It’s an understatement to say West Oakland has been through a lot. Redlining concentrated black families here, where they bore the brunt of heavy truck and shipping traffic coming to and from Oakland’s busy port. Child asthma rates in West Oakland are twice as high as the average for the surrounding county. Redlining also made the area ripe for predatory subprime lenders, who disproportionately targeted families and neighborhoods of color. The foreclosure crisis hit West Oakland hard.
But there is still much love for West Oakland among those who have survived all that and more. You can see it in the community gardens and urban farms that dot the area. You can see it in the brilliant murals that seem to be on every block, celebrating local leaders, ideals, and histories — this is, after all, the birthplace of the Black Panther Party and its many social programs. You can also see it on the balance sheet of Community Foods Market, the full-service grocery store and café that celebrates its grand opening this weekend.
Using a process known as a direct public offering, or DPO, Community Foods Market has raised more than $2 million directly from more than 650 shareholders in and around West Oakland, some for as little as $100. Many have never invested directly into a company before, but were lured by the promise of a modest financial return while also getting to own a piece of something that would make their neighborhood a better place to live — and their investment was the key that opened doors to other investors.
“Though the rate of return we promised was very modest, symbolically and psychologically I think the idea of being a stockholder really resonated with a lot of people,” says founding CEO Brahm Ahmadi, who has spent the past 15-plus years organizing around healthy food access in West Oakland.
Direct public offerings aren’t new. Their underlying legal framework has been in use for decades among more conventional start-ups in tech and other sectors.
Ahmadi says he first learned about direct public offerings from Jenny Kassan, a Bay Area securities lawyer. At the time she was a partner at Cutting Edge Capital, a law and consulting firm she co-founded that specializes in working with more unconventional businesses to raise capital.
Cutting Edge Capital has supported unconventional direct public offerings for Berkeleyside, a media outlet in the Bay Area; as well as Real Pickles and food composting company CERO, both worker cooperatives, both based in Boston, another startup hub. (Kassan has since left to launch her own consulting business, also focused on helping mission-driven entrepreneurs raise money.)
Ahmadi turned to Cutting Edge Capital after less than a year of trying to raise capital from angel investors and venture capital investors. Even among so-called impact investors — who invest with measurable social goals as well as financial goals — “No one was interested at all,” Ahmadi says. “Food is a notoriously low-profit business … we didn’t have the track record … I also think there was some degree of misperceptions about neighborhoods like West Oakland that are communities of color.”
Kassan reminded Ahmadi of the network he had built over eight years as executive director of People’s Grocery, a nonprofit he founded in 2002 that ran healthy food access projects in West Oakland. He left in 2010 to get an MBA, with the intention of coming back to start a full-service grocery store. He could leverage that network of relationships, Kassan said, to raise capital for the grocery store through a direct public offering.
(Photo by Oscar Perry Abello)
“The more traditional crowdfunding, the donation model, was not a fit for us because we needed to raise more capital than we were seeing most crowdfunding projects raising,” Ahmadi says. “It seemed to me like we could market a direct public offering as a unique and refreshing way for average members of the public to support projects they could believe in, around the idea they could become an actual shareholder and co-owner of the business with a rate of return and not just a t-shirt or something.”
As it turned out, people believed enough in the idea of the grocery store in West Oakland to invest their hard-earned money even before Ahmadi had found a location for it. Working with Cutting Edge Capital to conduct the offering, the store sold $762,148 of shares in the first year they were offered to the public, most of it within the first six months.
A direct public offering is not very likely to get a grassroots project like this all the financing that it needs. Community Foods Market, which was then known as People’s Community Market, was starting from basically nothing, in a neighborhood where households are more likely to be in debt than they are to have extra cash lying around. But Ahmadi asked, the grocery store received, and it helped open doors to other investors.
“Once we had that data point to say, ‘Look, this many hundreds of people, of basically average working-class [or] middle-class status, are backing our project with real dollars,’ that got us credibility with other investors,” Ahmadi says.
