The elea Way - Preview

elea’s FOUNDATION AND OPER ATING MODEL

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handful of external investors – beyond founders, friends, and family – that is meaningful and distinctive but leaves the founders in the driving seat. We also try to avoid the risk of becoming a “shareholder of last resort.” Regarding the type of capital, elea, overall, targets a balanced mix between equity and equity-like investment, debt instruments, and grants. The choice of which instrument is determined primarily by the specific requirements of this investment. In principle, elea invests through four forms: 1. Non-financial support only : At an early stage, or in a complex situa- tion that involves restructuring, the best support is sometimes advice; for example, on strategic direction, organizational development options, alternative legal and governance structures, or capital-raising strategies. Such support, however, is always given with the expectation of making an investment in the near future. 2. Grants : elea is a tax-exempt foundation and, as such, is also in the position to provide grants. Grants are typically given in two circumstances: either to fund those elements of hybrid structures that have a more philanthropic character (e.g., skills development programs for coffee farmers that supply Coffee Circle or student- financing facilities for BagoSphere) or to act as one element in a pre- investment financing structure so as not to overburden a portfolio company’s balance sheet or dilute initial ownership at an early stage. These grant cases are always linked either to very clear milestones or results. (We rather shy away from repayable grants, as they can be a substantial drag on the liability side of our investee’s balance sheet.) 3. Debt instruments : Loans or convertibles are used in situations where the type of capital raising has not yet been defined (e.g., for bridge financing) and/or in countries where foreign ownership is restricted. The key benefit of convertible structures is the possibility to compen- sate the convertible bond holders for the risk they take at this early stage by granting interest and/or discounts at the time of conversion (e.g., equity raise events), while avoiding unproductive discussions on valuation at early enterprise development stages. 4. Equity : Once companies have already reached or plan to reach a certain stage of maturity, equity is the natural way for elea to become engaged. If it is too early for a regular equity investment, SAFE arrangements (i.e., simple agreements for future equity) can take the