In 2018, CERO was a winner at the Massachusetts Sustainable Business Awards. A few years prior, Cutting Edge Capital helped them complete a successful DPO. Listen to CERO general manager, Lor Holmes reflect on their experience and give advice to other organizations interested in direct public offerings.
Insights from Innovators Over the years, we’ve had clients from across the US complete a wide variety of capital raises. We followed up with a few of them to hear about their experiences and the advice they would offer other businesses considering a public...
Seventeen years ago a small pickling company called Real Pickles, based in Greenfield, Massachusetts, became dedicated to changing the food system. Owners Addie Rose Holland and Dan Rosenberg practice traditional fermentation using only produce sourced from local family farms. Their pickles are a representation of how they operate their mission driven business — with meticulous care.
Part of Real Pickles’ vision to change the food system included transitioning their business into a worker-owner co-operative to actively support their workers and demonstrate a working model for other food businesses to follow.
Twelve years after Real Pickles was founded, Addie and Dan began the process to worker-owned co-operative by evaluating capital raising strategies to successfully make the transition. They chose a direct public offering (DPO) strategy (that Cutting Edge Capital structured and advised on), finding that a community capital raise aligned with their mission to build up community.
After five years of settling into the success of their direct public offering, Real Pickles co-owner Addie Rose shared with us where they are now and how they got there.
What is Real Pickles? Real Pickles is a worker-owned co-operative on a mission to build a better food system. We make traditionally fermented pickles, sauerkraut, kimchi and other vegetables that are nourishing and rich in probiotics. We source all of our vegetables from family farms in the Northeast and sell our products only within the Northeast region.
When did you begin your first raise? We started our first direct public offering (DPO) community capital raise in the spring of 2013. The purpose of the raise was to finance our transition to a worker co-operative.
What was your goal amount and how long did it take to reach it? Our goal was $500,000.00 and we reached it in less than 2 months!
How did you network and market to raise capital? We started planning our networking and marketing efforts several months before the offering was approved for release. We attended many events to maintain a high awareness of our brand, and practiced a carefully-crafted message. Connections with like-minded partner organizations, including our regional Slow Money chapters and other businesses with investor connections were important for spreading the word. After twelve years in business, Real Pickles enjoyed strong community support, and we were able to leverage our years of networking and marketing to reach out to our community for this raise. See this resource for more information on our process.
What was challenging about the direct public offering process? Initially, we were expecting to work with a local attorney that could support us through the legal process of setting up a DPO. After many discussions with local firms, it was clear that we’d need to work with someone who had specialized knowledge of the securities regulations and process, as well as the interest in working with a small business (with limited resources). We were introduced to Cutting Edge Capital and found our match!
What was your favorite aspect about the DPO process? It was heartening to see how excited people in our community were to invest locally. Many people in our area are committed to local eating and shopping, but there aren’t many opportunities for local investing. The popularity of our raise demonstrated that there is an appetite for this kind of community investment opportunity!
What are the longstanding results of the capital raise? And what have those results allowed Real Pickles to accomplish? Our capital raise allowed Real Pickles to transition to a worker-owned co-operative, with all of the anticipated benefits to our employees and our larger community (see here, here, and here). In addition, we gained a fantastic group of community investors, many of whom were longtime customers or suppliers, who as investors are now even more committed to our business and our mission!
Discuss the expansion of your team and the growth of your business. Since our transition to a co-operative, we have doubled the number of worker-owners on our team (from the founding five worker-owners) and our business has continued steady growth. The new energy and ideas that new owners bring is welcomed by everyone. We feel that our business is stronger than ever, and that our team is well-prepared to guide our business into the future.
Back row, L to R: Kristin Howard, Tamara McKerchie, Heather Wernimont, Andy Van Assche, Brendan Flannelly-King. Front row, L to R: Annie Winkler, Addie Rose Holland, Lucy Kahn, Katie Korby, Dan Rosenberg.
Why did you choose the cooperative structure?
The purpose of our conversion was to demonstrate an alternative model for a growing natural foods business that keeps ownership local, supports our employees, and protects our strong social mission into the future (see here).
Have you noticed more interest or response to direct public offerings in general in your own community after Real Pickles’ success with a DPO? There has been a lot of interest in community capital raising since our DPO. In fact, our neighbor Artisan Beverage Co-operative made a similar raise within a couple of years after ours – as well as CERO in Boston. Many other business owners have reached out to discuss possibilities. It is great to see that this method of community investment is gaining momentum.
Share three key pieces of advice you have for business owners looking to go the direct public offering route.
