Equitable Ventures

by Eva Helene Yazhari and Mathilde Beniflah

There are more venture capital funds today than ever before, including an encouraging amount that have a focus on social or environmental impact. However, impact investors should be aware of how the very structure and incentives built into venture capital funds can detract from generating impact. Founders often complain of venture capitalists who self-brand as “founder friendly,” while offering little support beyond an investment check.

Being an impact investor is about much more than metrics and measurement. It also includes questioning the structures that govern how we do business, and the power dynamics we sometimes play into.

In a traditional VC transaction, the general partner of a fund invests in a company to provide cash that will help scale the business. Yet, for the founder, such investments often result in ceding control to an investor that prioritizes short term returns over the long-term sustainability and the possibility for purpose-driven business. The founder can feel pressure to dedicate all her energy towards becoming a “unicorn” as soon as possible and maximizing the investors’ profits, rather than focusing on the long-term success of the company. This can commonly include forcing exits for founders, aggressive pressure on founders with little value add, and creating markets where company ownership is uneven and extractive.

What are traditionally considered successful investments from the general partners’ perspective, don’t always translate into successes for the founder or the local market. Imagine a founder left with little equity after years of building a business, simply because the only capital available was venture capital funding. Especially in emerging markets, where most of the investors are based in the U.S. and Europe, the profits generated by successful VC investments are often repatriated, rather than staying in the local market. These extractive measures can result in the company’s mission being overshadowed by the demands of the venture capitalists, and stymies local wealth creation.


Beyond Capital Ventures is pioneering Equitable Venture, a strategy evolving venture capital by giving founders the opportunity to become co-owners in a fund, and thus align the investor and founder interests. At its essence, Equitable Venture levels the playing field in the power dynamic between the investor and the founders. Beyond Capital recognizes that ultimately, founders work harder than venture capitalists. By offering a stake in the fund’s performance, it is recognizing those efforts.

Founders will receive a profit share in the GP carry based on predefined milestones. By sharing the upside of the fund with the founders, it allows them to become a partial owner in the fund, alongside other portfolio company founders. This concept provides support and incentives from each end of the financial spectrum: immediate capital to grow their business and a long-term stake in what evolves.

Finally, Beyond Capital Ventures is employing Equitable Venture as an incentive to further its focus on gender-smart investing. It will award a bonus of carry points to companies with women on management teams and gender-positive policies.


Beyond Capital Ventures has implemented Equitable Ventures by allocating a portion of the GP’s total carry pool to portfolio founders who meet predetermined performance milestones.

The fund will establish a Carry Partnership, or the Carry Pool, as the legal holder of the carried interest generated in the fund, typically a 20% share of the profits generated by the fund, once the limited partners have returned their original investment amount.

Traditionally, the Carry Pool only involves the General Partners, who have been involved in the fund management, and the Venture Partners who have been mainly involved in investment selection.

Beyond Capital will reserve a portion of the Carry Pool, ranging between 5% and 10%, to be allocated to the founders of the portfolio companies invested by the Fund. Portfolio companies that reach the Series A stage of investment will receive an equal share of the Carry Pool. The share is dependent on a series of business and impact metric targets to be assessed over a period of time. Furthermore, company funders will vest over time, so that funders who leave early or on negative terms would not earn their share of the Carry Pool.

Additionally, Beyond Capital Ventures has pioneered the use of a “gender bonus” in equitable venture as an innovative tool to spur reform. Its team wanted to go one step deeper with equitable venture, to have it function as a tool to address gender diversity, one of the fund’s key impact themes. To encourage the investees to promote women into management roles and adopt gender inclusive policies, Beyond Capital is offering an additional bonus to companies that meet certain additional criteria, which include:

  • Having women being at least 25 percent of all full time employees in the company;
  • Having at least one woman on the executive management team, or in a senior management position for at least one year prior to the Series A fundraise;
  • Having at least one woman on the capitalization table;
  • Gender sensitive policies in place and enforced with regard to all aspects of the business;
  • Governance structure and mission statement that supports women in the business;
  • Positive impact of business model on women across the value chain (e.g., suppliers, consumers, etc.).

Companies that meet these criteria will be entitled to a 100 percent bonus of Carry Points relative to companies who do not meet the criteria. These additional criteria will be assessed at the time that the carry points will be allocated.

Replicability – What is Beyond Capital vision around Equitable Ventures and its potential to be replicated and adopted broadly in the impact investing ecosystem?

The goal of Equitable venture is to change the way venture capital behaves in an ecosystem of founders and investors. Beyond Capital views Equitable Venture as a crucial part of a commitment to a holistic, impactful model of investing. It is a seamless structure to integrate, requiring a simple side letter between the General Partner and the founder. Equitable Venture means recognizing the underlying value entrepreneurs create for the fund – and not investing an extractive manner.

Equitable Venture can also supplement an investment strategy. By enabling founders to have a direct stake in our work, you can build an active community of partners who will support each other, and provide high-quality referrals to supplement deal flow.

