CircleUp, an AngelList-style crowdfunding platform that consumer retail businesses like food companies use to raise money from outside investors, is announcing some funding of its own today. The company has raised a Series C round of $30 million — growth money it intends to use to build out its platform and product teams.
Specifically, the company is working on new tech to make finding, approving and helping businesses on its platform more foolproof. “In the past year, we have built machine learning algorithms to evaluate companies,” Ryan Caldbeck, CEO and co-founder of CircleUp, said in an interview. The company is now crunching numbers from 150 data sources to build better profiles of their fundraising companies, and it will be adding more. “This is a key innovation, and no other company in this space is doing it.”
Unlike some crowdfunding platforms like Kickstarter where virtually anyone can list a project, CircleUp has always taken a more conservative approach: a team of private equity professionals vet businesses to look at revenues, how much products cost and even how those prices have changed over time. The end result is that only around 5% of those applying to list on CircleUp ever do. Similarly, funding is also restricted to qualified investors.
In fact, for what is essentially a business built a crowdfunding business model, CircleUp has almost gravity-defying anti-scale: only around 120 businesses have raised funds on the platform since 2011. But the amounts raised speak about the actual size of CircleUp’s ambition: each business averages at over $1 million raised, with $135 million in total raised on the platform. (And there is ever more being ploughed into funding: CircleUp itself earlier this year announced its own $22 million fund to coinvest.) CircleUp takes a 5% commission on funds raised on its platform.
Caldbeck said using the algorithm is not as much about increasing the number of businesses that can list — although that will likely be a product of more efficiency — as it is about being able to extract better data to help make more informed decisions about investing.
COO and co-founder Rory Eakin added that it is likely to be used in other ways, too. “The data can be incredibly powerful to the businesses raising money,” he said. “Gathering data like this to understand optimal valuation and other pricing can be expensive but essential for them, and now we can provide it, as part of our mission to help entrepreneurs raise capital.”
The $30 million announced today takes CircleUp’s total funding to $53 million. The startup is not revealing its valuation except to acknowledge it is still not in the realm of unicorns.
The latest round was led by Collaborative Fund — a VC that has a strong track record of backing marketplace and/or crowdfunding startups like Kickstarter, AngelList, Lyft, TaskRabbit, and many others.
Capital One co-founder Nigel Morris and the former CEOs and presidents of Goldman Sachs, Thomson Reuters and the Stanford Endowment also participated alongside previous investors Union Square Ventures, Canaan Partners, Maveron and Rose Park Advisors. (Google Ventures, I was told, was not a part of this round.)
Making hay while the sun shines
With this fundraise, CircleUp is effectively making hay while the sun shines, Caldbeck told TechCrunch. “We already had more than a year’s worth of cash in the bank,” he said. “But as an industry, we are now a year away from it being very difficult for later-stage tech companies to raise capital. We are in a period where the most sophisticated investors are realising that some startups are getting funding when they shouldn’t.”
Even now the extra scrutiny can be felt. “Investors really dug in a lot with our numbers,” Caldbeck added. “They liked what they saw so they invested.”
He calls CircleUp “lucky” for finding the process of fundraising relatively quick and easy — in contrast to the kinds of businesses CircleUp aims to help, and the gap the company hopes to fill.
There are 1.4 million consumer retail companies in our size range in the U.S. alone, he points out, and consumer retail accounts for 20% of the U.S. economy. But these kinds of businesses only account for 5% of VC funding.
“In that world, it doesn’t really matter whether or not a famous angel is investing,” he said. Instead, there is a strong reliance on data, much of which has up to today been largely non-existent, or hard, expensive and time-consuming to obtain. “In the offline world, it can typically take companies eight to 12 months to raise capital. People in the tech world do not appreciate this. These offline businesses have not had a Silicon Valley developing data algorithms for them up to now.”