Partner with your community to build a strong network and campaign. Make sure you are tapping into any existing “buy local” or Slow Money organizations.
Take time to prepare before your raise. Be sure to craft your messages carefully and have your materials ready to go, so that you can focus on needed networking and communication with investors.
Carefully consider the minimum share price to make it accessible (the most exciting part of a DPO!!) and yet maintain your investor pool at a manageable size (we ended up with 77 investors, which feels just right for us!).
What are you most excited about for the future of Real Pickles? I’m excited for more and more workers to become owners at Real Pickles, and I love to see our workers practicing the art of ownership. Our business is in good hands for a future of smart growth, meaningful jobs, and partnering with our community to build a better food system!
If you’re interested in direct public offerings or transitioning your business into a worker-owned co-operative, fill out our contact form here or email us at email@example.com.
The Economic Development and Financing Corporation is at 90% of its goal in its Direct Public Offering. California investors can help them reach their target by investing before February 9th.
Through a community-based Local Social Impact Investment Note, EDFC offers investors an opportunity for California residents to launch the Mendocino Wool Mill project – and shift their money from Wall Street to “Main Street.”
San Francisco’s Mission Cheese is almost halfway to their goal of opening their new restaurant, Makers Common. With some of the most creative marketing out there, they literally put the investment opportunity on the menu with a $1,000 “founders special.”
In the words of one of their investors:
“I couldn’t pass up the opportunity to support local makers. By supporting Maker’s Common you’re also supporting all the small food producers they source from. Maker’s Common has created an opportunity for me to invest in my local community, and that’s an opportunity that doesn’t come by very often.” – Buck Lucas, SF, CA
Want to learn more? Mission cheese is hosting a Happy Hour for potential investors on February 8th @ 6:30 p.m. RSVP directly on their website.
Blazing the Trail
My Trail was born in Boulder, Colorado, out of a passion for the outdoors and a desire to bring to market the very best lightweight and functional outdoor clothing and equipment. T heir merchandise will be available on their website, and they eventually plan to open retail locations in Colorado.
After completing the DPO Lab (then known as the “DPO Boot Camp”), My Trail Company has raised $294,100 of its $800,000 goal, with 150 days to go! The 1st $200,000 they brought in funded production of their best-selling styles, an e-commerce launch, the opening of a new distribution center, and the hiring of core staff.
In their offering, investors purchase preferred shares directly from the company, earning 10% annual dividends, which will either be paid in cash or accrue from year to year and be paid upon a liquidation or certain types of redemption. Investors will receive a 20% discount on product purchases.
Investors in Colorado can find more about the opportunity on Cutting Edge X, the Direct Offering Marketplace. Learn more about My Trail.
Founded in 2012, CERO Cooperative is more than just a compost hauler in Massachusetts. They are built on the mission of improving their communities while doing right by the environment. Plus, as a worker-owned cooperative all their employees are deeply vested in their success. Turns out, their community is too! Unique as a bilingual, multicultural co-op, CERO completed a year long Direct Public Offering , raising capital by selling shares of dividend-paying stock to regular community people. Lenders who were initially hesitant to take a chance on lower income entrepreneurs in the green economy are now on board, and CERO is growing, providing the jobs it promised to workers who own the company. In one year, they raised over $350,000 from their community using our Online Investment Tool and CuttingEdgeX listing site. You can learn more about their story and growth in a short video on their website.
Investing in the Silver City
A graduate of our DPO Lab, (formerly known as “DPO Boot Camp”) the Murray Hotel has received regulatory approval to conduct a DPO in New Mexico. In the heart of Silver City, the Murray Hotel is a 1938 Art Deco hotel that celebrated the 75th anniversary of its original opening in 2013. The Murray Hotel is raising $600,000 by selling membership interests in the business through a DPO. Investors may earn up to 5% return per year. The funds raised in its DPO will be used for renovations of the hotel, including guest rooms and food facilities, and for marketing the hotel and its proximate location to amazing wilderness and cultural areas. On January 21, 2016, they held their first meeting with potential investors. Read more about the Murray Hotel in this article. Stay tuned for updates on their offering!
$340,000 Raised by Composting and Recycling Worker Cooperative in Massachusetts Funds raised using innovative community financing tool
Oakland, CA – July 7, 2015 – Cutting Edge Capital (CEC), a leading firm helping social ventures and entrepreneurs raise capital, announced today that its client CERO Cooperative closed its Direct Public Offering (“DPO”) to accredited and unaccredited investors on June 10, 2015, raising $340,000 from 83 investors in Massachusetts, the state in which the offering was registered. Together, clients of the Oakland, California-based firm have now raised over $5 million using the innovative approach sometimes known as investment crowdfunding.
