Crowdfunding has gotten mass appeal thanks to platforms like Kickstarter and Indiegogo, however San Francisco based CircleUp, an equity crowdfunding platform, is looking to offer their own spin on the increasingly popular trend. The company allows accredited investors, those that earn more than $200,000, $300,000 as a couple, or have more than $1 million in assets, the ability to invest in high growth businesses in the consumer goods and retail space, and in return receive an equity stake, in contrast to sites like Kickstarter that promise first dibs on pre-launch products that may never see the light of day. Today, the startup announced that it has helped raise $5.5 million in funding for five businesses in the packaged food industry, including 18 Rabbits and Little Duck Organics.
CEO and co-founder Ryan Caldbeck spoke with BetaKit about the site’s rigorous curation process, and he said that out of the 650 businesses that have applied since CircleUp’s launch in April 2012, only two percent have made it onto the platform.
“We focus on consumer and retail companies that have more than $1 million in revenue and are growing at a high rate. The average growth rate on our site is 70 percent,” said Caldbeck. “There are companies that are obviously true startups and haven’t launched yet or maybe have launched but have a little bit of traction. But we think those are tougher…harder for investors to evaluate on a website. So we focus on companies that have [a] demonstrated track record and you can buy at your local Whole Foods or Starbucks.”
After being accepted on the site participating companies set their minimum fundraising goal, and similar to Kickstarter, the amount is only received when fully funded, otherwise all the investors are refunded (in contract, Indiegogo lets companies raise only a portion of their funding goal for a higher transaction fee). From an investor perspective anyone who puts money into a given company is shown the equity stake they receive as soon as they enter the amount they are interested in investing.
When asked who the company is targeting or seeing the most activity from, Caldbeck said it is primarily angel investors who are very active in the technology sector and are looking to diversify their portfolio, as well as consumer goods investors and consumer entrepreneurs who have gone through the entire life-cycle of having taken their companies public or selling them and are now looking to invest. Caldbeck declined to disclose the exact cut that CircleUp gets for each successfully funded campaign.
Equity-based crowdfunding is a space that’s seeing a dramatic increase in activity and will see much more when the Jumpstart Our Business Startups (JOBS) act is finalized and put into effect this year, easing the regulation surrounding the concept and allowing unaccredited investors to invest (though CircleUp will only focus on accredited investors). There are already others in the space like FundersClub which only yesterday helped Soldsie raise $425,000 in funding, in addition to Microventures, and more recently AngelList, which recently partnered with SecondMarket to enable investments as little $1,000 on its platform. However, Caldbeck’s CircleUp platform sets itself apart based on the fact it focuses on the consumer products and retail industries as opposed to traditional technology startups.
According to Caldbeck companies in the consumer products space, which include everything from sporting goods to pet foods companies, don’t necessarily have a Silicon Valley equivalent to turn to to raise the necessary funds to expand operations. CircleUp is aiming to cut what Caldeck says is a year-long process to as little as two months. With everyone awaiting the release of the final version of the JOBS act, equity crowdfunding could very well let anyone with some spare funds lying around take on the title of angel investor, so whether CircleUp can succeed while only focusing on accredited investors remains to be seen.