Jenny Kassan wants people to know it isn’t difficult for them
to actually own a piece of a startup through crowdfunding. And with her own
startup, she wants to help them do just that.
Kassan is the founder and CEO of Cutting Edge Capital, a
company that enables startups to raise funds through direct public offerings.
By using its online portal, companies can raise funding through ordinary
people, giving them a stake in the company without them having to wait for it
to go public. Kassan says this expands the fundraising options for startups, who
traditionally rely on venture capitalists or accredited investors (defined as
owning $1 million in assets or making over $200,000 a year.) to fund their
“If you look at the current population demographics, you’ll
find that less than 1% have the income or assets to qualify as accredited
investors,” says Kassan. “Through a direct public offering you can
increase your pool of potential investors from the 1% to the 100%.”
Kassan says there is a common misconception that direct
public offerings through crowdfunding are heavily regulated and in some cases
even illegal. “People believe that until certain provisions of the JOBS Act
come into play, owning equity in companies through crowdfunding is too
difficult to implement,” says Kassan. While there are certain restrictions
based on the location of the company and the residency of the investors, for
the most part, Kassan says it is absolutely possibly to do, and in fact, some
major brands were already founded this way. She gives the examples of Ben and
Jerry’s, who raised funding for their ice-cream company through enthusiastic supporters in Vermont back in 1984, as well as Annie’s Homegrown who included coupons in their mac and cheese boxes, advertising their offering to customers in 1996.
Here’s Kassan talking about Cutting Edge Capital’s benefit to startups and its use as a marketing tool:
Along with the amount they aim to raise, companies can list
their profile, financial outlook and prospectus on the Cutting Edge Capital portal. People can then buy a piece of the company online through a credit card
transaction. There are no limits on the minimum or maximum amounts set by the
company, and the funding can be at any stage, whether it is starting the
venture with an angel round, or expanding it through Series A or Series B
funding. Companies can offer equity in several different forms, such as
preferred stock, or product offerings. The only restriction is the investors
need to reside in the same state the company is registered in.
The major hurdle for most companies in taking advantage of
this fundraising model is preparing the necessary compliance paperwork, which
is where Cutting Edge Capital makes its money. While it is free to list the
direct public offering on its website (for now), the company charges a fee for taking
care of all the compliance work. An attorney by profession, Kassan is a partner
at the Katovich and Kassan Law group which helps businesses process the paperwork to comply with the all
Kassan founded Cutting Edge Capital after years of working
for a community development non-profit in Oakland, where she became acutely
aware of the fundraising challenges faced by small businesses. “Most of them
can’t get loans and end up funding themselves with credit cards or mortgages,”
says Kassan. “There needs to be an alternative.”
So far, the companies listing on the site include retail, food services and clean technology businesses, but lack the tech startups so prevalent in the Bay Area. Kassan says it is because those companies are still operating on the prevalent method of looking for big venture capital firms or investors. In addition, Cutting Edge tries to focus on companies that are socially responsible and help build the local community.
Kassan envisions Cutting Edge Capital as a place where regular
people can come to invest in companies they care about. Since they can only invest in companies registered in their state, it gives people an incentive put money into local efforts that will build the community. One of the more successful fundraising projects on the platform has been the People’s Community Market, an Oakland based grocery store venture that has yet to open, but has raised $838,00 out of its $1.2 million goal using the direct public offering model. Another company, “Real Pickles” from Massachusetts transitioned from a sole proprietorship to an employee co-op used Cutting Edge to list its shares and buy out its workers. It raised $500,000 in two months.
“Our platform gives people a chance to invest in companies that help their own community, focus on being socially responsible, and are in alignment with their values, ” says Kassan.