Investors seeking to build a more equitable economy often focus on wages, education or entrepreneurship. But there’s another lever hiding in plain sight that could reshape wealth and work in America: employee ownership.
This approach shifts economic value — and sometimes decision-making power — to a broad base of workers in a business. As the largest generational transfer of business assets in US history unfolds, with more than $10 trillion expected to change hands as baby boomers retire, millions of small and mid-sized businesses employing tens of millions of people face a question with systemic implications.
Who will own the next economy?
Will these companies be sold to private-equity firms that prioritize financial returns for their investors, further growing wealth inequality? Will they close, shedding jobs and hollowing out local economies? Or can we cultivate a better path, through which employees themselves become owners, building wealth, stability and a say in their workplace? Investors, especially catalytic capital investors, have a critical role to play in unlocking this opportunity.
A field at an inflection point
Employee ownership isn’t new. From employee stock ownership plans to worker cooperatives and employee ownership trusts, these models have long strengthened businesses and communities. Research shows that employee-owned firms are more resilient, have higher retention and deliver greater financial security for workers.
Yet employee ownership remains vastly undercapitalized. Transform Finance estimates $1 trillion in capital could be productively deployed to finance employee ownership transitions. In sharp contrast, as of late 2024, Ownership Capital Lab and Transform Finance found just $500 million in assets under management across 27 specialized funds, supplementing traditional bank financing.
This gap is the result of tangible financial barriers as well as mindset barriers. For example, traditional investors are unfamiliar with employee ownership deals, leading to an exaggerated perception of risk. First-time fund managers have difficulty fundraising because they lack a track record and face uncertainty on how to benchmark their performance. These are precisely the kinds of barriers that catalytic capital can strategically address.
A newly released guide from the Catalytic Capital Consortium, or C3, provides a helpful framework for understanding the barriers that drive capital gaps and identifying strategies to overcome those barriers, including the deployment of catalytic capital. In the guide, an in-depth case study on employee ownership transitions brings the framework to life.
In the guide, C3 defines three essential roles for catalytic capital. Employee ownership needs all three:
- Seeding: Taking early bets on first-time managers or unfamiliar models that need flexible, patient partners.
- Scaling: Helping proven approaches build a track record, reach institutional scale and graduate into the mainstream.
- Sustaining: Providing long-term capital where attracting mainstream capital isn’t feasible but the impact is enduring.
Seeding: Proving what’s possible
Early philanthropic capital can help test new models and build the infrastructure for employee ownership to grow. For example, the Kendeda Fund played a foundational role, supporting organizations such as Evergreen Cooperatives, ICA Group, Nexus Community Partners and Project Equity to expand awareness, provide technical assistance and deploy investment capital. It also financed the incubation of emerging funds like Apis & Heritage Capital Partners at the Democracy at Work Institute.
These early efforts did not all aim for market-rate returns, but together they proved new approaches, strengthened field capacity and began to unlock more capital for employee ownership transitions, a gap that had become one of the biggest barriers to scaling employee ownership. Ownership Capital Lab and Transform Finance have been among the field builders shaping this ongoing work by educating investors, mapping barriers and highlighting investable opportunities.
Scaling: Building a market, not just funds
The next challenge is scale. A growing set of funds are proving that employee ownership can deliver financial returns while broadening wealth, but many still require some catalytic capital before they can attract mainstream capital.
For example, Apis & Heritage Fund I secured program- and mission-related investments to get off the ground. Mosaic Capital Partners leveraged government Small Business Investment Company financing through the Small Business Administration, showing how government and private investors can work together to lower the cost of capital. Dozens of similar funds are emerging, and they will also need patient capital to build the track record, data and the infrastructure that will allow them to scale.
In parallel, Ownership Capital Lab is building the connective tissue to accelerate scaling by stewarding the Employee Ownership Capital Roadmap — the first field-level strategic guide to growing employee ownership investing from a promising niche to a mature market at scale. Ownership Capital Lab is also launching an Employee Ownership Fund Accelerator to provide shared resources to fund managers and forthcoming benchmarking initiatives that will make fund performance and impact data transparent.
