Cutting Edge Capital — Small Biz Stories, Episode 13 - 2017 Top Social Media Auto Landing Page

What am I doing to make the world a better place?

That’s the question that motivated Brian Beckon to leave the corporate world in the hopes of building a more democratic and just economy.

As a securities lawyer and Vice President of Cutting Edge Capital, Brian has the knowledge and passion necessary to help entrepreneurs raise funds from both wealthy and community investors.

Listen as he shares the most challenging parts of enacting change — from overcoming skepticism to applying solutions that have never been done before.

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You can also read the transcript below:

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Brian: And there’s something kind of amazing that happens when you really believe in what you’re doing. If you’re just doing a job, and you’re working hard for a long time without a break, you can burn out.

But if you’re doing something you’re passionate about, you almost never burn out. You may get discouraged, but you keep on going. Whereas, if it’s just a job you get discouraged you quit, you find another job.

That is probably more than anything what has gotten us through difficult times. It’s just that focus on something much bigger than any one of us or even bigger than the firm itself. It’s something really huge. We feel at the risk of sounding cocky or arrogant, we feel that we need to keep doing it because if we don’t do it who will?

Dave: That’s Brian Beckon, Vice President of Cutting Edge Capital — a consulting firm that helps entrepreneurs raise funds from both wealthy and community investors. Like so many business owners and entrepreneurs, Brian strives to make a difference by doing work that he believes in. As a securities lawyer, Brian left the corporate world in the hopes of building a more democratic and just economy. Today, he shares the most challenging parts of enacting change — from overcoming skepticism and growing an audience to applying solutions that have never been done before.

More than fifty percent of small businesses fail within the first five years. These are the stories of those who beat the odds. My name is Dave Charest and I’ll be your host as we share the stories of some of the bravest people you’ll ever meet, small business owners. You’ll hear how they got started, their biggest challenges, and their dreams for the future.

Dave: Have you ever felt like you’re not living up to your potential? In Brian’s early days out of law school, this became the rock in his shoe. Rather than sticking to a clearly laid out career path, Brian tried a few different directions to find something more meaningful. Listen as he describes how he discovered his passion for building a more democratic economy.

Brian: How far back can I go? I’m a lawyer. I’ve been practicing in law for about 25 years. I went to law school back in the late 80s because I was trying to figure out what can I do to you know, make the world a better place. And I didn’t really know what else to do with a humanities degree, and I figured well, I’ll go to law school.

And I came out of law school, and did the obligatory Law Firm. I was in the law firm for about five and a half years, kind of burned out I said, “What I’m I doing? I’m not doing anything to make the world a better place.”

So I shifted gears, I did work as in-house corporate counsel for a couple of big publically traded companies. I had been doing securities-related work for a bank, so I was doing securities work for the Cartels Development Corporation, Side Base, a couple of big companies. And that felt better because I liked doing the securities work, but it still didn’t feel like I was really doing anything helpful for the world.

So I did a major shift in about 2003 and I went to work for a nonprofit organization called RSF Social Finance. And that was really kind of a transformative experience for me because what they did was they had a community investment fund, a charitable loan fund where anybody virtually anyone in the nation could invest. And you don’t have to be wealthy. You could invest in their fund, and then the fund deploys that money in loans to nonprofits and other projects that are doing cool stuff in the world.

And I love that, and I really, really felt right about the mission. I was there for about six years. Eventually, I wanted to move beyond the charitable loan fund. I really had that drive to democratize capital, democratize economy, open up opportunities for everybody to participate equally on a level playing field.

Dave: Trading his burnout for burning passion, Brian discovered Cutting Edge Capital — a consulting firm created to offer better ways for entrepreneurs to raise capital from their own community. After meeting with the founding partners, Brian was asked to join the team and help increase the firm’s impact.

Brian: Cutting Edge Capital’s mission is to democratize the economy. So in a way similar to what I was doing at RSF and yet the vision is much broader here. Because it’s not just about charitable work, although we do have a lot of clients who are nonprofits who are charitable, but really we’re all about community capital.

That is open up opportunities for everybody to invest in local businesses, invest in something they believe in, whether it’s a nonprofit or a for-profit. Everybody should be able to invest in something meaningful.

Investing should not just be a sand box for the rich, which is what it has typically been historically for the past several decades. And that we need to change. And so that’s…from looking an investor’s point of view but on an entrepreneur’s point of view, entrepreneurs should be able to raise capital from their own community.

Without having to go to a Wall Street Bank, or you know a big VC firm or other institution that’s only going to look at them and you know, assess whether they can make 10 times their return on investment, and if not they’re non-fundable. Well, that’s not the way you know, to drive an equitable economy.

So what’s unique here is that this is a team of folks who actually know how to do it. And we can you know, we know how to use the laws that currently exist. We don’t need to change the laws to democratize the economy. A lot of people think we need to change things. We need to change the rules, we need a new system. Well, maybe we do, but meanwhile we can utilize the rules as they currently exist, and we can change the economy now.

A lot of people talk about the economy being broken. I will say, it’s not broken. The economy was as we know it sort of the systems and infrastructures and institutions that we have today were designed by the wealthy to concentrate wealth for the wealthy. And it’s doing that extremely effectively.

