New York-based fintech startup Teamshares has been quietly making a mark in the U.S. small business sector. The company, founded in 2018, aims to acquire small businesses from retiring owners and offer employees a stake in the company they work for. So far, the startup has acquired 84 small businesses, and it has no intention of selling them. Rather, its business model revolves around providing these companies with an array of fintech products, from credit cards to insurance.
Small Businesses: A Vast yet Underserved Market
According to data from the U.S. Small Business Administration, small businesses account for 99.7% of U.S. employer firms and 64% of private-sector jobs. However, only around 15% of small business owners have succession plans involving family members, leaving a large percentage that either shut down or are sold. Teamshares is betting on this market gap to widen due to the aging population in the U.S.
Financial Backing and Market Positioning
To fuel its ambitious goals, Teamshares has raised $245 million in venture capital from high-profile firms like QED Investors, Spark Capital, Union Square Ventures, Inspired Capital, Khosla Ventures, and Slow Ventures. It also secured an additional $150 million in debt. Despite the significant financial backing, Teamshares differentiates itself from private equity firms by focusing on long-term ownership rather than quick reselling.
The Profit Mechanism: Dual Revenue Streams
When asked about how the company plans to make money, Teamshares CEO Michael Brown explained that the startup profits from the companies it acquires. It begins by gifting 10% of the business’s stock to employees and another 5% to a new president. The company then aims to dilute its stake gradually until the business becomes 80% employee-owned. In addition, Teamshares is developing its own fintech products, aiming to replace vendors that the acquired businesses previously used.
A Paradigm Shift in Business Ownership
Michael Brown and his co-founders, Alex Eu and Kevin Shiiba, have a history in investment banking and small business operations. Their unique approach aims to shift the traditional norms surrounding business ownership by incentivizing employees through stock options. Similar to Berkshire Hathaway, Teamshares profits from the businesses it owns and continues to operate them.
A Strategy for the Long Term
Teamshares aims to build a brand known outside its immediate sphere by integrating fintech products and services into the businesses it owns. With its dual-revenue stream, involving both the operational profits of acquired companies and fintech product sales, the company has carved a unique position in the market.