While Silicon Valley startups seem to easily raise funding these days, for many businesses, access to capital is difficult. That is especially true for small consumer packaged goods companies that make products like granola, shampoo and moisturizer.
For private equity firms, they’re too small to be worth the bother. Meanwhile, venture capital firms are more interested in backing the next Facebook or Google.
That’s where CircleUp comes in. The San Francisco company, which debuted in 2012, helps food, beauty, and other consumer-focused businesses raise funding from private investors. The idea is similar to fast growing crowdfunding upstarts like Kickstarter, except that CircleUp doesn’t just allow anyone to raise funds. The company examines revenue, growth, profits and other data to determine whether the business meets the bar to raise money on its marketplace.
In fact, CircleUp only accepts 5% of applicants.
Investors include high net worth individuals, managers of family funds, and other small investment funds. CircleUp charges businesses a 5% fee after they have successfully raised a round of funding.
For example, Three Twins Ice Cream, a California-based ice cream maker, raised over $3 million from investors through CircleUp, including the founders behind the popular energy bar PowerBar.
To date, investors have put $140 million in 120 companies. The average investment is over $100,000, said Rory Eakin, CircleUp’s co-founder and chief operating officer. The company declined to reveal revenue numbers or growth, but Eakin said the total amount invested in companies this year is five times more than in 2014.
For many investors, CircleUp is a way put their money into a different type of asset than they normally are able to, namely food and other packaged good companies, said Eakin. Food giant General Mills (GM) even created a multi-million dollar fund to invest in food companies that list themselves on CircleUp.
Crowdfunding has taken off in the past few years. According to research firm Massolution, crowdfunding sites or companies that list on crowdfunding sites raised $16.2 billion in 2014, a 167% increase over the $6.1 billion raised in 2013. The market is expected to reach $34 billion in 2015.
Hoping that crowdfunding is the future, investors are also funding sites that make it possible. On Wednesday, for example, CircleUp announced $30 million in new funding led by Collaborative Fund.
This brings the company’s total funding to $75 million. The new investment will be used to hire additional engineers and designers. Eakin also said that CircleUp will push to develop algorithms to better evaluate prospective companies that apply to raise funding through the site.
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