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Exclusive: QED, Khosla-backed Teamshares aims for $100M raise, then IPO

Feb 1, 2024
Animated illustration of a blinking cursor forming the "I" in "IPO".

Illustration: Shoshana Gordon/Axios

Teamshares, a startup that buys up small businesses lacking succession plans, aims to raise at least another $100 million this year and to go public by early 2027, CEO Michael Brown tells Axios.

Why it matters: Brown sees an IPO as essential to the company's business model.

Details: "We're going to do it in the next three years," Brown said of an IPO. "The lesson from last year was also that the private debt markets basically froze out and got incredibly expensive. Public companies just soldiered on."

  • The New York-based company also plans to raise a Series E round of at least $100 million this year.

Flashback: The startup revealed last year that it had raised $245 million from investors including Khosla Ventures, USV and QED Investors.

  • Noting that a growing number of small businesses are shuttering due to the lack of a succession plan, Teamshares offers their employees a way to eventually take over the company — even if they don't have the cash upfront.
  • Since its 2019 founding, Teamshares has bought 89 of these companies.
  • Immediately after buying the business, Teamshares gives 10% of the shares to employees.
  • Then, using a portion of the company's cash flows, the business will gradually buy the shares from Teamshares and distribute them to employees. Teamshares' goal is to bring employee ownership in these companies to 80% within 20 years.
  • It buys only profitable businesses with $1 million to $10 million of revenue, to avoid bidding wars with midmarket private equity firms.

Between the lines: Teamshares uses a mix of equity and debt to finance its deals. The IPO plan stems from debt being cheaper for public companies than for private entities.

  • "From our perspective the public companies continued to issue debt pretty cheaply last year," says Brown. "But in the private markets, the cost of debt went into the mid-teens."
  • The effective yield on BBB-rated corporate debt hovered around 5% to 6% last year.
  • "We've concluded we absolutely need to be a public company. It's critical," says Brown.

Of note: Teamshares closed a $75 million debt facility last year with Sound Point, enabling Teamshares to buy 50 to 60 more companies — and giving it a more diverse base of creditors. It previously raised $150 million in debt from i80 Group.

How it makes money: Unlike a private equity model, Teamshares has no plans to sell the companies it buys.

  • Instead, it takes dividends. It also expects shares of the company to have risen in value under its stewardship, giving it a profit when it sells the shares back.
  • Teamshares also recently launched a suite of small-business fintech products, including neobanking, charge cards, business insurance, and health insurance. Those products are intended to generate recurring revenue and eventually to be available to non-Teamshares businesses.
  • It expects to be EBITDA profitable this year.

The bottom line: The median age of VC-backed companies that go public has been resetting. In 2022, median companies were 14 years old at IPO. In 2023, that figure was 8.5, per University of Florida professor Jay Ritter.

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