It’s the latest example of how corporations increasingly are embracing the wisdom of crowdfunding.
The U.S.-based airline, which has a minority investment from Sir Richard Branson’s Virgin Group, will use CircleUp as a way to identify new snacks and drinks that could be served on its flights. Virgin America declined to comment on the financial terms of its agreements with CircleUp-backed companies.
More corporations are looking to have their voices heard among the din of crowdfunding and crowdsourcing startups, whether as investors – like G.E.’s stake in the crowdsourced manufacturing company, Quirky – or as distribution and production partners for crowdfunded movies and now food.
This interest from public companies mirrors a rise in venture investors’ activity as these crowdfunding startups begin to mature. In all, CrunchBase is tracking 250 startups that are using a crowdfunding model.
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The brainchild of Ryan Caldbeck and Rory Eakin, CircleUp began after a conversation about how to solve the fundraising gap consumer products companies typically face.
While private-equity firms focused on consumer goods are willing to write checks in the $25 million to $250 million range, there were few avenues for very early-stage food and beverage or consumer goods companies to explore for the first $1 million, according to Eakin.
“All the funds in the consumer space tend to work with companies that are much larger,” he continued. “It’s not worth their time to invest under $100 million to $200 million.”
For Eakin, a former employee at the Omidyar Network looking at marketplaces, and Caldbeck, who was working at the consumer-focused investment firm TSG Consumer Partners, the solution was obvious – a crowdfunding investment platform.
The model not only offers a platform for small companies to raise cash that otherwise wouldn’t, it also gives entrepreneurs launching consumer companies outside of major financial hubs an opportunity to grow their businesses.
“If you’re a company in Boise, Idaho, or Austin, it’s difficult to find investors,” Eakin said.
CircleUp has an internal staff that provides basic due diligence of the companies that pitch investors on the platform, before the companies are vetted by potential investors themselves. The company’s platform has also been vetted by investors like Union Square Ventures and Google Ventures. Both firms invested in the company’s $7.5 million Series A round last spring.
The crowdfunding model has caught the eye of almost everyone in the venture community, and companies in the industry, can raise huge amounts of money. Firms like Kleiner Perkins Caufield & Byers and Andreessen Horowitz are spending big dollars to back crowdfunding players, according to CrunchBase data.
Since its launch, CircleUp has helped 30 companies raise $30 million, and with partners like Virgin America, Eakin said the firm has a potential to help even more companies take off.
“Many people under-appreciate the depth that brands play with our lives,” Eakin said. “[Roughly] 20 percent of the overall economy is consumer products brands.”
Other partners working with CircleUp include consumer goods giants General Mills and Procter & Gamble. Virgin America has selected two CircleUp-funded companies, the French vintner Le Grand Courtage and San Francisco-based granola bar and snack food company 18 Rabbits.
Some companies have even graduated from the CircleUp round to go on to larger follow-on financings, Eakin said.
CircleUp’s platform allows for more than just food and beverage companies to try to raise cash. It also has restaurants, retail goods, consumer products, and health and wellness product makers trying to raise new funding rounds.
As venture investors become more interested in launching consumer companies themselves, more companies could find themselves raising follow-on financings, Eakin said.
“[Right now] follow-on rounds are in the one to $10 million range,” he said. “The average round on our site is $1 million.”
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