Helping Founders Earn Back Equity by Building Better Companies:
A Quick Look at LACI’s Impact Framework

By Matt Petersen, LACI President and CEO 

Accelerating impact is central to our work at LACI. From leading our unprecedented public-private regional partnerships to organizing training courses that help grow the green workforce, our days start and end with a focus on driving equitable climate action. And nowhere is the opportunity to make a difference beyond the four walls of our campus more evident than through our extensive portfolio of over 400 startups.

At LACI, we do not just hope to inspire and help our startups to pursue community, social, and environmental impact, we actively work to incentivize it. To better help our startups do just that, we recently internally rolled out our updated 3.0 version of our Impact Framework.

Since our inception, LACI has taken an equity stake in our startups as they enter our program. When I joined LACI in 2017, I had a crazy idea: what if we could design incentives for our companies to bake in the principles, values, and policies that would create a stronger company while also contributing to the growth of a just, sustainable economy? How could we challenge or at least balance the notion–as coined by Milton Friedman in his 1970 NY Times essay–that increasing shareholder value is the greatest good? How could we lead the effort to walk our talk if the data showed diverse-led companies achieve greater financial results, yet Black, brown, and female founders have a tougher time accessing capital?

And could early commitments from companies turn into remarkable outcomes? Take for example the Dayton Company—now known as Target—which in 1945 committed 5% of its income to give back to the communities they operate in. Today, Target has one of the most generous community philanthropy programs of retail companies in the U.S.

By putting a financial incentive toward adopting good policies and making early commitments that prioritize social equity, promote community benefits, and much more, could we encourage LACI’s startups to integrate the values that we believe will create a stronger enterprise? Can it help our founders better attract and retain customers, staff, and investors as they scale? 

Starting in 2020, we shifted our model of providing sweat equity and access to resources in exchange for equity by: a) pricing our program more equitably at the outset by valuing impact already represented in early-stage startups—beyond traditional metrics such as revenue, capital raised, etc.; and b) enabling founders to earn back up to 50% of that equity by making demonstrable progress on social, community, and environmental impact over the program’s two years.

This is a radical and first-of-its-kind initiative that provides founders with an opportunity to earn back equity. We believe this will not only lead to better, stronger, and more resilient companies, but  also inspires other investors to rethink how we create “value.” 

Our hope and intent in updating and beginning to publicly share more about LACI’s Impact Framework is to provide a model for others–including the incubator and venture capital communities–about how to best define, measure, and value impact. By demonstrating that impact brings financial value, we hope the equity put back into the companies can help attract talent, increase wealth creation opportunities for underrepresented founders, and much more.

Version 3.0 of our Impact Framework focuses on specific measures and KPIs across three core categories:

• Just Economy: Energy Equity and Disadvantaged Communities; Inclusive Workforce; and Community Development.
• Climate Action: Mitigation and Resilience; and Market Adoption.  
• Social Resilience: Diversity, Equity, & Inclusion; Responsible Supply Chain & Sourcing; Good Governance, and Civic and Community Investment.

To earn back equity over the two years of the program, founders must demonstrate documented commitment and progress through an established trust-but-verify method. Once enrolled, our incredible staff and supportive Executives-in-Residence work with the startup founders through curriculum and specific resources to help embed Impact Framework goals and strategies into their business practices. As startups make progress, they are eligible to “earn back” a portion of the equity from LACI upon graduation from the two-year program.

This novel approach allows us to incentivize progress in a way that benefits the individual startups and our shared communities. And therein lies the truly unprecedented nature of LACI’s work. 

As far as we know, LACI is the only incubator—or investor of any kind—risking financial gain in this way to drive impact. Sometimes it takes a radical new—some might say crazy—idea to challenge traditional approaches of measuring and creating value.

As we share more details about LACI’s Impact Framework over the coming months, we hope others will be inspired to innovate in similar ways.