The Brief | November 13, 2019

The Brief: Leveraged buyouts for workers, steward ownership, kangaroo bond, reading app, carbon offsetting, health teleconsulting

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Greetings, Agents of Impact!

Signals: Stakeholder Capitalism

Leveraged buyout funds help businesses convert to worker-ownership. The widening wealth gap has sparked interest in worker ownership models that can build individual and community wealth. Across the U.S., about 6,000 companies have Employee Stock Ownership Plans, or ESOPs, and another 450 are worker co-ops. But the complexity involved and a lack of capital means those numbers have barely budged in recent decades. and other accelerator programs are growing a new generation of worker-owned businesses (see, “Accelerating co-op businesses to expand ownership for workers and customers”). The real opportunity for impact at scale, however, is in converting established businesses to worker-ownership as Baby Boomer business owners (who own half of the 1.2 million U.S. businesses with 10 or more employees) retire.

The solution may be leveraged buyouts, without the Gordon (“Greed is Good”) Gekko overlay. Transform Finance lays out the buy-out fund model in “Investing in Employee Ownership: Financing Conversions Through a Private Equity Fund Model.” The report includes impact considerations for scaling conversions while ensuring that workers benefit from the process. “This is an opportunity to seize the current interest on the part of investors to experiment with shared ownership models,” Transform Finance’s Andrea Armani told ImpactAlpha, “within the bounds of a form – the private equity buyout – that is relatively familiar.” New funds targeting such conversions are structuring terms to meet the needs of owners without putting undue risk on workers. The early movers:

  • Conversions. In Cleveland, Evergreen Cooperative is known for its network of employee-owned enterprises, like the Evergreen Cooperative Laundry. The co-op has raised $5 million (toward a planned $20 million) for its Fund for Employee Ownership, a concessionary debt fund to acquire small and mid-sized businesses in northeast Ohio and convert them to employee ownership. The cooperative may also raise a private equity fund.
  • Inclusive capitalism. Chicago-based American Working Capital, a middle market merchant bank, is raising a $200 million fund to finance ESOP-based deals. The bank’s Inclusive Capitalism Fund seeks to create positive social impact while generating returns in the mid-teens. The firm helped the management of 95-year old Homeland Stores in Oklahoma City buy out Associated Wholesale Grocers with an ESOP.
  • Temporary equity. Since The Working World was founded in Argentina in 2004, it has helped create and finance more than 250 worker-owned businesses in mostly low-income communities. A U.S.-focused fund launched in 2012 has deployed $9 million, and last year facilitated over 10 small business conversions. The Working World temporarily holds equity as it converts the business to employee ownership and brings it into the Evergreen network. A new fund of $30 to $50 million will invest along the U.S. East Coast.
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Organically Grown: This is what stakeholder capitalism looks like. In a guest post on ImpactAlpha, Candide Group’s Aner Ben-Ami reports from the first annual stakeholder meeting of the Sustainable Food Perpetual Purpose Trust. The trust now owns 100% of Oregon-based Organically Grown Co., a large distributor of organic produce in the Pacific Northwest, through an ownership structure that puts mission ahead of profits and ensures a balance of power and return among five stakeholder groups. Candide helped structure and finance Organically Grown’s “steward ownership” model, alongside Purpose Network and RSF Social Finance.

  • Distributing power. To kick off the trust’s meeting in Portland last week, Joe Rogoff, one of three ‘Trust Protectors’, or ‘keepers of the mission’ for Organically Grown, and a former regional president at Whole Foods, asked coworkers, growers, community allies, customers and investors to stand up in turn. “It quickly became clear we were experiencing a truly unique change from the existing paradigm of ownership and power,” writes Ben-Ami.
  • Read, “This is what stakeholder capitalism looks like,” by Candide Group’s Aner Ben-Ami.

Dealflow: Follow the Money

“Kangaroo bond” helps Australians export financial inclusion. Australia’s impact investors have backed 10 domestic social impact bonds, along with private-equity funds for healthcare, affordable housing, jobs and indigenous communities. To tap Australian investors for impact initiatives outside their home turf, fixed-income specialist FIIG Securities rolled out a “kangaroo bond” with VisionFund International, a subsidiary of Christian relief organization World Vision. The bond, FIIG’s first impact offering, allows foreign companies and organizations to raise debt from Australian investors in Australian dollars. The partners raised A$20 million ($13.8 million) to expand VisionFund’s microfinance services, which has a current loan portfolio of $426 million with one million borrowers in 28 countries. Jump in.

French entrepreneurs raise $5.5 million for Lalilo’s U.S. literacy app. American students got poor grades for reading proficiency in the latest national report card from the National Center for Education Statistics. Entrepreneurs Amine Mezzour and Laurent Jolie believe American students could boost literacy levels with Lalilo, their online literacy tool for K-2 students. The tool for English learners is marketed directly to teachers. Lalilo also offers a French service via a partnership with the French ministry of education. Partech Partners, Citizen Capital and Educapital invested $5.5 million in Lalilo’s Series A round to support expansion in the U.S. Read on.

Kilara Capital backs carbon offset startup TEM. Tasman Environmental Markets helps companies like Qantas Airways and B&O Cruises offset their carbon emissions. Impact investor Kilara Capital invested $9 million in the Melbourne-based company, to help achieve “net zero emissions, economy-wide, as quickly as possible.”

U.K.’s Visionable raises £9.1 million for video-based health consultations. An aging population is straining the U.K.’s public health system. Health tech startup Visionable is helping clinical workers monitor cancer and stroke patients at home. Private equity firm West Hill Capital led Visionable’s funding to support its video consultation platform.

Agents of Impact: Follow the Talent

BlueOrchard Finance is looking for an associate fund manager for its blended finance and impact management team in Geneva… Triple Jump is hiring an operations manager of investment management in Amsterdam… Circularity Capital is recruiting an Investment Associate in Edinburgh (see, “Circularity Capital closes £60 million fund for European circular economy ventures”)… Equilibrium Capital seeks an analyst for its water, waste and energy team in Portland.

Thank you for reading. 

– Nov. 13, 2019