While practicing the fine art of private equity at TSG Consumer Partners, CircleUp CEO Ryan Caldbeck noticed a trend: the companies being acquired by large consumer product corporates like Procter & Gamble, Unilever and General Mills were getting smaller and smaller. Where these conglomerates would once shop for companies in the $100 milion to $500 million range, they were now considering $25 million or even $5 million targets.
Taking a closer look at that piece of the market, Caldbeck saw a hole for financing. Young consumer products companies — be they food or household products, needed funding, and they weren’t getting it from traditional venture investors.
With crowdfunding craziness just beginning, he launched CircleUp, an equity-based funding platform for consumer products companies. Today the platform announced five companies have closed rounds of funding (one is anonymous) worth “nearly” $5.5 million:
- Little Duck Organics, a kid’s snack maker, raised $890,000.
- 18 Rabbits, a granola maker, raised $500,000.
- Melt, a butter alternative maker, raised $1,000,000.
- Rhythm, a kale chip maker, raised $763,601.
CircleUp also told PandoDaily that the platform is now partnering with SecondMarket to cross-list its companies. SecondMarket’s investors now have access to a new sector of early-stage companies in the consumer products industry, that go to CircleUp precisely because of its expertise in that sector. Four companies on CircleUp have listed equity on the platform and the first investment will close this week, Circleup CEO Ryan Caldbeck says.
In an increasingly crowded crowdfunding environment, CircleUp places emphasis on its selectivity to keep the quality of its companies high. The platform will not list a company that’s already tried to raise traditional venture capital because of the signalling problem. CircleUp didn’t even raise its own capital on its platform, as many crowdfunding sites like to do, because it doesn’t fit its own criteria. (The company has raised $1.5 million from Triple Point Ventures and Maveron.)
Likewise, CircleUp companies typically have at least $1 million in revenue and distribution in national chains (which is the biggest barrier to success in an industry dominated by powerful global companies like Kraft and Pepsico). ‘They’ve already reached a proof point, which is critical for investors,” Caldbeck says. The reason these already-successful companies need crowdfunding is for working capital. If they get a big order from a national chain, they have to buy the inventory for that, and it’s a 90-120 day period before the customer pays you back. They need cash, and there is a hole in the market for investors doing this sort of funding, Caldbeck explained.
The average amount round of funding has taken 61 days to close on CircleUp, Caldbeck says. Investors range from filthy rich heads of private equity firms to traditional tech angel investors, family offices and smaller funds. There is a direct pathway to exit, because, as Caldbeck noted, the big consumer products players are buying growth, and they’re reaching lower and lower downmarket to find it.
CircleUp has funded eight companies since launching in April.