For social entrepreneurs concerned about growing income inequality in the U.S. and around the world, one way to spread the wealth is through employee ownership. With that in mind, you’d think impact investors would be clamoring to invest in such companies. But, not so much.
They may be missing out. “Companies with meaningful ownership and participation by employees tend to be more competitive, more resilient during economic downturns and less likely to move out of their communities,” says Mary Ann Beyster, president of the Foundation for Enterprise Development.
While impact investors have yet to embrace the field wholeheartedly, there are some options for employee-owned ventures in need of capital. Beyster outlines those options in a report called Impact Investing and Employee Ownership, published by Fifty by Fifty, an initiative of the Democracy Collaborative.
There are primarily two types of employee ownership.
Employee Stock Ownership plans (ESOPs) are structures that allow entrepreneurs to sell ownership in their company to their employees. ESOP shares are held in trust, and the number of shares can vary among employees. Companies can be partially or completely employee owned.
Worker cooperatives, on the other hand, are democratic organizations that put ownership and control in employees’ hands—one member, one share, one vote.
So where’s the main investing action happening? The report found activity in the following areas:
Community development financial institutions. A handful of CDFIs focus on financing employee ownership—specifically, 6 of the roughly 800 CDFIs that exist nationwide. For example, The Working World, with $5 million in assets under management, was established in 2004, started investing in the U.S. in 2012 and was granted CDFI status in 2016. It makes direct loans and profit-sharing arrangements with cooperatives using a floating rate of return. Other CDFIs have been at it for a longer time. Capital Impact Partners was an early investor in worker cooperatives and has deployed over $2 billion over a period of 30 years.
Private equity. The report found two private equity firms focusing on financing employee-owned companies with revenues of $15 million to $350 million. Example: Long Point Capital, which provides capital to buy companies through ESOP buyouts and supports existing ESOP companies. Also, there’s a new Chicago-based fund in formation by American Working Capital.
Bank. That’s correct—bank, not banks. National Cooperative Bank is dedicated to supporting cooperatives of all kinds.
Employee-owned businesses “are more connected to their communities, better for their workers, and are measurably more stable and productive than traditional investor-owned corporations,” according to the report. Nationwide, there are an estimated 1,600 to 4,400 companies that are majority employee-owned, and the number is expected to grow.
So why the underwhelming interest? Another Fifty by Fifty report, The Role of Impact Investors in Taking Employee Ownership to Scale, says there are a great many reasons, ranging from a lack of knowledge and a perception of sub par returns, to a lack of infrastructure for impact investors.
The report suggests some solutions: Combining qualitative information, such as personal stories, with quantitative tools to communicate the value of employee ownership, creating a national employee buyout bank and developing a more accessible employee ownership investment vehicle as an educational tool.
Anne Field is a New York-based journalist who writes about social enterprise and impact investing. A version of this article originally appeared on her Not Only For Profit blog on Forbes.com.