Opportunity Knocking

Impact capital as the transformative agent to take employee ownership to scale

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As the COVID-19 pandemic sweeps through the global economy, the United States is suffering one of the worst economic crises in its history. Though fiscal policy is buoying the stock market, some 30 million workers are barely keeping their heads above water. People are waiting in hours-long lines at local food banks, and millions are behind on rent payments, leaving them vulnerable to eviction. With federal relief stalled in Congress, temporary business closures are becoming permanent, leaving Main Streets bereft of once-vibrant gathering places that produced the revenues crucial to municipal services. The downward spiral is accelerating. 

In this paper, we propose that impact investors and other capital providers could be the agents to give this crisis a silver lining by catalyzing employee ownership buyouts at scale. COVID-19 is accelerating the “silver tsunami” of business sales and closures resulting from baby boomer retirements. According to Project Equity, as many as 1.2 million baby boomer-owned businesses with more than ten employees could be put up for sale or closed in the next decade, and many of these sooner than expected as a result of the current economic crisis.

Private equity and corporations are positioned to buy up the best of these businesses to benefit the 1 percent, further exacerbating wealth inequality. But there is an alternative: impact capital could become the lever used to redirect wealth into the hands of working Americans, creating a more just and equitable economy that is more resilient against future shocks. Investments in employee ownership buyouts could offer attractive midrange returns, while at the same time ensuring worker-owners are set to achieve long-term financial security.

Building the Investment Ecosystem

Opportunity Knocking makes four key recommendations to build a more robust employee ownership investment ecosystem:

1. Develop new investment funds for employee ownership
2. Ensure employee benefit through common metrics and deal guidelines
3. Use employee-friendly approaches to value engineering
4. Grow the market by supporting this developing ecosystem with catalytic capital and take it to scale through government policy.

Sample Funds

Innovators are already entering the field. We identified a dozen new and emerging investment funds supporting transitions to employee ownership.

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Thank you to Mary Ann Beyster of the Beyster Foundation for Enterprise Development and the Rutgers University Institute for the Study of Employee Ownership and Profit Sharing for the generous Beyster Fellow award that made this research possible.