Bridging the Gap: How Institutional Capital Can Accelerate Employee Ownership Growth

A recap of insights from the Aspen Institute's Employee Ownership Ideas Forum, April 2025

As millions of business owners face succession without successors, and inequality deepens, employee ownership has emerged as a powerful tool to build wealth, stabilize communities, and sustain local economies. Backed by growing bipartisan support, the movement has never been more promising. Yet to move from promise to scale, one ingredient remains elusive: institutional capital.

This was the central theme at the Aspen Institute’s recent Employee Ownership Ideas Forum, where a panel of investors and field leaders explored “Bridging the Gap Between Institutional Investment and Employee Ownership.”

With over $670 million in active fundraising underway across specialized employee ownership funds—more than the current $500 million in assets under management—the EO investment ecosystem is poised for a major leap. But the road to scale still requires crossing a critical chasm: mainstream capital market adoption.

Capital Is the Catalyst

“We’ve just got to get off the sidelines,” urged Lindsay Zizumbo, Executive Director of the Sorenson Impact Foundation, setting the tone for the discussion.

Alongside Catherine Toner (Managing Director of Impact Investing, Gary Community Ventures), Ted Margarit (Managing Director, Paralign Capital Partners), and Alison Lingane (Founder, Ownership Capital Lab), Zizumbo underscored what many in the EO community already know: capital is the most important lever we can pull right now.

These funds aren’t just conceptual—they’re ready to acquire companies, transition them into employee ownership (via ESOPs, EOTs, or perpetual purpose trusts), and deliver market-rate returns with measurable impact. The challenge is no longer convincing business owners—it’s convincing capital allocators that these are investable deals.

The Emerging Manager Bottleneck

Lingane offered a sobering reality check: “Every one of our funds in the space is an emerging manager.”

Whether raising a first or second fund, EO investment managers are caught in a familiar catch-22. Institutional investors prefer fund managers with a track record—but these managers need institutional capital to build one.

Zizumbo emphasized the essential role of foundations and family offices in filling this early-stage capital gap:

It’s not just about capital—it’s also about confidence. These early investments build credibility that helps unlock follow-on funding.

Reframing the Investment Thesis

A key insight from the panel: institutional investors aren’t saying no—they’re saying make it legible.

As Catherine Toner explained, attracting institutional capital requires translating EO models into familiar investment frameworks:

Ted Margarit reinforced this point: investors love the mission, but it's not their starting point. Their first questions are:

• How do you generate returns?

• How is this differentiated?

• What’s the timeline for liquidity?

This shift in narrative—leading with financial strategy, not social impact—is already resonating with some investors. Margarit shared an example of a family office in Nebraska that started with private credit goals but now actively requests EO-aligned opportunities.

Policy as a Capital Multiplier

Colorado is demonstrating how smart public policy can help de-risk employee ownership transitions and unlock more private capital. Toner described two key state-level innovations:

• Capital Gains Incentive: A state-level adaptation of the federal 1042 rollover, offering a capital gains exemption for owners who sell at least 20% of their business to a broad-based employee ownership structure.

• Cash Collateral Program: A mechanism to reduce the need for personal guarantees and unlock better financing terms for EO transactions.

These tools address key friction points in EO conversions—particularly for mid-sized firms that struggle with liquidity or lending risk. More states adopting similar approaches could rapidly expand the pipeline of investable deals.

Bridging the Duration Gap

Margarite also flagged a structural barrier: duration.

“What we struggle with in the ESOP context is... that duration to get their capital back is long. We always say it’s 7 to 12 years.”

For many institutional investors accustomed to 3–7 year cycles, this is a stretch. But Margarit believes it's surmountable—particularly as higher interest rates push traditional private equity into reassessment, and investors seek alternatives with more sustainable returns.

Four Strategies to Unlock Scaled Capital

The panel surfaced four practical strategies for accelerating institutional investment into employee ownership:

1. Reframe the pitch: Position EO within established asset classes (private credit, mezzanine debt, dividend recap) rather than as a niche impact play.

2. Back emerging managers: Foundations and mission-aligned investors must act as catalytic capital, helping fund managers cross the credibility threshold.

3. Advance supportive policy: Incentives like Colorado’s capital gains tax exemption and cash collateral program should be replicated across states.

4. Standardize performance data: Develop robust benchmarks and reporting tools so investors can compare EO vehicles to conventional alternatives.

This Is the Moment

Perhaps the most powerful sentiment came from Zizumbo, who issued a call to action that captured the panel’s shared urgency:

The employee ownership field is no longer experimental. The strategies are working. The capital is circling. The only question is whether we have the infrastructure and conviction to bring it all together.

For institutional investors still watching from the sidelines, the message is clear:
This is a real asset class, with real returns, creating real impact—and the time to engage is now.

This article is based on a panel discussion from the Aspen Institute's Employee Ownership Ideas Forum, featuring Lindsay Zizumbo (Sorenson Impact Foundation), Catherine Toner (Gary Community Ventures), Ted Margarit (Paralign Capital Partners), and Alison Lingane (Ownership Capital Lab).

If you found this story useful…

The EO Sector newsletter shares practical insights, real-world case studies, and actionable ideas about employee ownership and inclusive business models.

Subscribe now to learn how forward-thinking companies are redesigning ownership — and what you can apply in your own work.

👉 Join the EO Sector newsletter