Finally, Equitable Venture also presents an interesting structural innovation to combat the power dynamics at play. Oftentimes, venture capitalists are the ones who hold all the power. Equitable Venture demonstrates that investors are thinking about the founders. It’s a way to combat the transactional nature of the investor-founder relationships by sharing upside with portfolio companies, as they are the ones working the hardest to generate that upside.

Additional Resources

Equitable Ventures Briefing Note

Read more about Beyond Capital Ventures’ inclusive approach to Capitalism on The Conscious Investor

CASE STUDY – Carried Interest by Verified Impact Calculations (CIVIC)


In a standard venture capital or private equity fund, the fund manager is entitled to 20% of the fund’s profits. This is known as the “carried interest.”

The innovation of Buckhill Capital and Morrison & Foerster is a set of provisions that can be imported into the relevant documents of most venture capital or private equity fund so that the carried interest is paid out to a fund manager only to the extent that the fund achieves quantified, verifiable impact metrics agreed upon by the fund manager and the fund’s investors. This has the potential to create billions of dollars of incentives for institutional investment managers of all kinds to pursue impact goals alongside financial returns.


Henrik Jones and his company, Buckhill Capital, seek to “finance companies on a mission.” In the course of doing this work, Buckhill encountered a multitude of companies and investment funds claiming to seek environmental, social, and other impact goals, along with delivering a compelling financial return. At times, after investors have signed their agreements and wired their money, Buckhill has observed that the initial focus on impact alongside financial return has faded or took a back seat to financial return and even disappeared altogether. Even when a company or fund addresses impact in the narrative of its periodic reports, it does not always get the same rigorous treatment that the financials get.

Buckhill was not aware of any investment fund manager that has its receipt of carried interest depend directly on whether or not the fund achieves quantified impact goals that are independently audited and verified and that has done so in a manner specifically designed to be easily repeatable and used at scale by other fund managers.

Buckhill decided to things differently when it was presented with an opportunity to gather a group of investors and pitch itself as an attractive source of Series A funding to a highly impactful socially responsible company, Higg Co, that was spinning out of the Sustainable Asset Coalition. Buckhill did not want to give mere lip service to impact and wanted to “put its money where its mouth was” and do something different. That something is the Carried Interest by Verified Impact Calculations (CIVIC).

Carried Interest by Verified Impact Calculations (CIVIC) innovation

BHI’s Carried Interest by Verified Impact Calculations (CIVIC) began with Buckhill’s vision of materially and financially aligning a fund manager’s interests with those of its impact-minded investors and impact-minded portfolio companies. It took the Social Enterprise + Impact Investing team at Morrison & Foerster to fully flesh out and implement the idea both in a way that would work for BHI and its investment into Higg Co but, per Buckhill’s directive, for any venture capital or private equity fund looking to do the same.

CIVIC Overview

The first key feature is the modularity of the BHI CIVIC approach. The documentation Morrison & Foerster prepared for BHI is set up so that any venture capital or private equity fund manager can customize and integrate the CIVIC distribution mechanics from BHI’s term sheet and BHI’s operating agreement into their own fund’s term sheet and operating agreement, leveraging the work that Buckhill and Morrison & Foerster have already done in thinking through some of the details discussed below.

The CIVIC mechanics then reference to a separate quantified Impact Test, which sets forth the quantified impact test for BHI or another fund. The quantified Impact Test is designed to be fully customizable on a fund-by-fund basis. This gives flexibility for different funds to have different impact goals, in different ways, and on different timelines. So the CIVIC provisions do not need to be reinvented with each fund, but each fund has full freedom in defining its own impact goals.

The other key features are reflected by the terms of the CIVIC provisions. To implement BHI’s general idea, Morrison & Foerster thought through some of the details that the solution would need to address. For example, is it more appropriate to the Impact Test be a staged, cumulative test (e.g., whereby the real goal is to reduce carbon emissions by X tons by year 10, but with interim, trend-line goals along the way) or a series of independent annual tests (e.g., prevent X tons of carbon in year 1, then regardless of year 1 results, prevent Y tons of carbon in year 2). Morrison & Foerster advised that the test use the former approach, as it better allows for the potential high variation year to year as a fund pursues impact goals that are intended to be achieved over its entire term. A related issue is what happens if a fund does not meet its interim goal for a given year — does the fund manager forever lose the carried interest associated with that year, or can the fund manager earn it back by overly successful follow-up years that get the fund back to the desired trend-line vis-à-vis its impact goals?

Morrison & Foerster advised allowing the fund manager to earn back carried interest not received in a previous year, again because the impact goals are determined by the desired end of a long journey, and at the outset we might know the rate of progress along the way.

Please find here the terms of the CIVIC waterfall that can be replicated in funds’ Private Placement Memoranda and Limited Partner Agreements.


Buckhill hopes that the CIVIC waterfall will be a standard in impact investing and promote accountability of fund managers across the entire ecosystem. By promoting its adoption, if it is not already in fund documents, investors will have the knowledge to ask for the term.