“With CERO crossing the finish line in its DPO, nine of our clients have each now raised their targeted funding goals from the one-hundred percent, not just the one percent. Raising capital in the future is not just about valuation, speculation, or a bet in a casino,” said John Katovich, President of Cutting Edge Capital. “It’s about community investing in community. This is truly the new capital for a new economy.”
The CERO DPO was filed with Massachusetts securities regulators in February 2014, and was approved four months later. The CERO DPO was also listed on CuttingEdgeX, a platform where mission-driven companies and investors meet, and was promoted through a widespread public outreach campaign undertaken by CERO’s five-person team.
The CERO DPO offered a four percent targeted divided over a term of five years. The offering was open to any Massachusetts resident, and investments ranged from $2,500 to $25,000, with most investors coming in at $2,500, the minimum amount accepted in the offering. Investment in the offering came predominately from the Boston area, with significant interest and support coming from residents of the Dorchester neighborhood, where the organization is located. Dorchester has a strong base among its community-minded residents who support CERO’s long-term mission of “zero waste” and green jobs (CERO stands for Cooperative Energy Recycling and Organics, or “zero” in Spanish). Notable institutional investors in the offering included the Local Enterprise Assistance Fund (LEAF) and Equal Exchange Coffee.
“Here we are a worker cooperative in a low-income community. Traditional lenders wouldn’t even talk to us—we didn’t come in the door with our own capital or a record of successful operations. Although we had thousands of hours of sweat equity and a solid business plan, we didn’t qualify for lending on any kind of traditional terms,” said Lor Holmes, Business Manager of CERO Cooperative. “We wouldn’t have been able to connect with such a phenomenal community of supporters using any other tool. Now that we’ve done it here, hopefully others can do it, too.”
CERO was helped in its DPO by early publicity gained from being awarded the “Community Leadership Award” by Boston Mayor Martin J. Walsh at the Greenovate Boston Summit. During its campaign, the co-op also received media coverage by Yes! Magazine, the Bay State Banner, the Boston Herald, and the Boston Globe.
After raising the first $100,000 in their DPO, CERO qualified for a $100,000 line of credit from the Cooperative Fund of New England. In addition to raising $340,000 in investment capital in its DPO, CERO raised $31,000 in tax-deductible donations from community members and supporters through a separate fund drive. The credit secured by the co-op and the monies raised in its DPO will be used to scale pick-up operations throughout Boston and grow the business internally.
The Direct Public Offering: The Original Securities-Based Crowdfunding Model
Available for decades, Direct Public Offerings have recently become a popular option for companies to self-underwrite and self-administer public securities offerings to both accredited and non-accredited investors in one or more states. A company can market and advertise its offering publicly by any means it chooses—through advertising in newspapers and magazines, at public events and private meetings, and on the internet and through social media channels. DPOs do not need to wait for the passage of the JOBS Act of 2012 or be posted on state crowdfunding platforms—they are legal today and they allow companies to interact directly with the public.
DPOs have helped many companies successfully raise capital from the crowd, including Ben & Jerry’s, Annie’s Homegrown, and Real Goods. DPOs also have an investor benefit: unlike platforms like Kickstarter and Indiegogo that facilitate donations or pre-purchases from individuals who may in return get a T-shirt or the product, DPOs are a true public offering of securities with the opportunity to earn a return on investment.
Other clients of Cutting Edge Capital that have successfully completed DPOs include Massachusetts pickle maker Real Pickles; California organic farm Capay Farms (Farm Fresh to You); Washington general store Quimper Mercantile; and California community grocery store People’s Community Market. In addition, seven new DPOs filed by the firm are currently live and raising funds, with another 25 DPOs being structured by the firm or in the process of being approved by state regulators.
About Cutting Edge Capital
Cutting Edge Capital provides small and mid-sized businesses and nonprofits with the information, tools, and expertise they need to raise capital in a way that fits with their unique business model and long-term goals. As experienced business lawyers, entrepreneurs, and finance experts, the CEC team has identified capital raising strategies that allow businesses to solicit non-traditional sources of funding. These strategies allow businesses to build public support and recognition at the same time they are raising funds. For more information, please visit www.cuttingedgecapital.com.
CERO Cooperative diverts waste destined for landfills and incinerators to productive use as compost in Boston’s flourishing urban agriculture sector. CERO’s worker-owners are local residents intent on creating good jobs and a strong green economy in Boston’s communities of color. They take pride in their role as environmental stewards and keeping their neighborhoods green and prosperous. Visit CERO on the web at http://www.cero.coop/.