Project Equity and Shared Capital Cooperative partnership brings financing and technical support to employee ownership transitions
by Karen Kahn
Project Equity, based in Oakland, CA, is a national leader in the movement to grow employee ownership as a means of strengthening local business communities, creating quality jobs and honoring selling business owners’ legacies. It has long worried that insufficient capital for financing employee ownership transitions could become a barrier to growing the sector. To address that concern, Project Equity partnered with Shared Capital Cooperative, a national CDFI lender in St. Paul, MN, that has been financing cooperative businesses for over 40 years, to establish a joint initiative, Accelerate Employee Ownership.
With $5 million in seed funding from the Quality Jobs Fund—a collaboration between the New World Foundation and the Federal Home Loan Bank of San Francisco—the two organizations created this initiative to provide affordable and flexible financing for employee ownership transitions, the pipeline for which stems primarily from Project Equity’s outreach to retiring business owners. Accelerate Employee Ownership eliminates the need to search for financing for each individual firm that Project Equity identifies as interested in, and prepared for, an employee ownership transition.
The two organizations created this initiative to provide affordable and flexible financing for employee ownership transitions.
Alison Lingane, co-founder of Project Equity, says that Shared Capital is an ideal partner for several reasons. Because Shared Capital is itself organized as a for-profit cooperative (as opposed to a nonprofit CDFI), it can accept equity investments and place equity with firms. In addition, because of its decades of structuring deals, Shared Capital has multiple financing partners who understand cooperative lending and its staff has a skillset that complements those of Project Equity. For Accelerate Employee Ownership, Shared Capital does the lending due diligence, while Project Equity is doing the outreach to business owners and providing the business expertise and technical support during and after the employee ownership transition.
Says Christina Jennings, Shared Capital’s executive director, “One of the goals of the initiative is to help other mission-aligned lenders to gain experience by participating in these transactions. Bringing new lenders into this space will help grow the capital available for employee ownership transitions.”
The initiative was launched in 2019, and in its first year has supported three transitions: Adams and Chittenden, a Berkeley, CA, scientific glass-blowing business; Cal Solar, a solar design and installation company that became the first worker cooperative in Nevada County; and Happy Earth Cleaning, a Twin Cities cleaning company, supported by Project Equity and their Twin Cities partner, Nexus Community Partners. All of these deals involved traditional loans, but under the right circumstances, the Accelerate Employee Ownership initiative may also make equity investments.
Our work is about creating a pipeline of businesses ready to transition to employee ownership. But what happens if there isn’t sufficient capital to support those transitions? That bottleneck had to be eased.”–Alison Lingane, co-founder of Project Equity
Marion and Jesse Dunbar, the owners of Happy Earth Cleaning, built their company with a “people first” culture. When they made a decision to move from Minneapolis back to their hometown of Seattle, WA, they needed a succession plan. The unique, environmentally friendly business they had created had grown to 19 employees over a decade, and they didn’t want a new owner to dismantle their culture or lay off employees. So despite offers from competitors, they decided selling to their employees would be the best way to reward everyone’s hard work and sustain their legacy. A worker cooperative seemed to be the right fit.
“We chose to go with a [worker cooperative] because it gave more people a voice,” says Marion Dunbar in a video clip discussing the transition to employee ownership. “More people could be a part of it and have ownership in it.”
Over a nine-month period, the Dunbars, along with a small group of employees, worked with Project Equity and Nexus, to ensure the new owners would have the knowledge and skills they would need to successfully succeed as a cooperative. They also tapped local economic development services, including the City of Minneapolis Coop Technical Assistance Program and Neighborhood Development Center.
Support from Project Equity and Nexus will continue with the launch of the cooperative, something that Jesse Dunbar really appreciates. “Since day one, our goal has been to provide a workplace that respects the employees and provides them with a place they can grow. Knowing the team has hands-on support after our departure gives us the confidence to know we are doing the right thing for the employees and ourselves.”
Shared Capital Cooperative’s role in financing the deal was also critical, allowing the Dunbars to access the equity they had built in the business over the last decade. That’s why Lingane is excited about the financing partnership. “Our work is about creating a pipeline of businesses ready to transition to employee ownership,” she says. “But what happens if there isn’t sufficient capital to support those transitions? That bottleneck had to be eased.”
Karen Kahn is a communications consultant and the editor of Employee Ownership News.