Disrupting climate capitalism part 2: New technology

This is part of the Reclaiming Entrepreneurship series. You're reading part two of Disrupting Venture Capital. Here is part one

In the Innovator's Dilemma, a book that has achieved cult status in tech circles, Clay Christensen explains why incumbents, despite the vast resources they have access to and wield, are nonetheless regularly disrupted by scrappy innovators. His work is most often used and cited in the realm of technological innovation as it is commonly understood: engineering, software, pharmaceuticals and the like.

The pattern he uncovers is that a newcomer comes along with a technology that, while still immature in terms of reliability and ecosystem support, delivers a vastly superior outcome when it works as intended. 

A classic example is that of the ice trade. 

While incumbents were busy inventing better and more efficient ice harvesting techniques, innovators were developing ice factories to produce ice directly in urban centres (or much closer to them at least). Later on, while factory owners were busy improving their ice-making technology, innovators were developing refrigeration units, completely taking over the market in a few decades by supplying the required outcome directly at the point of need: inside your home.

This analogy is somewhat oversimplified as the history of refrigeration is not linear. But it serves to illustrate the concept very well.

There is a particular difference however between the first transition and the second. While refrigeration units — fridges and freezers — can still produce ice, ice itself is no longer the means of preserving food. That job is now fulfilled by refrigerants. 

This distinction is important because it leads to his concept of Jobs to be Done. 

The job is not ice production. The job is food preservation. 

Another commonly used example is also worth sharing, that of drills versus holes. Drills come in various sizes, with various modes of operation, and a range of other features that distinguish one from the other. Of critical importance in deciding which one to buy is understanding what kind of hole you need. And this in turn comes from understanding the purpose of the hole: is the hole for extracting oil, ice fishing, or putting up a shelf? 

The latter is the “job” that needs to be done. The technology is what is “hired” by the customer to do that job. 

Technology is not just systems of moving mechanical parts, code, or clever molecules.

Language, governance, and finance are also technologies that are created and employed to fulfill jobs that need to be done. As incumbents, or business-as-usual approaches, begin to show their limitations in dealing with societal challenges new ones are invented.

Venture capital is such a technology.

Besides the creation of the industry itself, venture capital has internally seen the evolution of several new technologies — financial and governance instruments — that have become standard and ubiquitous. They weren't always so. Examples include the very fundamental notion of the limited liability company and the more recent SAFE note.

It is however beyond the scope of this article to get into a detailed history of venture capital. What is relevant is to our discussion here is that venture capital is not up to the task of unf*cking the planet. That job is not able to be fulfilled by these old technologies.

As this has become increasingly obvious, some initiatives have been born to improve VC’s ability to invest in regeneration and restoration. They include a variety of innovations in the area of financial instruments, some of which we've previously covered, like conscious capitalism and impact investment to more quantitative and hard tech innovations like impact measurement frameworks (e.g. ESG) and web3 technologies.

The problem with these approaches is that they are mere incrementalism, creating marginal improvements without really getting to the core of the problem. They are all slightly better ice picks, in an environment where the ice is literally melting.

The answer lies then in inventing technologies directly suited to do that job.

They will be creaky at the beginning, and they will fail often, but when they work they will accomplish the job at orders of magnitude better than the incumbents. 

If the above sounds theoretical, let’s now look at some alternative technologies that already exist and are ready to be scaled. In this final part I will cover two governance systems and two complementary financing systems.

We start with perhaps the most structurally radical alternative: steward ownership. It is a governance model that fundamentally redefines who a company belongs to and who gets to make decisions about its future.

In a steward-owned company a clear and permanent separation between profit rights and decision rights is legally codified. Voting control stays with the people actively working in and leading the company. Voting rights are not linked to share ownership and cannot be sold to outside investors seeking financial returns — this ensures self-determination. Secondly, profits are either reinvested into the company or donated to a defined purpose that is also legally codified. Financial profits cannot be extracted by shareholders — this ensures mission lock.

This does not mean that investors are excluded. They can, and do, provide capital and receive a fair, capped return on that investment. What they cannot do is dictate the company’s direction, profit from its sale, or even force a sale.

