By Pam Rothenberg, Partner, Womble Bond Dickinson (US) LLP and Mark M. Newberg, President, Stockbridge Advisors, LLC.

The investment world is experiencing a rapid shift in its operational assumptions. Increasingly, investors are recognizing that environmental, social, and governance factors (ESG), principles of sustainability, responsible investment, and Impact are indispensable components of the long-term investment strategies necessary to achieve consistent business growth, increased profit, and continuing value creation.

To support this growing focus on ESG and Impact, the investment community needs new and innovative investment structures, in addition to existing approaches, that promote the founding, funding, and growth of businesses designed and managed to integrate Impact principles into their core business operations.

Members of our Womble Bond Dickinson’s Impact Business Group worked with a team of impact investors and an impact entrepreneur to design, build, and document a new investment structure that we call “Performance Aligned Stock” (PAS). Our team’s work was recognized with the inaugural Grunin Prize from NYU School of Law.

PAS was designed to facilitate early-stage investments in new companies, including those focused on achieving impact, in a way that (1) affords the investors an exit from the company that does not result in a forced sale of the company; (2) allows the investors to achieve that exit at a predictable rate of return aligned with the company’s revenue growth; and (3) enables the company’s founders to retain control of the company. The overriding objective of the PAS structure is to permit the company to continue to pursue its Impact mission following the exit of the investors.

For more information about Performance Aligned Stock, its potential uses, and a case study, please click here.