Transform Finance is leading in-depth research on new models ready to scale, collaborating with the field to unlock roadblocks and helping investors connect employee ownership to other parts of finance for systems change.
Sustaining: Capital for deep impact
Not every part of the employee ownership field will — or should — graduate to full commercial capital.
Some employee ownership funds are designed to do more than generate returns; they aim to shift how capital flows in the economy and who it reaches. Funds like Seed Commons, Shared Capital and the Cooperative Fund of the Northeast raise capital seeking zero to six percent return to provide long-term, low-cost financing to businesses that extend ownership to marginalized workers and communities. Their evergreen, community-rooted approach helps build wealth and power where traditional markets rarely invest. Sustaining capital of this kind is essential for ensuring that employee ownership fulfills its broader promise: transforming not just who owns businesses, but how the economy itself operates.
Sustaining capital recognizes that some markets are not meant to “mature out” of subsidy. They are meant to mature into impact.
Six ways to move the needle
The employee ownership case study in the C3 guide outlines many of the direct, indirect, rational and mindset barriers the field is facing. The field can begin to address these barriers by pursuing the following strategies:
Shift mindsets. Fund education and narrative work that reframe employee ownership as a competitive, resilient and scalable business model.
Capitalize funds with flexibility. Back smaller, first-time funds and funds that bridge capital gaps (e.g. senior debt for employee ownership); accept patient returns; and provide guarantees or warehousing to offset early uncertainty.
Aggregate capital. Seed intermediaries that convert fragmented capital into coordinated investment power.
Influence asset allocators. Use peer engagement, storytelling and data to normalize employee ownership as an investable approach for addressing wealth gaps and workforce resilience.
Fund field infrastructure. Provide grants for new manager support, employee education and aligned metrics and benchmarking that expand deal and fund pipelines.
Support policy advocacy. Smart policy multiplies catalytic impact. For example, the proposed American Ownership and Resilience Act would unlock federal matching capital for employee ownership funds, following the model of the Small Business Administration’s Small Business Investment Company, which launched the venture capital industry.
Each lever addresses a specific barrier — from misperceptions of risk to regulatory friction to transaction costs. Together, they form the scaffolding for exponential market growth.
The pathway to an equitable economy
Catalytic capital has already played a key role in growing the employee ownership ecosystem and achieving notable successes. Early closed-end funds are raising second vehicles with early institutional participation. Track records validate risk-adjusted returns in the low- to mid-teens. Employee ownership funds are winning deals against private equity. Federal agencies are exploring ways to align lending programs, and states are increasing support for employee ownership.
The trajectory mirrors other successful catalytic interventions, such as microfinance, community-development finance and renewable energy, where patient early capital created the conditions for commercial participation. As the field grows, catalytic investors remain critical to address new barriers as they arise and to serve as the conscience of the market, ensuring that as capital scales, it does so with impact integrity.
The next frontier is the further strategic integration of philanthropic, catalytic, commercial and public capital. In a coordinated ecosystem, philanthropy builds the field and absorbs early uncertainty. Impact investors demonstrate viability. Commercial investors provide scale. And policy cements the enabling environment.
Ultimately, success will mean two things. First, businesses across sectors can access the right kind of financing to sell to their employees. Second, workers — particularly those in lower-wage sectors, women, people of color and rural workers — gain real ownership stakes, and build their agency and wealth.
With the right catalytic partnerships, we can reshape our economic system, turning wealth extraction into shared wealth creation and making millions of workers owners of an equitable economy.
Alison Lingane is founder & CEO of Ownership Capital Lab. Julie Menter is program director at Transform Finance. Both contributed to the Catalytic Capital Consortium’s publication, “Addressing Capital Gaps.”
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
