Crowdfunding Platform CircleUp Launches, Announces $1.5M Round

CircleUp, a crowdfunding site designed to provide investors with equity, not pre-orders or just a sense of satisfaction, is launching to the public today. The site has a very specific focus, since it’s accepting only accredited investors and funding members, and going after a relatively specific vertical in terms of customers looking for funding: established consumer product-focused businesses with over $1 million in annual revenue. Even with such a defined niche, CircleUp’s co-founders Ryan Caldbeck and Rory Eakin think there’s plenty of appetite for what the site has to offer, and plenty of opportunity to shake up a process that’s traditionally been costly, arduous and time-consuming.

In an interview with BetaKit, Caldbeck said that the team saw an opportunity with regards to online crowdfunding that none of the existing options, like Kickstarter and IndieGoGo, were yet addressing. “A lot of the crowdfunding sites had begun operating without becoming broker dealers, so in the next couple of months you’ll see a debate as to whether or not they should be. We think it’s important that they are. We think that fundamentally, crowdfunding sites help issuers sell securities, and should be regulated as such in the U.S.”

In keeping with that view, Caldbeck notes that CircleUp is currently in the process of registering with the Financial Industry Regulatory Authority (FINRA), and in the meantime they’ve partnered with WR Hambrecht, an accredited broker dealer. CircleUp believes that dealing with accredited investors is the key to creating a successful crowd-funding platform, and intends on sticking with that model, even though the JOBS Act will open online crowdfunding to unaccredited investors in the U.S.

CircleUp’s approach is all about being selective. At launch, there will only be three companies on the site seeking investment, something Caldbeck said is by design. “We’ve had about 150 companies reach out to us, and we’re only letting three on at first,” he said. “The reason we’re only letting three on is one, there’s a heavy curation involved to ensure that the deals we put in front of investors are accessible, understandable and really high-quality. And two, we’re going to add new deals every few weeks, as investors come on and demand is stronger.”

The team is also focusing on streamlining the process, in terms of both cost and accessibility. One major step they’re taking to make online investment easy for all involved is providing boilerplate legal documents at no extra charge to businesses or investors; Caldbeck told BetaKit that businesses will often pay upwards of $30,000 to have these documents prepared by a lawyer, even though they essentially don’t change very much from deal-to-deal. In the investment process online at CircleUp, investors can see exactly how much ownership stake their commitment entitles them to, and then view, review and sign the legal documents without even being taken to a new page. Besides the obvious cost advantage for entrepreneurs, Caldbeck also notes that it saves both sides significantly in terms of time.

But the idea isn’t just to streamline the process; Eakin told BetaKit that the product is very much designed around building community, too, and helping entrepreneurs find not only financial investment, but also connect with people that can act in advisory capacities. To help with that process, CircleUp issues a post-close forum to help connect investors and entrepreneurs in more meaningful ways.

“We believe that successful funding will have to be more than just the capital,” Eakin said. “One of the reasons we think the platform is an attractive source of capital for companies is the value-add, beyond just the money. The idea of bringing in 15 to 100 investors who can help elevate that brand and be evangelists for that product is something that’s really important.”

In terms of revenue, CircleUp takes a percentage of the rounds raised using its platform upon successful completion of the funding; business-owners set minimum success goals, and also maximums on funding, depending on how much equity they’re willing to hand over to investors. The founders wouldn’t reveal specifics, but they did indicate that overall, CircleUp represents a considerable cost savings over traditional funding methods.

CircleUp could face a lot of competition in terms of companies taking advantage of the crowdfunding provisions in the JOBS Act when the SEC rule-making period ends in 2013, which could spark a sharp rise in the number of Kickstarter-style sites that deal in equity financing, but the founding team is very confident that its selective and accredited approach will provide more value both to investors and to businesses long-term.

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