Patient and kind capital: Indigenous investors opt for new Shared Earnings Agreements

A group of investors has announced that it will provide funding to two Indigenous-led businesses using an investment framework that prioritizes shared values and reciprocity. 

The winners of the Indigenous Venture Challenge, apparel company Red Rebel Armour, and software company KnowledgeKeepr were announced at the Indigenous Tech Conference in Vancouver on Tuesday, and will enter into what’s called an Indigenous Shared Earnings Agreement (SEAL). 

Traditional venture capital investments are “designed for a narrow set of businesses – those that can demonstrate rapid scale and outsized returns,” wrote the Indigenous Venture Challenge. 

“For Indigenous-led and impact-driven ventures, this can be an uneasy fit early on.”

Typically, a venture capital funder would invest in an entrepreneur for a percentage stake in the business. As a result, most venture capital funding is focused on how quickly a funder can get their money back, sometimes to the detriment of the business, said Richard Tuck, CEO of the Wakopa Financial Workers’ Co-operative, a financial services company based in Treaty 1 Territory.  

A SEAL agreement, on the other hand, reduces the short-term pressure on entrepreneurs to ensure that investors make a financial return on their investment. 

It recognizes that “founders and employees have a livelihood, family obligations and a life outside of their business, without also letting investors set [a founders’] salary.”

SEAL agreements help founders move outside ‘colonial, patriarchal and racist’ systems

SEALs were started by entrepreneurs and founders who wanted to invest in other companies, Tuck said. 

In a SEAL Agreement, founders are paid first and retain control of their business. Investors are only paid after founders are compensated.  

The team at the Indigenous Venture Challenge partnered with Wakopa to facilitate these initial investments in Indigenous-owned businesses through a SEAL that also had Indigenous Ways of Knowing and Being woven into it. 

Wakopa, which provides entrepreneurs with accounting, financial modelling and investment readiness services, aims to take a “harm reduction perspective” on investments, Tuck said. 

Much of that harm, in the context of entrepreneurship, comes from an overreliance on venture capital funding, said Tuck, adding it isn’t an investment route that works for everybody.

“The fact that we chase [venture capital funding] and make people chase it is pretty ridiculous,” Tuck said. 

“It’s trying to get one or two or three big hits and kill the rest, when the rest could be really good $25 to $50 million businesses doing [their] own thing and having really healthy employment.”

Many Indigenous entrepreneurs also start businesses using their credit cards or take out loans when their businesses are not yet ready, Tuck observed. 

Even as organizations offering start-up loans worked to boost Indigenous representation, many Indigenous entrepreneurs were simultaneously facing bankruptcy. 

Wakopa’s harm reduction approach includes equipping Indigenous entrepreneurs with knowledge of capital and credit building to enable sustainable growth and, should it come to that, help businesses shut down in a healthy way, Tuck said. 

The Indigenous SEAL, which the winners of the Indigenous Venture Challenge will enter, is also distinct from a standard SEAL. 

The team at Wakopa worked with lawyers to amend some financial terms embedded into a SEAL to make it more compatible with Indigenous Ways of Knowing and Being. 

The Indigenous SEAL Term Sheet, an agreement signed by both the funder and the funding recipient, also specifies the importance of relational capital in the transition, including “trust networks, cultural context, land-based knowledge, Indigenous legal orders, community legitimacy, and non-financial reputation assets.”

The agreement continues: “When and where appropriate, the Funder commits to engaging with relational stewards (e.g. Elders, community advisors, or governance circles), and to ensuring that enforcement agreements do not compromise core community relationships or cultural obligations.”

Given that the winners of this investment will be reporting to multiple investors, Tuck and Ryan St. Germaine, founder and CEO of the Indigenous Tech Circle, will be supporting the entrepreneurs in their reporting. 

A new fund emerges

Both Tuck and St. Germaine pointed to their ambition to plan an ongoing fund, “working towards models that create generational wealth.” 

While many companies and groups have mandates to support Indigenous entrepreneurs, many are leaning on others in the Indigenous business community to make connections, said St. Germaine.

“When organizations and institutions come to us and say ‘find us these companies’, it’s not reconciliation. It’s ticking a box,” St. Germaine said, echoing that businesses often feel forced into taking on a venture capital investment. 

“There’s a very big difference between creating your own table and inviting people in, as opposed to asking for permission to join others,” he said.

 “We needed to be the catalyst and design what makes sense.”

All of the documentation around Indigenous SEALs remains open, such that other Indigenous communities can launch their own funds, Tuck said.

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