This is an English adaptation of a FoodBud historical article originally published on October 22, 2023.
A startup is trying to standardize one of the hardest problems in small business: succession.
Teamshares was four years old in 2023. In that period, the company had raised $245 million in venture funding from investors including QED Investors, Spark Capital and Union Square Ventures, plus $150 million in debt financing. It had also acquired more than 80 independent small businesses.
Those companies ranged from cafes and salons to small restaurants and boutiques. They operated across 29 U.S. states and more than 40 industries. Teamshares' much larger stated ambition was to buy as many as 10,000 small businesses.
Teamshares describes itself not as a private equity firm, but as a fintech company serving small businesses.
In the U.S., the market it targets is large. According to the U.S. Small Business Administration, the country had more than 33.2 million small businesses, a number that was still growing. Small businesses accounted for 99.7% of employer firms, provided 64% of private-sector jobs and contributed more than 40% of GDP. More than 18% of U.S. small businesses were founded by immigrants.
Yet only about 15% of small-business owners chose to pass their companies on, usually to family members. Many others eventually closed.
As the U.S. population ages, Teamshares sees an opportunity in helping these companies survive succession. Its stated vision was to help a network of 10,000 small businesses become employee-owned, creating $10 billion in equity wealth for working Americans while helping a generation of owners retire.
Teamshares buys small businesses from retiring owners, typically with annual revenue of $1 million to $10 million. After the transaction closes, it grants 10% of the company to existing employees.
The seller gets a relatively fast exit and can retire sooner. Teamshares then appoints and trains a new president for the business. Employees receive the initial 10% ownership stake, and the president receives an additional 5%.
Financially, Teamshares compares its structure to Berkshire Hathaway. If it acquires a business with $5 million in annual revenue, that company becomes an income source. Teamshares receives a share of profits proportional to its ownership, then gradually sells shares back to the company until employees own 80%.
Teamshares has also opened additional revenue channels, including a digital bank and credit cards, and was building an insurance business.
Although Teamshares may sometimes buy businesses below market price, its package includes new leadership, training and employee ownership. The company said it would raise employee ownership to 80% over 20 years.
Citing Harvard Business Review research, the article notes that a stronger sense of ownership can raise company profits by 14%.
Because of the employee-ownership model, Teamshares says the businesses it buys are not resold. They continue operating as part of their local communities, while employees gain a path to build personal wealth.
There is precedent for similar logic. In 2015, KKR acquired a door manufacturer and promised that, if sale targets were met, each employee would receive at least $15,000. In 2022, when KKR sold the company for 10 times what it had paid, 800 employees shared $360 million in proceeds.
Teamshares claimed it completed 90% of intended transactions, an unusually high rate. The harder question is whether that effect can scale.
Teamshares' founding team came to the idea through direct exposure to ownership transitions.
Before founding Teamshares, co-founder and CEO Michael Brown worked for years in investment banking, advising large companies on mergers and acquisitions. That experience introduced him to business ownership and to his future co-founders, Alex Eu and Kevin Shiiba.
Early on, Brown bought an electrical contractor in western Canada as his first small business.
After operating the first acquired business, then a second, the founders noticed that succession was a recurring issue for many similar companies. According to a report from the Exit Planning Institute, 70% of U.S. small businesses whose owners wanted to sell could not find buyers and were forced to close. The impact could be severe for owners, employees and communities.
For the three founders, succession was both a business opportunity and a way to address wealth inequality. Teamshares was founded in 2019.
Teamshares also provides support services to the companies it buys, especially technology and financial infrastructure.
In a recent interview, Brown said Teamshares looks for companies that share needs around employee ownership, financial education, president programs and finance systems. For example, it helps companies move from small family-style accounting to real financial infrastructure, including monthly GAAP financial statements.
Brown said Teamshares wants these companies to remain as independent as possible, while the parent company provides support and works closely with presidents.
Its portfolio represented more than 40 specific industries, but Brown said they could broadly be grouped into six categories: business services, consumer services, distribution, manufacturing, foodservice and retail. These were traditional businesses with an average age of about 30 years and annual revenue typically between $2 million and $10 million.
Teamshares believes employee ownership can apply across industries. However, of roughly 70,000 potential opportunities it reviewed each year, final decisions were made case by case. The company first screened through structural criteria: whether it was truly a retirement sale, whether the owner was older, whether the business had two or more managers, whether customer concentration was low, and whether revenue appeared on tax returns.
As its small-business network grew, Teamshares planned to organize portfolio companies into industry groups. For foodservice companies, the first objective was joint purchasing.
Teamshares reflects a broader shift in tools serving U.S. small businesses. Alongside Teamshares, platforms such as Smobi had emerged to digitize the small-business transaction process, making it easier for buyers to purchase physical small businesses and for sellers to find more efficient exit channels.
But acquisitions are only the start. Before Teamshares and Smobi, a wave of startups acquired small and midsize Amazon sellers, trying to build brand groups by combining acquisitions with centralized operating capabilities. Three or four years later, many of those companies had not met investor or market expectations.
For operators, the lesson is clear: buying small businesses may not be the hardest part. The decisive issue is whether the acquirer can manage, improve and integrate those businesses with enough operating discipline after the deal closes.
Note: Funding amounts, acquisition counts, ownership targets, IPO/M&A-related figures and forward-looking plans are historical, based on the source article dated October 22, 2023.