Business Legacy Fund to Finance Employee Ownership Conversions
Co-op Cincy looks to sustain local businesses and jobs
By Karen Kahn
According to Roy Messing at the Ohio Employee Ownership Center at Kent State, even before the pandemic, “5500 Southwest Ohio businesses were at risk of closing due to a lack of a viable succession plan.” With COVID-19 having pushed the U.S. economy into recession, many more small businesses are at risk of closure. That could lead to a significant loss of jobs that would further undermine the region’s economy.
In the face of these pressures, the nonprofit cooperative incubator Co-op Cincy is partnering with SEED Commons, a national financial cooperative, to create the Business Legacy Fund, a multimillion dollar continuity fund that will finance employee ownership transitions.
We want business owners to know that selling to employees may be their best choice for succession planning and that the Business Legacy Fund is here to help.”
— Ellen Vera, cofounder and development director of Co-op Cincy
To apply for financing through the fund, businesses must first apply to Co-op Cincy to participate in a technical assistance program to explore whether employee ownership is a good fit and to determine the viability of transitioning to either a worker cooperative or an Employee Ownership Stock Plan (ESOP). Applications are currently being solicited, through November 15, for a first cohort of participants.
Participating businesses will receive technical assistance (TA) valued at up to $20,000 to explore the feasibility of an employee ownership transition, develop their transition plans, design new governance and management structures, and build strong ownership cultures. If a decision is made to go forward with the employee acquisition, the Business Legacy Fund will provide “very patient” capital, says co-founder of Co-op Cincy and Development Director Ellen Vera. Businesses won’t be required to pay back their loans until they reach and maintain a certain level of profitability.
The fund is focused on transitioning small- and medium-sized enterprises in the Southwest Ohio region. In particular, Co-op Cincy is looking at manufacturers, logistics operators, and industrial services, all businesses that are strong in the region. But applications for the first cohort of participants include a wide range of service and manufacturing businesses, including a childcare business and a coffee roaster.
To build a pipeline of interested owners, says Vera, outreach to the business community is crucial. Co-op Cincy is educating financial advisors, lawyers, economic development professionals, accountants, and business brokers, as well as groups like the Black CEO Roundtable and Chamber of Commerce. “These are the folks who are advising business owners who are ready to sell,” says Vera. “We want them to let business owners know that selling to employees may be their best choice for succession planning and that the Business Legacy Fund is here to help them make a smooth exit.”
The Business Legacy Fund joins a number of new investment funds that are hoping to bring impact investors into the employee ownership arena. Evergreen Cooperatives has launched the Fund for Employee Ownership; Shared Cooperative Capital and Project Equity have launched Accelerate Employee Ownership; The ICA Group has launched the Fund for Jobs Worth Owning, and DAWI is partnering with Apis & Heritage Capital Partners, which is using a private-equity model to finance ESOP transitions. All of these funds provide financing along with technical assistance to ensure the newly formed employee-owned businesses build strong ownership cultures, develop their leadership teams, and remain successful enterprises.
Editor’s note: Applications are open through November 15 for the first cohort of businesses interested in exploring a worker cooperative transition. For more information, visit www.BusinessLegacyFund.org
Karen Kahn is a communications consultant and the editor of Employee Ownership News.
Originally published at https://www.fiftybyfifty.org on October 28, 2020.