Regenerative Term Sheet

We live in an interconnected and interdependent universe. All entities, both living and nonliving, are connected together and this interconnected-ness gives rise to the universe as we know it. Regeneration means for all entities to be in such a relationship with each other that the outcome is supporting life with all its vitality. The principles that govern regeneration, called living-systems principles, are just beginning to be understood and developed. 

Regeneration is a significant shift from the mechanistic paradigm that we have been living in; it requires new modes of thinking and being, and a new science to support it. Appropriate skills and capabilities are needed to function regeneratively. 

Please visit our website at Regenerative Investing Institute for further details. 

Regenerative Investing is a way of investing that acknowledges that a business and the context (economic, social and environmental contexts) it operates in are all living systems, and interdependent. 

The Regenerative Investing Theory proposes a new way of investing based on living systems principles. The theory sees the regenerative investor, the investee and their contexts (systems) as an interconnected whole and proposes that the role of the regenerative investor is to support and facilitate the systems’ ability to restore, revive and regenerate. The Regenerative Investing Theory provides a framework and guidelines to design and implement for regeneration. The Regenerative Investing Framework has 3 core pillars, namely Potential, Citizenship & Capabilities, which together form a holistic way for the investor and investee to “be” in their contexts. The regenerative investor supports the development of regenerative capabilities in the investor, investee and their contexts (systems) they are operating in so that they can collectively realise their potential and express their citizenship.

Regenerative investing practice is particularly useful in the context of the polycrisis we are experiencing. Regenerative investing focuses on understanding the underlying patterns and drivers of social, economic and environmental challenges we face and supports the systems to regain their innate ability to restore, reform and regenerate. It is an evolution of impact investing which mainly focuses on fixing the symptoms of the problems by applying narrow interventions at the point of occurrence, which often leads to unintended consequences. 

That said, regenerative investing and business principles are relevant for any business and/or investor. By shifting the intention of their businesses or investments from “profit/return only” to “profit/return AND regeneration” and by starting to build the necessary regenerative capabilities in their organisations and socio-economic-ecological contexts that they operate in, any business or investor can start moving towards regeneration. Regeneration is not a destination - it is a journey. 

Visit our website: Regenerative Investing Institute

Join Regenerative Community of Practice: https://regeninvest.mn.co/

Follow our LinkedIn Page: Regenerative Investing Institute 

Regenerative Investing is a new field of investing with a growing number of investors exploring different avenues. Some of these investors are listed below:

https://www.atreyu.global/ 

https://www.linkedin.com/company/henmil-group-family-office/about/

https://www.duitglobal.com/

https://www.evolutesix.com/

https://www.regen.vc/

https://www.regenerativecapitalgroup.com/

A term sheet is the first formal step in the relationship between the investor and the investee, it sets the tone and defines the way of engaging and functioning during the term of the investment. Since ensuring healthy relationships between the investor and the investee is a key component of Regenerative Investing, it felt appropriate that we worked on the Regenerative Term Sheet as our first practical work-product. 

A term sheet is an agreement, typically non-binding, that lays out the basic terms and conditions of an investment, which 2 (or more) parties wish to pursue. By signing a term sheet, the parties express a good faith commitment to pursuing such an investment on the terms as described in the term sheet. The terms and conditions captured in a term sheet focus on the most important features of an investment, and demonstrate alignment on these features. An agreement on this basis allows the parties to enter into more detailed negotiations and disclosing of more sensitive business information for purposes of a subsequent due diligence. 

With this, a term sheet serves as the basis for a more comprehensive and detailed, legally binding set of documents. These more comprehensive documents (or investment contracts) will be binding in nature, and, once signed and effective, will mean the investment is in full force and effect.

Since there is a time period between signing a (non-binding) term sheet and the binding investment contract, the term sheet can be seen as a statement of intent of the parties to transact on a certain basis. We see this as an opportunity to add terms which create a set of expectations, which are also non-binding in nature, and commit the investee company to embarking on a regenerative journey with the investor(s). Since the concepts of a regenerative investment are still new, we believe that adding such clauses to the non-binding term sheet is an easier task to achieve, than to try and force them into a legally binding set of investment contracts.

Over time, as the concepts of regenerative investments become better defined and more broadly understood (work that the Regenerative Investing Institute is doing in partnership with the Criterion Institute), we believe that certain clauses contained in the Regenerative Term Sheet as we have put it forward, will also find their way into the binding investment contracts.

1. What is the Regenerative Term Sheet trying to achieve?

The Regenerative Term Sheet looks beyond creating purely financial returns from an investment. It aims to create the environment to enable parties to enter into investments regeneratively - being in such a relationship with each other that the outcome is supporting life with all its vitality. The Term Sheet is intended to be a practical tool to help build regenerative capacity. 

2. Why would I want to use a Regenerative Term Sheet?

The Term Sheet will support you in exploring and discussing how an investment can be regenerative and to reimagine terms of your investment and the achievable outcomes.  

3. Who are the intended users of this Regenerative Term Sheet?

Anyone entering into an investment, whether you are the investor or the investee. For anyone entering into another type of agreement you may find reading the Regenerative Term Sheet helpful inspiration to adjust your agreement to a more regenerative nature. 