Legal mechanisms for this exist. Purpose AG in Germany and the Golden Share model used widely across Europe are well-established. Companies like Patagonia, Ecosia, and many many others already operate under versions of this model. Patagonia's 2022 restructuring, in which founder Yvon Chouinard transferred ownership to a climate nonprofit and a stewardship trust, is the most high-profile example.

For impact entrepreneurs, steward ownership solves the core problem identified in this series: the mission cannot be voted out, sold off, or diluted by investors chasing an exit. The job to be done — be it climate, social, ecological, or political — does not give way to the profit motive and remains embedded. Permanently.

The second model is the co-operative structure, an old alternative experiencing a resurgence partly because, in many ways, it is the most proven. Agriculture, energy, finance, retail, design, software: co-operatives exist and thrive across virtually every sector relevant to climate entrepreneurship.

In a worker co-operative, ownership and governance are distributed among the people doing the work. In a multi-stakeholder co-operative, ownership is extended to include customers, suppliers, or community members alongside workers. In both cases the structure is inherently resistant to the extraction problem: there is no external shareholder demanding a 100x return, because there is never any external shareholder.

This does not mean co-operatives cannot grow and attract capital. Mondragon for instance demonstrates scale. In the energy sector, community energy co-operatives across Germany, Denmark, and the UK have collectively deployed billions in renewable energy infrastructure. They did so without venture capital and without surrendering control to investors.

The objection typically raised is that co-operatives are slow to make decisions and resistant to the kind of rapid iteration that climate solutions require. This is sometimes true, and worth taking seriously, but in truth no slower than the progress on climate commitments we see from extractive companies and governments. It is also frequently overstated, and the comparison is rarely made fairly: the alternative being held up is a venture-backed startup with a 75-90% failure rate and a mission that gets hollowed out if it survives. 

Compare this with the 60% success and longevity rate of steward-owned and co-operative companies. 

Now to finance and fundraising.

SparkToro is an audience research software company founded in 2018 by Rand Fishkin, previously CEO and co-founder of Moz. Having lived through the full arc of venture-backed growth, Fishkin chose a different path for SparkToro. He raised a (relatively) small amount of capital (around USD 1.2 million) from a large number of small investors through a novel agreement he designed and open-sourced.

The terms were deliberately and publicly unusual. Investors were told to expect a long time horizon, modest returns, and no guaranteed exit. The company was designed to be small, sustainable, and profitable rather than hyper-scaled and flipped. Dividends, rather than an exit event, became the mechanism for investor return. Crucially, the team retained control.

What makes SparkToro instructive is not just its structure but its transparency. It functions as an open-source case study for founders who want to raise external capital without surrendering control or mission. The company has been profitable, the investors have received returns, and no one has had to engineer a billion-dollar exit to make it worthwhile.

For impact founders, the lesson is this: the terms of investment are not fixed laws of nature. They are negotiable documents, and there are a growing number of investors willing to accept fair returns in exchange for outsized impact. Moreover, although SparkToro is neither a cooperative or steward-owned, the investment model they designed fits neatly into both of those structures as the terms are non-extractive.

A more well-known but underrated model is revenue-based financing. It bridges the gap between the co-operative and steward ownership approaches and the more familiar world of startup financing. 

In this model an investor provides capital in exchange for a percentage of future revenues until a pre-agreed total return has been repaid, typically somewhere between 1.5x and 3x the original investment. There is no equity transfer, no board seats given, and no exit required. The investor is repaid as the company grows, at a pace proportional to that growth, rewarding longevity over explosion and aligning investor return with company health and stability rather than company sale.

This is a model structurally compatible with building and funding the high-impact solutions chronically underfunded by venture capital, or more often completely shunned. From regenerative agriculture platforms to community repair networks to food waste reduction services to behavior change and educational models.

These are not perfect solutions but neither are they unproven. 

Ecosystems of advisors, lawyers, and peer networks are emerging because when they work, they accomplish the actual job: building enduring and impactful organisations freed from a system designed to extract maximum financial return in minimum time before moving on.

The consequence is that founders — and teams — can choose to focus on climate or social impact without resorting to the trade-offs imposed by exploitative venture capital practices.