference may be given to a potential buyer(s) who can uphold and build on the mission, even if this doesn’t maximise the financial return. An indication of fairness is described to be “at least a 2x return on investment”.
  4. The intention of an exit for investors was agreed around core principles: a) patient timeframe (within 8 years), b) in service of pursuing the mission, and c) balances the interests of all stakeholders (including investors) to realise a fair return on their investment.

Seeding a pioneering network

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