It’s not broken at all. It’s doing exactly what it was designed to do. So what we want to do is change that, at a little bit more fundamental level and say…and again not by changing the laws, but by creating new institutions and infrastructure that can truly democratize.

So the new economy it means a lot of different things. We look at it through the lens of capital because that’s what we do, but it also incorporates a lot of other aspects. There’s a social justice aspect, a racial justice aspect that’s really, really important. And there’s you know, it incorporates a recognition that there for example, is institutional racism embedded in the economy, and in our infrastructure and institutions. And that all needs to change. So in a sense the work that we’re doing is part of a much bigger movement to bring about a more equitable world, a more just and fair world.

Dave: As a consulting firm lead by securities lawyers, Cutting Edge Capital has the knowledge and empathy needed to change traditional models. I asked Brian about the biggest economic problems he and his team are trying to solve.

Brian: So in the conventional model, non-accredited investors and by non-accredited I mean investors who don’t have a million dollars in assets, you know this is the securities law term accredited. Who don’t have a million dollars in assets excluding the home, or don’t have at least $200,000 annual income or $300,000 with their spouse.

So in the conventional system non-accredited investors are excluded from all the good investment opportunities. It’s a two tier system. There’s investment opportunities for the rich, which is 99% of the investment opportunities, and then there are those investment opportunities for the non-rich which is basically limited to Bank CDs, and publicly traded stocks.

So anybody can open up E*TRADE account and buy stock in a publicly traded company, but the problem with that is first of all, the stock market doesn’t make the kind of returns that it’s purported to make. You can lose your money, but more fundamentally even if you pick…even if you open up an E*TRADE account or whatever brokerage account, and invest in companies that you really like and you think are doing cool stuff, not one penny of your money is going to those companies because you’re buying stock in the secondary market.

And that’s true whether you’re buying the stock directly or through a mutual fund, some socially screen mutual fund that you think is exactly what you want. Either way, not one penny of your money is going to the company whose stock you’re buying. You’re simply buying from other shareholders and who makes a profit no matter what, Wall Street firms. So anyway, the point is non-accredited investors have very few choices. Accredited investors have all the choices. That’s the problem that we want to solve by creating community capital opportunities.

Dave: Opening up more opportunities means going against the grain where there isn’t culture of community investing. Brian is no stranger to skepticism, which only makes his success more powerful. Here, he describes overcoming cynicism to complete a recent project in Fresno, California.

Brian: Yes. I’ll give you one recent example. We recently got regulatory approval to launch a real estate fund on a community investment fund in Fresno, California, which we think will be a wonderful template for many to come. But this was very difficult because the regulators didn’t like it.

They didn’t understand it, they were very suspicious of it, and I’m talking about the California Department of Business Oversight. They seemed to just assume that there must be something fraudulent going on here. “Why on earth would you be trying to raise capital from non-accredited investors? Are you trying to pull the wool over someone’s eyes?”

They were asking these rather cynical questions and making demands for stuff they had no business asking for in terms of you know, information, you know, audited financial statements for unrelated businesses. They seem to be going out of their way to look for some trace, “There’s fraud going on here.”

And that’s part of the challenge that we’re dealing with. That when you when you talk about community capital and raising capital from non-accredited investors, the non-wealthy. Because of this tendency to assume that the non-wealthy are not equipped to make good decisions, that only the wealthy can make good decisions, that if you’re going out to the non-wealthy to raise capital it must be because you’re desperate and there are no other choices.

A direct public offering or any kind of community capital is not a last resort. It’s not something you do if you’re turned down by a bank and turned down by a VC firm. In fact, for most of our clients, it’s their first choice. It’s what they want to do because, well, for a lot of reasons. The things we talk about.

They want to have that direct connection with their community. They want their community to be their investors. And by the way your investors make your best ambassadors and your best customers too. If you are a customer facing type of business for example.

So there’s lots of good reasons why raising capital from your community is the best way to raise capital. But the regulators had a tendency to look at this as suspicious. As something you do because you can’t raise capital any other way and therefore there must be something amiss going on.

So we had a heck of a time getting this through the regulatory review process. But to answer the question you started with, we did finally get their approval we…there was a lot of back and forth and a lot of explanations of what this means for the community, how this is this real estate fund is going to allow any investor, any resident of the city of Fresno to invest in the revitalization of their own downtown, and enjoy some of the profits from that revitalization unlike other real estate projects where the profits are always sucked out to some owner, some real developer owner somewhere else who lives in some rich community.

Here those profits are going to be shared with the community who invest in it. That’s what our client wanted to do and we finally got the regulators’ approval to do it. And that felt really good because that’s one frankly that’s probably the most difficult direct public offering that I’ve worked on in my time, in all my time working with direct public offerings. It felt good to get that milestone behind us. Partly because it was so much work but really more broadly because that’s such a powerful concept. There’s a real estate fund that everybody can invest in the community because I want to replicate that everywhere.

