Crowdfunding 101: Q&A With CircleUp CEO Ryan Caldbeck

CircleUp

Ryan Caldbeck, right, CEO of CircleUp, shown with COO Rory Eakin and an array of products from companies funded through their crowdfunding platform.

Venture capital firms don’t have much appetite for consumer-goods products in their portfolios.
CircleUp Network Inc.
Ryan Caldbeck, right, CEO of CircleUp, shown with COO Rory Eakin and an array of products from companies funded through their crowdfunding platform.
According to Dow Jones VentureSource, venture firms invested a mere $116.6 million in food and beverage companies in all of 2012. By contrast, they invested $738.4 million in media and content companies during that period.

CircleUp Network offers “reg-D crowdfunding” for these businesses—a form of crowdfunding that allows accredited investors to back companies through an online platform in exchange for a stake in a business. (Read more about CircleUp and some of its key partnerships with industry giants in The Wall Street Journal.)

We spoke with CircleUp’s CEO and co-founder, Ryan Caldbeck, about the company’s progress giving consumer-goods businesses access to growth capital. Here’s an edited version of that interview.

How many startups have raised funding on CircleUp?

We have helped nine companies raise over $8.5 million in growth capital so far, seven of those in 2012 and two already in 2013. Six companies are currently raising money on the platform and another 40 are being voted on by our investor community. [Ed: Those voted in will be able to pursue funding via CircleUp. There is no guarantee their deals will close there, however.]

How many angel investors are using the site these days?

We had a target of registering 1,000 investors before the end of 2012 and surpassed that number within the first three weeks. Since that time, our growth has far surpassed our expectations.

Investors have been drawn to the quality of deal-flow [we provide], and our partnerships.

Investor activity on CircleUp.com has grown by an average of 20% month over month every month since our launch.

What kinds of deals are done on CircleUp?

We focus on expansion capital for high growth consumer and retail brands. The typical company on our site already has $1 million in revenue, national distribution, and has previously raised a small friends and family round. CircleUp helps these companies bridge a gap between their initial seed rounds [or loans] and larger institutional investments. Investors on the network invest in both equity and convertible debt [deals].

What’s the average round size?

Just under $1 million.

What’s the average number of investors involved per deal?

The average is less than 25 but it varies by deal, since the company can set the investment minimum and decide how many investors they want in the round.

Does the company have a “test kitchen”?

No, but one of the benefits of working with companies that already have $1 million in sales is that we can find the product on store shelves generally.

Peeled Snacks raised capital on CircleUp. Prior to listing, we visited local Starbucks SBUX -2.18% stores and tried the product [there], asking other customers and the Starbucks staff their impressions of the product. We also regularly attend industry trade shows to meet new companies and try their products.

What are some key traits that make a startup worthy of a listing on CircleUp?

We look for strong management teams with companies that have a clear path to exit, meaning they have potential to sell to a strategic buyer.

They should offer a differentiated brand with innovative products. Great tasting products or interesting packaging is not enough.

We also have to see evidence of a company’s performance in channels that are relative to their category. (We use third-party industry data to evaluate what that means, exactly.)

Finally, we want to see reasonable valuation and deal terms. A great company is not always a great deal when there are too-high valuations or poor deal terms. It’s worth noting that what looks like a good deal or good terms in tech would not be in consumer products.

How is CircleUp different than Kickstarter, AngelList and other platforms that match VCs and angels to startups?

We provide equity capital that enables the business to finance growth. The average food company we see on Kickstarter raises less than $10,000. The average company on CircleUp raises close to $1 million.

CircleUp focuses on scalable, high-growth consumer businesses, and investors seeking an allocation in consumer products with a potential for financial return.
SOURCE: Wall Street Giornal – Lora Kolodny

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