Miyoko’s and a founder’s dilemma

Miyoko Schinner, the founder of Miyoko’s Creamery, is no longer CEO. The board of directors unanimously voted to part ways. It appears the board wanted the business to go in one direction and she in another. This is disappointing in a variety of ways and I cannot imagine how Miyoko herself is feeling about it. Addendum: Ms Schinner’s statement.

There will be alot of commentary from the veganverse about this. So I want to get out ahead of it a little bit and put what happened in context of the non-vegan capitalist world in which we live.

I’ll also touch on what lessons this event might impart and what things to keep in mind, for vegans and founders of vegan businesses and more.

The basics

Miyoko’s Creamery is a private company organised in California. A private company is owned by a small group of investors. It also means details about private company finances, board membership and other company-related matters are not in the public sphere like they would be if it were a public company traded on an exchange.

A company’s board of directors is responsible for making decisions for the company. When they make those decisions, they have a fiduciary duty to make them in the best interest of the company and its shareholders. That’s the general rule in the USA and to a great extent in most other countries.

A fiduciary duty is a legal obligation and if you don’t fulfil it, those shareholders who believe they’ve been harmed, can come after you. We’ve talked about fiduciary duties elsewhere here.

The shareholders are the ultimate owners. They appoint the board of directors. Large shareholders usually agree, as part of their investment, on how many directors they get to appoint. This number, alongside other shareholder and voting rights they might have negotiated, determines how much power an investor will have in a company.

The more someone invests, the more power they will have.

Investors

In the last decade, Miyoko’s has grown exponentially due to a large amount of private equity (“PE”) investment by venture capital (“VC”). PE means a group of people, including companies and institutions, who invest in private companies. VC is a type of private equity focusing on start-ups or young companies.

Because Miyoko’s is a private company, there is very little publicly available information on how the company is financed. We also don’t know how much each investor, including Miyoko herself, owns.

In exchange for this investment, Miyoko’s products are plentiful and sold in so many places in the US. I’m totally envious about this, by the way, because I love Miyoko’s products.

What’s important to remember is – and this is a plea to remember for all founders who are looking for investment – every time a new investor comes in, not only does the original owner(s) give up ownership, the owner has sealed their and the company’s fate.

PE or VC investors put up their cash to reap a reward. That reward only comes with an exit. An exit is either a sale of the company or a listing on a public stock exchange. Sure, the original investors might sell their shares before an exit, but that new buyer will have the same aims.

In most PE or VC investment agreements, there will be clauses to dismiss the founder-CEO either for cause (Addendum: the company sues Miyoko over a number of allegations) or more simply through a vote of the board of directors. Sometimes founders negotiate terms ensuring the investors can’t oust them, but that’s a tough position. The founder who’s able to negotiate something like that would’ve been in a very powerful position to begin with.

Why seek outside investment?

Can you blame Miyoko Schinner the person for taking the investment? I can’t and won’t. I have a tremendous amount of respect for Ms Schinner. Her advocacy is clear and ethics-focused. She’s a remarkable person and innovator.

It’s very likely outside investment was the only way for her company and products to grow. And who knows when she was considering outside investment, it’s entirely possible she might have been at a point where she couldn’t continue making her delicious products without this funding. If that had happened, that would’ve been sad too. Much like it is seeing her go.

Founders

If you’re a founder reading this, it’s entirely possible you’re trying to figure out how you can get funding. You might want the funds to expand your business or simply to make a sustainable living out of what you’ve created.

Before the last 15 to 20 years, a founder would have gone to their local bank and gotten a loan. The founder would keep ownership of their company as long as they made repayments.

But PE has changed that world with ever increasing amounts of funding and exponential growth as the tasty carrot dangled in front of founders. Why PE has expanded as it has, is an entirely different and lengthy conversation.

If this is where you are and are considering PE or VC investment, have you thought about whether you’re happy five to eight years down the line selling your creation? If you’re not, don’t get investors, keep owning the company yourself and be happy where you are.

Instead, focus on your mission, what your priorities are, figuring out what you want, and what’s it all worth to you.

And most importantly, make sure you get proper legal advice right from the beginning. And I mean from the moment you decide to start a company, let alone when you decide to begin the search for external investment. The biggest mistakes happen in the beginning. This never fails to be true. And they’re much more expensive to fix later on.

Lawyers aren’t merely service providers who draw up bits of papers. Any decent lawyer will be an advisor who will discuss all aspects with you in the simplest way and guide you through the process. If they’re not doing that, find another.

And if you’re attending a panel discussion about growing your business through outside investment and there isn’t a lawyer on the panel, simply leave. You’re wasting your time.

Capitalism & Veganism

What’s happened at Miyoko’s Creamery isn’t unique to vegan businesses. It’s an absolutely common story happening in a variety of other businesses. It’s also got nothing to do with Miyoko’s identity.

It has everything to do with capitalism. This is the system we live in. This is our shared reality. Want to change it? I still believe we can.

I’ll paraphrase vegan academic and activist Angela Davis: you can’t fix the problems capitalism has caused with more capitalism. Vegan products are great. I’m happy they exist. As we’ve discussed in Think Like a Vegan, more vegan products don’t mean veganism is winning. Vegan products don’t even represent veganism. They’re the outward manifestation of capitalism itself, products we buy and sell.

And I’d also argue vegan makers don’t represent veganism. Each of us, vegan or non, is living, working and surviving within the constructs of capitalism and each of us will make a variety of decisions based on that reality. “Veganism involves more than food: it is a social justice theory that reimagines humanity’s relationship to other species.” (From Animals in Irish Society by Corey Lee Wrenn). Vegan businesses and products can facilitate the reimagining by creating opportunities for discussion, but that’s merely the start. You want a more vegan world? Then make more vegans – advocate wherever you are in whatever way suits you.

My wish

My sincere wish for Ms Schinner is her happiness, peace of mind and continued presence as an outspoken activist. And my sincere wish for founders wherever you are in the life cycle of your company is a clear vision of what and why you’re trying to do.