Every community in need of revitalization should have this type of fund serving their community where everybody can invest in and the fund will then go out and acquire blighted properties, rundown properties, any property in the downtown area that needs some renovation. Buy it, renovate it, lease it out at a higher rent, and by doing so you’re bringing in better business, better quality businesses.

You’re bringing in more foot traffic because these are usually retail-focused businesses at least at the ground level and with more workers, more you know more people downtown you have better safety because there’s more foot traffic, and of course you know with that increase in business in the downtown area you have increased tax revenues and the city’s happy, better public services for the city. It’s a win-win for everybody.

Dave: Okay.

Brian: That felt really good because now we can point to that as a replicable model of how to do it.

Dave: Every time Cutting Edge Capital creates another success story, it gets a little easier to overcome skepticism. That said, Brian admits that solutions like direct public offerings are slow to catch on. Brian and Cutting Edge Capital’s President, John Katovitch, have recently increased their speaking opportunities and online marketing efforts to build their momentum.

Brian: The biggest challenge is the perception that this can’t be done. And it’s an educational challenge. We need to go out there and explain what it is that we’re doing, and why it’s legal.

I’ll be honest with you that is probably our single biggest challenge now. Getting the word out. Marketing, although we don’t often use that term, it’s communication. We need to let people know that first of all, that we’re here, and that these things are possible.

What we’ve been doing is mostly word of mouth and being on stages. For example, I spoke at a conference this morning put on by an organization from minority business owners in San Francisco. Got a great response. People are excited about this. This concept of community capital resonates with people. So it’s not a challenge of convincing someone that this is a good thing, it’s letting them know it’s possible.

Once they know it’s possible they get it. People are on board, people get excited about this. It’s a matter of just communicating it as widely as we can. We do some social media work, we try to you know get on stages wherever we can and talk about what we do, and the possibilities. Is that enough? Probably not. We’re still working on that.

Brian: We send e-mail newsletters, not as regularly perhaps we should, but every one month or two we compile some articles that would be of interest to our network.

Sometimes our announcements about what we’re doing, sometimes there are links to interesting articles, legal topics that people would really want to know about.

I’ve written some of those articles, John’s written a number of those articles. John’s actually been doing some blogging for Huffington Post which has gotten a quite a bit of exposure. I guess as far as emailing if there’s a major announcement we email to our whole list a few thousand people. So we’re doing what we can there too.

Dave: Listening to Brian, it’s clear there’s no shortage of obstacles to overcome. Like many business owners, Brian and his partners are pulled in multiple directions as they attempt to build something that’s meaningful for themselves and for others. Despite the challenges, Brian has never doubted his decision to join the Cutting Edge team.

Brian: Well, I had an interesting conversation with the CEO of the firm that I left when I came here, and he said to me. “Brian, I don’t get it. You’re the general counsel of what could very well be one of the nation’s leading crowdfunding firms, and you’re leaving this to do what?”

I have no doubt in my mind I made the right decision, but you have to understand the mission to get why I did that. Because I did take a cut in pay. We’re not at the point where we’re partners are making a lot of money yet. We’re building something, I have no doubt that we will succeed. No doubt.

Right now there are lean moments as we create something, as we build this thing, as we work on creating change and it’s been challenging. So Yes. Some folks just don’t understand why anyone would do this.

Dave: What would you say has been the biggest surprise for as you’ve been building this?

Brian: I will say the biggest surprise for me, I know this is going to sound cocky. But the biggest surprise for me is discovering what I can do. Because I have learned so much here. And when I got here two and a half years ago, there was a time when I realized “I’m way outside my comfort zone.”

In several respects. For one thing, I left a law firm 20 years ago and vowed never to work for a law firm again. And here I am, the partner of a law firm. So that was the shift.

Then I’m finding myself working on projects that I have done, but not often enough to feel like an expert yet. And so, I’ve had to acquire expertise on the job. That has its own challenges but it’s been really kind of fun to discover what I can do on a personal level.

Dave: Brian no longer has to shake the feeling that he could be doing more with his life. With a mission to believe in, he’s found himself more capable than he imagined.

If you’re looking to start a business of your own, or need some extra motivation to push through a challenging time, I’ll leave you with Brian’s best advice.

Brian: I would say it’s important to meet a need. A lot of businesses…and I don’t mean to be critical. A lot of businesses are started based on a cool idea that some of the things are kind of fun to do.

Maybe fun isn’t the right word. But it’s a good idea, but the need isn’t there so we’ve got to go out and create a need, create a demand by marketing. And there’s nothing wrong with that, but I guess from my point of view, I look out in the world and I see so many pressing needs that are already out there.

I would say, why create a demand for something where the demand doesn’t exist. When there is in fact a demand, a genuine need for so much out there. I would rather see entrepreneurs focus on an actual need rather than coming up with the core product and trying to create a demand.

That’s just my advice. I’m a problem solver. I look out the world I see problems, and I just wish I could solve all those problems. I can’t, but I wish someone would.

Dave: We appreciate you listening and would love to hear what you think of the show. Please go to iTunes or Stitcher right now and leave us a review. Small Biz Stories is produced by myself and Miranda Paquet with editing by TwentyFourSound. You can contact us at podcast@constantcontact.com

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