Technology’s ability to harness the wisdom of crowds has created massive new businesses that support entrepreneurship around arts, craftsmanship, and technology while simultaneously re-shaping the market for personal lending.
With its new $14 million financing, CircleUp wants to change the development of consumer products with equity crowdfunding.
The Series B round was led by Canaan Partners, with commitments from previous investors Google Ventures, Union Square Ventures, Maveron and Rose Park Advisors.
Following the investment, Dan Ciporin a general partner at Canaan who sits on the board of Lending Club, will take a seat on the CircleUp board of directors.
“Crowdfunding, or peerfunding, represents a fundamental re-ordering of a customer, a user, and a product or a project,” said Andy Weissman, a partner at Union Square Ventures, which has backed Lending Club, CircleUp, Kickstarter, and Auxmoney. “We think it’s a fundamental re-ordering of the relationship and you can slice it in many different ways. CircleUp represented that fundamental reordering combined with the inefficiencies of entrepreneurs building consumer product companies.”
The CircleUp round closed in roughly one month, just days before the company’s two-year anniversary and the cash will be used to develop new data and analytics products for investors using the company’s equity investment platform, according to chief operating officer Rory Eakin.
Think of CircleUp as a kind of AngelList for consumer products companies. Rather than funding companies like Apptimize, CircleUp investors are looking for things like Portland’s Green Zebra Grocery, an organic grocery store; or the outdoor apparel and equipment maker Klymit; or even the latest socially conscious chocolatier to launch in Brooklyn (honestly though, fair trade plus chocolate seems like a great idea).
The problem that CircleUp addresses is one of scale, the companies selling consumer products are too small to raise the interest of investors like the private equity firms that first employed CircleUp’s chief executive Ryan Caldbeck. But the checks that these companies need are larger than a typical crowdfunding campaign.
“The companies that we work with have a different use case,” Caldbeck said. “The average raise on CircleUp is roughly $1 million. When you have a functioning business that has national distribution in every Whole Foods in the country or selling into every Nordstrom, raising $10,000 isn’t that helpful.”
And raising on the CircleUp platform seems to be paying off for the entrepreneurs that use the site. “The average company that has raised money on CircleUp has grown revenue 80% per year since their capital raise,” said Eakin.
Since the launch of its investment platform, CircleUp has helped over 30 companies raise more than $30 million. CircleUp’s featured companies in fourth quarter of 2013 averaged 185% growth rate with 37% gross margin and 2.9X sales multiple, the company said.
CircleUp makes money by charging a commission from the companies on its platform based on the capital they raise, as well as taking warrants in the companies that raise money on the platform. The company also gets money from partnership fees with large consumer products companies.
Venture investment in the crowdfunding space has grown over the past five years, and companies have gotten increasingly more expensive. In the past quarter alone five companies in the crowdfunding raised $75 million in new financing.
Photo via Flickr user Rocio Lara