Cutting Edge is a proud recipient of the City of Chicago Community Wealth Building and Technical Assistance Grant, as awarded by Chicago Mayor Lori E. Lightfoot, the Office of Equity and Racial Justice (OERJ), and the Department of Planning and Development (DPD).
The grant is part of ongoing efforts by the City of Chicago and Community Wealth Building Planning & Pre-Development program to provide critical funding to move community wealth building projects further down the pipeline, many of which face systemic barriers to accessing capital and are stymied by a lack of resources.
Cutting Edge is one of 17 local and national technical assistance organizations selected from 47 applicants to design and implement specialized services. Finalists were selected based on organizational experience & values; program design & implementation strategy; and organizational capacity & budget justification:
Research & Advocacy
Education & Outreach
Financing & Fundraising
Legal & Governance
Assets & Operations
Organizations will receive grants ranging from $150,000 to $380,000 to support the design and implementation of two-year technical assistance programs. Cutting Edge was selected to provide Legal and Governance technical assistance primarily focused on legal guidance on worker-ownership and community investment vehicles such as community investment funds.
“Through these grants and technical assistance programs, the Department of Planning & Development is excited to build the pipeline of community wealth building projects that meet community priorities,” says DPD Commissioner Maurice Cox.
Worker-owned cooperative conversions are the wave of the future. It’s no surprise then that tech companies are riding that wave straight to employee ownership. We are excited to showcase two new worker ownership conversions led by Cutting Edge!
As of January 1, our client Ministry of Velocity, a San Francisco-based software solutions company, welcomed a majority of its employees to ownership. Co-founder Doc Ritezel remains an owner, but wanted to share ownership, so all of the full-time employees were offered the opportunity to become a member, and the company switched to cooperative internal operations.
We are also proud to highlight our client Bread & Roses Digital LCA, a digital agency offering email and social media campaigns for advertising and organizing. Founder Aidan King had always intended his company to be a cooperative, but started off simply as an LLC. In 2022, Bread & Roses Digital invested in transitioning to a cooperative legal entity and officially added Priya Desai, Audrey Whitehurst, and Lance Tran as owners.
We also applaud Patricia Bennett for selling her company to an employee ownership trust. Last month, Ms. Bennett sold 100% of the stock of RDA Consulting back to the corporation, which placed all of the outstanding shares in a trust. As Ms. Bennett wrote in a blog post, “This perpetual trust will exist to fulfill the mission, vision, and values of RDA in serving our clients while providing equity for our employees and ensuring that RDA remains rooted in our community. “ Ms. Bennett may have had simpler and/or more lucrative options, but she chose the more complex employee ownership transaction. In our view, this will likely have the best long-term outcomes for the workers. Employee Ownership Trusts can hold companies long-term for the purpose of worker ownership.
As a law firm focused on social enterprises and a democratic economy, we are prioritizing worker ownership conversions. We have been building a practice of flexibly leading groups through the transaction, providing advice, understanding, and documentation. We have also seen multiple transactions from the seller’s side (such as with Ms. Bennett), giving us a well-rounded perspective. (We also promote worker ownership by forming start-up worker cooperatives!)
Contact us to learn how to convert your business to worker ownership or how to establish an employee ownership trust.
Community Investment Funds (CIFs) can be powerful tools for empowering communities and supporting economic democracy. They do so by investing in new or growing businesses, real estate revitalization projects or other mission driven enterprises within their defined communities. CIFs are community-centered and community-managed (through community leaders, supporting nonprofits or collectively by the larger community). CIFs help build vibrant communities through a cycle of investment, growth, impact, return (to community), and reinvestment.
Community Investment Funds are typically much smaller than mutual funds and are focused narrowly on their impact missions. CIFs are responsive to community challenges and needs and are designed not to extract resources away from the community. CIFs are designed to be exempt from the burdensome and costly regulations to which mutual funds are subject. CIFs can be conceptualized, controlled or housed in nonprofit organizations or they can be set up and managed as for-profit impact funds. Capital can flow into the funds through private or public capital raise strategies. Depending on the exemptions and capital raise strategies employed by the funds, some CIFs can offer investment broadly to the public and allow investors of all means to participate, which in turn can allow for direct community control of the fund.
Cutting Edge has served as legal counsel to many community-centered investment funds, assisting the funds on legal strategy, structure, and capital raise document preparation. We believe that CIFs are an important tool as we move to create a more just and equitable economy. Some of our representative fund clients are listed below along with a short description of their mission and impact.