One angel investor provided a $970,000 loan at a nominal interest rate for the project to finally acquire a site — along San Pablo Avenue, an important car and bus thoroughfare — in 2016.
With site control and more than a million dollars in shares sold to the public on their balance sheet, even more doors started opening up. Northern California Community Loan Fund and Self-Help Federal Credit Union combined forces to make a bridge loan to get demolition and construction started at the site.
Northern California Community Loan Fund (now known as Community Vision) later combined another loan with capital from three other sources into an $11 million New Markets Tax Credits transaction to repay the angel investor and the bridge loan, complete construction, and set aside some cash to purchase inventory once the grocery opened.
“We’ve had a lot of success with institutional capital, but none of it would have happened had we not been successful at the public investment campaign,” Ahmadi says. “That really set the stage, gave us money on the balance sheet and the overall credibility and the respect, that we deserved some attention.”
While the direct public offering was a new structure to Ahmadi, the actual work to raise the capital quickly started feeling familiar to the former nonprofit executive director. It started with emails, social media, phone calls. Ahmadi hosted weekly webinars and monthly “Front Porch” events at churches and other community gathering places. People stepped up to become “Champions,” viral promoters who would post on their own social media or send emails to their own networks and invite them to gatherings at their homes to listen to Ahmadi’s pitch. Some invested right on the spot.
“A lot of this is sort of classic nonprofit fundraising stuff, but applied to a more social enterprise,” Ahmadi says. “The number one ingredient you really have to have in advance of a DPO campaign is a lot of visibility, a large pre-existing network of supporters who have broader affinity for your project and your mission so that you can essentially convert them into investors.”
Ahmadi estimates that he spoke directly to about 3,000 people over the first few years of actively raising capital through the direct public offering. But many invested without ever talking to him.
“There’s a lot of our shareholders I never talked to. A lot just went to our website, heard about us somehow and just bought in,” he says. “It’s a wide range of individuals in terms of their appetite for doing this and what they need — some people need a lot of hand-holding, need a lot of time, talk to me multiple times, need to look at things closely, go back to their financial advisor then come back to me.”
Community Foods Market also made use of more traditional grant funding. Coming out of graduate business school, Ahmadi secured a 2011-2013 Food and Community Fellowship, funded by the W.K. Kellogg Foundation, that paid his salary for the first two years of the campaign for Community Foods Market. There was also an early grant from the California FreshWorks Fund. Later there was a $750,000 grant from the federal Healthy Foods Financing Initiative, years after the community had put its skin in the game.
Grant funding from a private foundation enabled Community Foods Market to offer financial assistance for a limited number of families to invest in the market, on a first-come, first-served basis. For regulatory purposes, the minimum investment on the direct public offering (which is still open) is $1,000 — but individuals or households earning up to $50,000 a year could receive a subsidy for the minimum investment, as high as $900 in subsidy for individuals or households earning up to $30,000.
“So there are folks, quite a few now, who have bought $1,000 worth of stock for as little as $100 out of their own pocket,” Ahmadi says.
One direly needed grocery store, even if it’s community-owned and part community-financed, isn’t enough to close the racial wealth disparity that made an unorthodox effort like this necessary in the first place. Maybe it shouldn’t have to be this hard to raise capital for a project with such obvious community benefits. But what this project shows is that it’s possible, even in neighborhoods like West Oakland, for community organizers to raise capital that then sways other capital to move in their direction.
Converting community members to investors does mean some awkward conversations depending on how familiar they are with being a shareholder in a company. Ahmadi tells a story of one shareholder emailing him to ask where his repayment was, not realizing he had invested his money for a term of ten years. It’s no surprise that not everybody reads all the paperwork.
“Even if you tell them repeatedly, and we say everywhere to read the offering memorandum, know what you’re getting into. We advise people to get their own legal opinion, but the vast majority just don’t do it,” Ahmadi says. “So sometimes conversations like that pop up and it gets a little weird but you don’t want to shame people because you want them to feel empowered about what they’ve done.”
This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.
Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.