4. How could I use the Regenerative Term Sheet? 

It is an invitation to explore regeneration and see potential for yourself. The Term Sheet could be used to prompt discussions and exploration between stakeholders to see what emerges and build regenerative capabilities as part of the experience.  

5. Can I use this term sheet if I am not a lead investor?

Yes, you can use the term sheet if the other parties agree. If the other parties do not agree, you may be able to use contents of the term sheet to influence the discussions and the provisions of the term sheet being used.

The governance boards are involved in approving the term sheet. They are made aware of its content and intent, therefore, in theory are aligned. Regeneration is a learning journey, it is necessarily an active conversation between all parties because the socio-economic-ecological context and the parties themselves are changing over time. The governance boards take the learning journey along with all the parties. 

When the regenerative investor endeavours to apply the regenerative term sheet, they need to consider the following stakeholders and factors:

1. The investee company itself: How much understanding does the founding / executive team have of regenerative concepts? And what is their willingness to understand - and more importantly, apply - such regenerative concepts? It is important to have established that the team has understood and is willing to embrace these concepts and embark on a journey to become regenerative. For this, the benefits of applying such concepts (e.g. resilience, creativity, longevity) need to have been well understood.

2. Existing shareholders and co-investors: When the regenerative investor does not acquire certain decision making rights that are typically associated with lead investors (and, hence, cannot single handedly block decisions which lead to extractive outcomes), it is important that it is not alone in its efforts to promote regenerative outcomes. 

Existing shareholders will usually already be involved at the term sheet negotiation stage and hence will voice their buy-in or concerns with the regenerative clauses at an early stage. It  might be difficult for the regenerative investor to determine the future agenda for regenerative development. Co-investors might be more easy to convince to align themselves to the regenerative outcomes pursued through the regenerative term sheet. 

Rejection of the regenerative term sheet should be treated as a red flag, no matter how much such co-investors themselves are aligned to the regenerative agenda. Nevertheless, it is important that the regenerative investor makes the effort to engage with the prospective co-investors of the value of regenerative investment, and the risks and pitfalls of ignoring such an agenda.

3. Future investors: Entrenching certain regenerative concepts into the foundational agreements of an investee company (which would occur by introducing such concepts into the binding investment contracts referred to above) will lay the foundation for future investors having to align themselves to these concepts. As such, it becomes important for the regenerative investor to ensure that the investee company truly embraces the regenerative concepts and introduces them into its decision making processes and related documentation (e.g. strategy documents). This will be an important signalling to new investors into how their objectives may or may not be met, and hence this can act as a powerful educational tool.

4. Legal advisors: The legal advisors to the investee company and the co-investors will need to be considered when taking the approach that the regenerative term sheet implies. As we saw when soliciting feedback on the Regenerative Term Sheet, members of the legal fraternity were sceptical about the enforceability of some of the clauses. Whilst we understand these concerns, we point the reader to a response on a previous question (refer to question 8) suggesting that this is the reason we chose to begin with a non-binding term sheet as a base document, rather than the more comprehensive and binding investment contracts. Again, we see this as an important engagement component of the Regenerative Term Sheet, as it will have the legal advisors needing to apply themselves to what we believe to be an important question - how the intention for a more regenerative approach can be enshrined in the investment contracts, should this be the desire of the investors and even the investee company.

Nevertheless, we obviously understand that the regenerative investor needs to be flexible to, for example (as was suggested by some reviewers of the Regenerative Term Sheet who are from the legal fraternity), split out the more typical and commercial terms and conditions of the term sheet and add another document (which might be called a statement of intent) that captures the spirit and expectations of the investee company and its team to be committed to and embark on a regenerative journey. Whilst such a statement of intent might well remain non-binding in nature, it will allow the regenerative investor to hold the investee team to account when decision making ignores the regenerative approach, which, if ignored, would naturally lead to a less supportive engagement between the regenerative investor and the investee team, which would not be in the best interests of the company.

Regenerative investing may seem onerous, and/or seem to have the potential to increase business costs. But consider the reverse: a business that does not care for its socio-economic-ecological context, as an example.  This business uses what it needs from the context: natural resources, people, etc. When it can no longer conveniently find what it needs, it moves on to a different context, where it repeats its behaviour. This is how contexts become depleted, and how the costs of negative externalities get pushed away from the business and onto the societies that depend on the context. 

Consider instead a regenerative business: it takes into account the attributes and relationships of its socio-economic-ecological context. It works with the context to ensure the continued health of any resources that it uses. In this way, the business is able to achieve sustained success over time and is more able to withstand the effects of a VUCA world because its context will have the ability to support its needs. If the business decides to leave that context for some reason, it will have left a healthy context behind. The business will not have created negative side-effects, nor created social or power inequities by pushing the costs of the negative externalities to the context.

There is power in declaring one’s intentions. The Personal Commitment Statement is a way for the executive management of an organisation to declare their intention of being regenerative practitioners. It serves to clarify their intention, align the executive management team around that intention, and to make the intention public. It also becomes a ‘calling card’ by which to introduce oneself, so that all future engagements may proceed from that point.

Please reach out to us at admin@RegenerativeInvestingInstitute.org.