Welcome to the Remix, as we take our latest spin around the economy. Today’s column, “Will Impact Investing Support Employee Ownership? Here’s What the Data Say” examines the findings of a new report on the topic.
The article focuses on a new report from Transform Finance, titled Investing in Employee Ownership: Overview for Mission-Oriented Investors. As the report’s title suggests, the focus is on people and foundations who have cash to invest. This is a relatively small group. That said, a key benefit of the report is its specificity. Instead of celebrating impact investing, this report looks very specifically at 53 funds—identifying what they invest in and why, and how they might do better.
One reason to invest in employee ownership is that making workers the owners of businesses is a very effective way to reduce the nation’s absurdly high level of wealth inequality and the racial wealth gap.
Where is the field today? A few highlights:
First, the level of investment capital involved at present is about $3.8 billion. If you restrict the list to the 22 funds that exclusively invest in employee ownership, that number falls to $1.6 billion. Even $1.6 billion may sound like a lot of money, but the United States is a $25 trillion economy, so it’s a pittance. That said, the amount of capital committed to employee ownership has more than doubled in the past six years.
Second, effective impact investing funds that support employee ownership are field builders. They do more than invest capital. This “more” can include sourcing deals, helping business owners who are selling to their workers secure additional capital needed to close the sale, and even providing technical assistance after the transaction.
Third, the Transform Finance team emphasizes an integrated approach to building the field that includes partnering with larger sectors (such as the $400 billion-plus community development financial institution (CDFI) industry), creating networks of peer advisors, supporting fund managers of color, and committing capital early.
Bottom line: considerable progress is being made, but not at the pace that’s required. Failing to meet the need doesn’t just mean fewer employee-owned businesses, it potentially means more closed businesses due to a lack of available buyers or heirs.
As you read this article, I encourage you to reflect on how impact investors might better coordinate with employee ownership advocates to shift business ownership to workers more quickly. Until the next Remix column, I remain,
Your Remix Man:
Steve Dubb
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