The Five Pillars of Radical Fund Design
Why Fund Design Matters in Impact Investing 3.0
This edition of the Innovative finance Newsletter comes from Aunnie Patton Powers, the brains behind the recently launched Innovative Finance Initiative.
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…And if you like this post, there is a community call next week (June 17th) where you can hear directly from more Innovative Fund practitioners.
Now let’s dig in:
Why Fund Design Matters in Impact Investing 3.0
Impact investing has come a long way. In the 1.0 era, we worked hard to prove that you could make a financial return and deliver social or environmental impact. The 2.0 phase took us deeper—we standardized impact metrics, tackled uncomfortable questions about power and extraction, and experimented with new models. But for the most part, we still operated within traditional financial structures.
Now, as we step into what I see as the 3.0 era, it’s clear: if we want transformative impact, we have to design for it—intentionally, from the ground up.
At the heart of this is fund design. Because how a fund is designed—its purpose, structure, incentives, governance, and exit strategy—directly shapes who gets funded, what kind of capital they receive, and what kinds of outcomes they’re able (and incentivized) to pursue. A poorly aligned structure can quietly limit the ambition of an entrepreneur or distort their ability to prioritize long-term impact. A well-designed one can unlock impact outcomes we haven’t yet imagined.
The Five Pillars of Radical Fund Design
We’ve been working on a simple but powerful framework to help fund managers align every element of their design with their impact intentions. Here are the five pillars we’re focusing on:
1. Purpose: Designing for Regeneration
A fund’s purpose shows up in its investment thesis, but more importantly, it shapes the types of enterprises it helps build. Impact 3.0 funds are designed to foster regenerative, not extractive, business models.
Example: The Purpose Fund uses steward ownership to lock in mission over time, ensuring that decision-making power remains with those connected to the company’s purpose. Similarly, New Majority Capital focuses on transitioning businesses to underrepresented founders, embedding equity directly into enterprise ownership.
2. Structure: Rethinking the Box
We can’t solve systemic problems using the same tools that helped create them. Traditional structures—like 10-year closed-end venture funds—are often mismatched for the types of businesses we want to build. Impact 3.0 encourages experimentation across the capital continuum.
Alternatives: Holding companies, open-ended funds, rolling funds, nonprofit capital vehicles, or blended finance structures.
Example: Fair Capital Partners uses a permanent capital structure, giving them the long-term flexibility required to support businesses pursuing deep, patient impact.
3. Incentives: Paying for What Matters
Incentives shape behaviour—full stop. If fund managers are only rewarded for financial performance, then that’s what they’ll optimise for. But we can build incentives that reward impact outcomes alongside financial ones.
Example: Prime Coalition ties fund manager compensation to climate outcomes, including emissions reductions, making it clear that impact is not a side note—it’s the job.
4. Governance: Shifting Power
Fund governance often happens behind closed doors. But if we’re serious about equity, then we have to bring historically excluded voices into decision-making—especially those most affected by investment decisions.
Example: Citizenfund, a Belgian cooperative, gives every “cooperator” one vote—whether they invest €5 or €5,000. Investment decisions are made collectively, including setting return expectations and exit strategies.
5. Exit: Designing for Continuity
How capital exits matters just as much as how it enters. A rushed or misaligned exit can undo years of impact. Fund managers need to think beyond IPOs or acquisitions—and consider who benefits, who stays, and whether the mission holds.
Example: Apis & Heritage uses mezzanine debt to transition companies to employee ownership, building wealth for workers and preserving community-rooted businesses over time.
What Comes Next
We’re seeing a groundswell of innovation in enterprise design—everything from steward ownership to Doughnut Economics-inspired businesses. But these models will stall unless we have the capital structures to match them.
That’s where we come in.
The Innovative Finance Network is bringing together over 500 fund managers, asset owners, academics, and technical experts to reimagine what finance can be. It’s still early, but the momentum is real.
If you’re building (or investing in) the next generation of impact funds—or just curious to learn more—I’d love to have you join us. This work is collective by nature, and it will take all of us.
-Aunnie
Note: this piece was adapted from an article written with Erinch Sahan in Impact Alpha and is based on work from my forthcoming book on alternative fund structures.
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