ImpactAlpha, August 22 — Brooklyn, NY-based Teamshares has raised $245 million to build a national portfolio of 10,000 employee-owned small businesses. The opportunity: the “silver tsunami” of small businesses that “face a 70% failure rate when trying to sell and rarely transition within a family anymore,” said Teamshares’ Michael Sutherland Brown, a former Wall Street executive and small business owner who co-founded the company with Alex Eu and Kevin Shiiba in 2018.

Teamshares has bought out 84 retiring small business owners, transitioning ownership to 2,100 employees (see, “Employee ownership as a competitive advantage”). Teamshares says employee owners in its current portfolio own $27 million in shares and have earned more than $1 million in dividends; the company is hoping to create $10 billion in employee wealth.

Majority ownership

Teamshares buys small businesses that are profitable with annual revenues ranging from $1 million to $10 million, and upon deal closing, issues 10% of equity in the newly-acquired business to employees. Teamshares creates a path to majority employee ownership, as cash flow is used to repurchase and retire up to 80% of the company’s stock; Teamshares retains the other 20%. Employees, who have the option to retire and cash in on equity, remain owners alongside Teamshares.

Growth equity funding

Teamshares’ employee-owned portfolio includes Chicopee, Mass.-based auto repair shop Brad’s Service Center (see also, “A Utah auto shop demonstrates a pathway to worker ownership via a perpetual purpose trust”). Other transitions include Nebraska-based fast-food restaurant chain Don & Millie’s, and Thielen Meats, a butcher shop in Minnesota.

“Employee ownership aligns the interests of all stakeholders and makes companies better off financially,” said Frank Rotman of QED Investors, which led part of Teamshares’ $245 million raise. Participating investors include Khosla Ventures, Inspired Capital, Union Square Ventures and Spark Capital.