How Loomio raised ethical investment and made our social mission even stronger

The last few years have been quite a journey for Loomio. This is a story about navigating the world of startup financing to find ethical investment that works for a truly mission-driven tech company with big ambitions.

So many social enterprises face challenges finding the right capital model. We want them to know that there are amazing values-aligned investors out there, who are prepared to put their investment where their values are. Bold impact investors who put social impact first sometimes feel alone, but we want them to know that they’re not – they’re part of a growing movement.

We want to share our story to reach other purpose-driven startups, and other impact investors like the inspiring folk we’ve met along the way. More than anything, we want our mission-aligned capital raising story to become a more common one.

Our Story

In 2012, fuelled by a mission to enable anyone, anywhere to participate in decisions that affect them, we bootstrapped our way to a prototype software tool. It helped people make decisions together without needing to be in the same place at the same time. We called it Loomio.

People started using Loomio to do amazing things in workplaces and communities around the world. From cross-timezone collaboration in startups, to dynamic community organising, to engaging citizens in policy development, the inspiring stories kept coming.

In 2013, to improve the tool and help it reach more people, we went out to our community with a crowdfunding campaign. The response was more powerful than we could have imagined.

More than 1,600 people from all over the world contributed more than US$125,000. That support enabled us to evolve Loomio to the next level, into a more beautiful, useful, and accessible tool. At the end of last year, we released Loomio 1.0.

We started thinking about the next level: bringing in the resources to grow our team so we can put Loomio in the hands of far more people.

From its uptake by thousands of groups so far, we’ve already learned that Loomio is filling a ubiquitous need. We know there’s potential to increase our positive impact massively if we can scale that up.

Our Challenge

We’re a company that is unashamedly driven by our social impact mission. Traditional venture capital wasn’t a good fit for us. Sure, it can enable rapid scale, but misaligned investment often drags well-intentioned companies off track, in pursuit of financial gain above all else. VC is premised on driving for a big exit, which just isn’t geared to producing sustainable social impact.

We explored possibilities of grant funding, and built some great relationships with some inspiring foundations, but when we looked seriously at setting up a nonprofit structure, we felt it wasn’t the best fit for our vision of being an independent and scalable social enterprise business. It’s very important to us to have a structure designed for scale. Being a business is good for us: we like being relentless about providing real customer value.

So, we boldly re-committed to our roots as a social enterprise. If the funding models for the organisation we wanted to be didn’t exist, we would create them.

Our Model

Both elements of ‘social enterprise’ are fundamental to our nature. ‘Social’, as in our primary reason for existing is to have positive social impact in the world, and ‘enterprise’, as in we believe that the most effective way we can scale our impact is to take an enterprising approach to financial independence, building a thriving organisation that can chart its own course.

Our task was to design a mechanism that aligns, first and foremost, with our social mission, while also providing a fair return to our investors. Our incentives there are aligned: we want socially conscious capital to keep flowing, and fund more generations of mission-driven enterprises.

Creating a model that excited the people we wanted to work with, and aligned with our values, is itself part of our social impact. Figuring out how to ethically capitalise scalable, mission-driven startups is a problem worth solving.

The instrument we used is called ‘redeemable preference shares (RPS)’. It’s actually pretty simple when you break it down.

‘Redeemable’ means the shares can only be purchased back from the investors by the Cooperative; they can’t be traded on the stock market. This class of shares is separate from the ones worker-members hold. Unlike conventional venture capital, our impact investment shares do not carry decision-making control, leaving the governance of Loomio unchanged.

Our constitution puts our social mission first, and defines control as resting with our workers. The people building Loomio are the ones who decide how best to steward it. The investors we’re working with support this approach, and understand that being a worker-owned co-op is a big part of Loomio’s promise.

This type of investment mechanism isn’t only applicable to cooperatives, though; it can be used in conventional company structures too. We’d love more startups to look into RPS as a possibility for their capital raising.

Our Results

Within two months, we brought together a small group of deeply values-aligned investors, some individual and some institutional, raising a total of US$450,000 ($NZ650,000).

Our lead investor is Sopoong Ventures, a social venture fund based in Seoul, South Korea. The name Sopoong refers to the ‘Social Power of Networked Groups’. They’re the perfect partner for us, driven by the same vision and values. Each and every one of our investors is involved because they believe in Loomio’s impact mission and want to see it thrive.

Our Future

Finding an ethical financing mechanism has transformed what we're able to achieve. We’re quickly building a robust organisation that is going to take us from an early startup phase into a proactive growth phase. From the moment we signed the agreement, it’s felt like everyone on the team could take a deep breath and look out to the horizon.

We’ve always been a team that loves to think big. Now we’ve got the resources to really do it. It’s super exciting to be in such a strong position to deliver on the vision that’s been driving us from the beginning: a thriving and equitable future.

We can’t thank our investors, customers, and community enough for their part in bringing this dream to reality. We stand next to them, looking at an optimistic future, and we can’t wait for what’s coming next.

The most exciting thing is that this is part of a much bigger movement towards funding technology in a way that serves humanity. Nathan Schneider has written beautifully about our capital raise in the context of a new wave of entrepreneurs figuring out how to finance a more democratic, values-centered online economy: We’re driven to do whatever we can to encourage this movement. If you’re a social entrepreneur trying to understand values-aligned investment, or if you’re an investor interested in this emerging space, we would love to hear your story and share everything we’ve learned. Get in touch: [email protected]

Tags: Loomio team Fundraising News