Collective Investment Vehicles

Collective Investment Vehicles aggregate capital from multiple investors into a single investment entity. Generally, the purpose of Collective Investment Vehicles is to invest in a portfolio of companies or projects, although, in some instances, special purpose vehicles are created for a single investment whose capital requirements exceed the available capital that a single investor is willing to commit.

Collective Investment Vehicles are managed by professional investment managers in order to leverage their professional experience, full time dedication, and comprehensive risk management practices.

The aggregation of capital in a single vehicle also improves economies of scale by spreading transaction costs (such as due diligence costs) over a larger pool of capital, as well as the risk return profile by diversifying the assets of the vehicle through a portfolio of investments.

Fund Managers’ view

Collective Investment Vehicles are managed by professional asset managers, who are the agents of the firm. The managers take investment decisions on behalf of the collective investment vehicle, and are remunerated for the management of the vehicle as well as for the performance of the investments.

In the impact investing industry, impact fund managers often have relevant industry investment and thematic experience, ability to operate in frontier or undercapitalized markets, and relevant professional networks which they can make available to investors in an investment vehicle.

Among the most important factors for managers are that the Collective Investment Vehicle be adequately capitalized and that the managers have the time and flexibility to execute their investment strategy.

Investors’ view

For the investors in the Collective Investment Vehicles, it is important that the investment thesis implemented by the manager delivers the expected financial returns and social and environmental impact, while maintaining adequate risk mitigation practices.

The benefits of pooling capital into a single Collective Investment Vehicle include:

  • Having access to a portfolio of investments
  • Diversification
  • Professional management team dedicated to managing investments

Traditional impact fund structure

Limited Partnership Closed Ended Fund

The most common structure for Collective Investment Vehicles in venture and private equity is the limited partnership. This structure separates the fund managers, the General Partners (GPs), who manage the fund and take investment decisions. The GPs bear unlimited liability for the obligations of the fund. They raise capital from investors in the fund known as Limited Partners (LPs), who are not involved in the investment decisions and have limited liability (for the amount the invested in the fund?). The limited partnership is a closed ended fund with a fixed life, and standard provisions that regulate the distribution of capital to protect the invested capital of Limited Partners before capital distributions are made to the General Partners.


“A Limited Partnership Agreement regulates the relationship between the General Partners and the Limited Partners, covering terms, fees, investment structures, and other items that require mutual agreement before investment.

A limited partnership model usually also includes an advisory committee and an investment committee.”
(Source: GIIN Developing a Private Equity Fund Foundation and Structure)

Compensation of the General Partners

Carried interest

Carried interest, also known as “carry” or “profit participation,” is the share in the profits generated through the investments that the general partner receives from the fund. The terms of the Carried Interest vary, and may or may not be payable to the GP only after achieving a Hurdle Rate.

Management fee

The management fee is the fee charged by the General Partner to the fund for running the day-to-day operation of the fund, and is paid from the paid in capital annually.

Alternative Structures

Even though Limited Partnerships are the most common vehicle to structure funds in impact investing (GIIN), alternative terms or collective investment vehicles structures have emerged In impact investing to overcome intrinsic features of the Limited Partnership model.

Alternative performance incentives

In a conventional limited partnership, the Limited Partners handle all the investment decisions and management of the investment portfolio over to the General Partners. As a result of this delegation, the Limited Partners have no control over the impact management of the portfolio investment.

In order to better align the financial incentives of the General Partners to the impact expectations of the Limited Partners, innovative structures to align the financial remuneration of the General Partners to the impact results have emerged.

The Carried Interest is the profit participation of the General Partner in the fund, which is calculated on the returns of the fund that exceed the invested capital. The Carried Interest can be tiered or unlocked based on the achievement of specific social impact metrics.

Holding Company Structures

Holding Companies (HoldCos, or permanent capital vehicles, or evergreen investment structures) are deployed to extend the lifetime of an investment vehicle beyond the traditional 10 years plus extension of a close ended fund (limited partnership investment fund).

The longer lifetime of the investment vehicle gives additional flexibility to the fund manager in investing patiently in a social enterprise, and does not require exiting the investment within the closed ended lifetime of a traditional limited partnership structure. Patient capital and a longer investment period can facilitate a mission aligned exit of the investment in social enterprises when the company has fewer prospective target buyers and chances of an initial public offering.

Liquidity to investors

  • Liquidity to investors
    While limited partnerships must return the invested capital after returns and fees to the investors throughout the lifetime of the limited partnership, typically HoldCos do not have a limited lifetime. In order to provide liquidity to investors, in addition to providing dividends, HoldCos can redeem and buy back existing shares, facilitate secondary liquidity by transferring shares among investors, or list on the stock market to raise additional capital and provide liquidity to existing investors.

  • Potential for listing on the stock market
    Holding companies are investment vehicles that can offer secondary liquidity to investors, as well as attract new capital from new investors, through an Initial Public Offering.


While limited partnerships operate through the yearly management fee calculated on committed or invested capital, holding companies typically are managed on an operating budget. Innovative approaches to determine a cost based fee calculation have emerged, which limit the operational expenses to the actual operational expense and is capped to the invested capital.


  • Dario Parziale, Toniic