Investor – Manager Alignment Strategy
Aravaipa creates and sustains alignment between the interests of its Investors and Managers. This strategy grew from the Founder’s frustration with most venture and private equity funds, which are first and foremost structured for the benefit of their managers. 2012 Kauffman Foundation research confirmed that, on average, the 100 venture funds it studied returned 2% to their managers and 1.5% to their investors. The lack of alignment becomes exaggerated when large funds underperform and managers earn 2% returns while their investors lose money.
The Aravaipa Managers receive no annual fees or remuneration from Aravaipa, but Aravaipa does cover all operating costs. Managers retain any fees\salaries earned from Aravaipa portfolio companies.
Manager cash investment represents 5% of funds raised.
Managers only participate in the Fund’s profit, not the profit on any single investment, and share in the profit remaining only once all invested funds have been returned.
The Managers’ share of profits (the “Carry”) is set at 20%, but the Managers have already chosen to allocate some of their share of future profits to investors who have contributed significantly to Aravaipa.
Nine Founder\Managers of portfolio companies have swapped shares in their individual companies for units in Aravaipa. By joining the ranks of Investors in Aravaipa, the Founder\Managers gain a valuable dual perspective that helps align Aravaipa and its portfolio companies. It also nurtures alignment between portfolio companies.
To assure Investors and Managers are aligned on how to invest the funds, all investments and divestments are subject to majority vote of the Investment Committee. This five-person committee is made up solely of elected Aravaipa Investors – and the Aravaipa Managers are not members of the Investment Committee.
The Kaufmann Foundation study confirmed that small funds consistently deliver higher returns. Aravaipa is a $20 million Fund that offers extraordinary “Manager attention per invested dollar.” In addition, the small number of investors has translated into a productive and ongoing dialogue between Investors and Managers – leading many of our Investors to call it their Club and to make extraordinary Sidecar investments.
Aravaipa is a 15 year fund that acknowledges that truly disruptive Impact Technology can rarely be achieved overnight.