Black Farmer Fund – The mission of Black Farmer Fund is to nurture Black community wealth and health by investing in Black agricultural systems in the Northeast.
WePower – This for-profit impact fund is structured to invest in Black & Latinx founders and entrepreneurs who participated in an accelerator program offered by the fund’s partner nonprofit.
Community Vision – This charitable loan fund provides capital and technical assistance for communities that have been systematically disadvantaged to ensure fairness in opportunities, resources, and rights for everyone.
Social Enterprises Benefit From Adjustments to Regulation Crowdfund Limits
Last month, the Securities and Exchange Commission (SEC) made inflation adjustments to Regulation Crowdfund (Reg CF) investment limits and raise limits. A summary of these changes can be found here. These changes affect enterprises raising capital and investors.
Changes for Issuers
For businesses, the limitations on how much capital can be raised in Reg CF offerings are dependent on what kind of financial statements the business has prepared. Businesses with financial statements that have been certified by its chief executive officer can now raise up to $124,000 (up from $107,000). Companies that have financial statements that are reviewed by an independent accountant may raise up to $618,000 (up from $535,000) or up to $1,235,000 (up from $1,070,000) if it is the company’s first Reg CF raise. If a company has audited financials, it may raise up to $5,000,000 (this limit is unchanged).
Changes for Nonaccredited Investors
Investors are either considered accredited (high net worth or high income) or nonaccredited depending income or net worth standards. Reg CF limits how much nonaccredited investors can invest based on the investors’ income or net worth. These limits were also adjusted by the SEC. Currently, a nonaccredited investor may invest $2500 or 5% of their annual income or net worth if their annual income or net worth is less than $124,000 (up from $107,000). A nonaccredited investor, whose annual income and net worth are at least $124,000 (up from $107,000), may invest the greater of 10% of their annual income or net worth up to $124,000 (up from $107,000).
Impact of These Changes on Social Enterprises
Our clients are all social enterprises of one type or another. For these types of businesses, the changes described above allow more money to be raised without spending more money on preparing financial statements. Additionally, many social enterprises rely significantly on investments made by their community, which often includes many nonaccredited investors. These community investors can now invest more into enterprises that match their values.
Reg CF Client Offerings
See how some of our current clients are utilizing Reg CF:
Cubo Beverages is offering up an alternative and sustainable pod-based juice machine that can deliver restaurant-quality smoothies, coffee, tea, juices and wellness drinks with all natural ingredients in under two minutes.
Freakin Fitness is raising capital to fill the gap between large-chain traditional gyms and small community-based functional fitness centers.
Dishquo has developed a meal planning nutrition app that offers customized meal plans, automated grocery lists, 3000+ healthy recipes, health and wellness tools and more.
The Karisha Community Center for Wellness in Austin, Texas is a whole person healthcare community center designed to address healthcare inequities and disparities reinforced by the current model of medical care by shifting from sick care to whole person collaborative care.
Momentors is a software platform developed to provide the right expert information at the right moment. In three simple steps, individuals can get solutions to real-world problems from verified experts.
Sarah Kaplan has joined the partnership at Cutting Edge Counsel. Sarah first affiliated with the firm in 2015 and joined as an Associate in 2021. Sarah has 10 years of experience serving a wide range of cooperatives, including worker, consumer, agricultural, platform, investment, and multi-stakeholder cooperatives, including limited cooperative associations. Her focus also includes securities law, helping clients raise capital from their private networks, their stakeholders, or the public. Sarah also regularly handles legal structuring issues for businesses, general small business matters, and trademarks.
“We are thrilled that Sarah has accepted Cutting Edge’s partnership invitation. She is a key member of our leadership team and demonstrates the commitment to impact and innovation we so highly value in our attorneys,” said Kim Arnone, managing partner. “Adding her as partner strengthens our firm and reinforces our commitment to providing exceptional legal services to cooperatives and other impact enterprises.”
Sarah has been a Fellow of the Sustainable Economies Law Center since 2013. Sarah graduated magna cum laude from Chicago Kent College of Law. Sarah has her A.B. from Princeton University. She has previously lived in Chicago and the East Bay Area of California, and now lives and gardens in St. Louis, Missouri. She is licensed to practice law in Illinois and California.