April 22, 2024

Coralus (formerly SheEO) is a non-traditional perpetual loan fund powered by the radical generosity of a community of activators. Since its inception in 2015 it has grown to thousands of Activators across 5 countries, deploying a total of $18.5 million to 180+ ventures. Its collaborative, non-traditional approach to selection and allocation demonstrate how power can be shifted within investment approaches. Below, we identify six of these, with an evaluation of how they disrupt traditional power dynamics.

1: Removing structural barriers for investees

Currently, investors often require certain assets - including personal assets - to secure transactions. This can significantly limit and sometimes block certain types of enterprises and entrepreneurs from accessing the capital they need to launch or grow a business.  

Conversely, trust is at the centre of the Coralus model. Coralus intentionally expanded the diversity of its portfolios by changing asset requirements – they don’t ask for collateral or guarantees. Entrepreneurs are held accountable by being an active part of the community that funds them. As the intermediary, Coralus is shifting power by taking on the risk of defaults.  

2: Valuing lived experience when conducting due diligence

Investment analysts' lack of diverse knowledge has led to a limited understanding in how they evaluate exit potential of a company, which informs their risk, return, and valuation assessment. This narrow lens means they will pattern-match to what has previously been successful, reinforcing market norms, and failing to incorporate data on social inequity patterns into analysis. There is also little transparency about the data or methods used to assess a company’s potential, which means decision-making is liable to be subjective and biased.  

Coralus Activators are willing to use their power to change the due diligence process by signaling that social norm patterns are material to the evaluation of a company's potential. Coralus explicitly celebrates and values the lived experience of its Activators in decision-making of which ventures are selected for the loan, and also values the lived experience of entrepreneurs they are supporting. The Coralus team provides office hours and recommendations of how venture selection occurs and what Activators are looking for and share those with entrepreneurs so that the selection process is as transparent as possible upfront.

3: Re-assessing what investors look like

There is a norm around what an Investor should look like and what type of investor experiences are valid (i.e., anything that demonstrates financial expertise). There are other forms of expertise that could improve investment decision-making, but these are not always included in the investor selection process. Investors are also incentivized to complete their work in predictable ways, because their KPIs are based on narrow understandings of their fiduciary responsibilities (i.e. maximizing shareholder wealth). Investment firms don't want to risk their reputation by rewarding investors who perform well in other responsibilities.

Coralus values Activators who, instead of investment experience, can demonstrate deep localized knowledge, working with marginalized groups, and experience monitoring their impact. The organization builds transparency and feedback loops into core processes to ensure that they can evaluate the breadth of knowledge and experiences of its Activators, and fill in any gaps.

4: Addressing power in term sheets

Although a term sheet outlines an agreement, it is not legally binding. The term sheet is often a window into who has power, where, and how they intend (and are legally allowed) to use it. How investors behave and use their power during and after the creation of the term sheet, until a final contract is signed, is a great opportunity to evaluate the relationship and long-term possibility of success for all stakeholders. Typically, the entity or individual with more power, more experience, or less flexibility sets the initial terms. In many cases, the lead, largest or first investor will offer a term sheet that becomes the foundation for other investors.  

The Coralus loan agreement states expectations upfront that are shared throughout the application process. The agreement is co-designed by people with different expertise and represents the interests of all parties. Coralus does not change the contract agreement from its initial terms, and holds itself accountable for executing future agreements in alignment with the term sheet. The terms acknowledge potential imbalances in power and expectations and promote action and conversation to resolve any future imbalances (e.g. in the case of defaults or late payments). Coralus also reviews its term sheet as needed to ensure integrity regardless of investment context (e.g., it offered more flexible payment terms to all ventures during the COVID pandemic).

5: A fair fee for intermediaries creating more equitable investments

Management fees are not tied to the underlying financial performance of the fund. Therefore, the price that asset managers charge is tied more to the perception of their skills and perceived value of their service. There is also an industry standard of what is considered acceptable (i.e. 2% of assets under management). Because so much of the system is driven by norms around trust and validity, adhering to industry standard fees makes it difficult for an investor to ask for a different fee without undermining how the asset management industry works.

Coralus charges a 10% fee for operating a system that creates equitable investment. This fee allows Activators to access a more inclusive set of enterprises and allows Coralus to build their capabilities and capacity to address social inequities in the investment process. The fees include value-added activities for Activators on top of the operations to create more equitable investments.  

Coralus is transparent about how it spends management fees and has a feedback loop with regular benchmarking. Any changes to their fee structure are evaluated for bias and privilege to maintain an equitable pricing approach.

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