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Overview

For some entrepreneurs building a company to affect positive social or environmental change, the financing trajectory and ultimate investment exit will follow the conventional startup model. The company will seek to raise a significant amount of money over a relatively short period of time, focus more on revenue and customer growth than earnings, and plan to generate substantial returns for investors by way of a sale or IPO.

Other entrepreneurs whose businesses have similar growth trajectories, large addressable markets, and strong potential for a sale or IPO may choose to forgo the conventional model because they desire to maintain control over the company or they have philosophical objections to the way the public markets operate.

Still other entrepreneurs are focused on building smaller businesses that are unlikely to attract investment on conventional terms, or they may be doing business in markets in which M&A and IPO activity is scarce.

We have seen a variety of different models to return capital to investors without an IPO or sale. These models exist for both debt and equity investments, and in some cases the outcomes for debt and equity investments can be surprisingly similar. There are, however, important differences between debt and equity, and entrepreneurs and investors will need to consider them carefully.

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