Stringent vetting process in place to ensure only high-quality products and companies are accepted
Nearly $200 million raised to date for more than 150 companies
Negotiated fee, commensurate with traditional investment banking
CircleUp is a crowdfunding platform offering equity-based deals only. When a backer contributes funds to a CircleUp campaign, he/she is actually investing in the company and gains part ownership, typically through a private share issue. While this may all sound complex, it’s really not, and CircleUp helps to streamline the entire process.
CircleUp for Entrepreneurs
The company’s focus is squarely on the quality of rather than the quantity of crowdfunding listings it hosts. To be eligible, a candidate company must endure a strict vetting process including elements such as background checks on the company and entrepreneur, an evaluation by a small group of private equity professionals to gauge fit for the platform, and industry research presumably to determine product viability.
There are also limitations on the type of product itself. CircleUp only considers innovative consumer products, which also must be passed the conceptual phase. There must be a tangible product or physical retail location, and companies typically have at least $1 million in annual revenue. In fact, CircleUp has a program in place where free samples of the product are shipped to potential investors where feasible. As a result of these requirements, only a small percentage of applicants are accepted, but those that stand a much higher chance of success than would be otherwise.
To date, CircleUp has helped over 150 companies raise close to $200 million overall in investments through their crowdfunding platform. This means that on average, more than $1 million is raised per campaign. The initial application takes less than 5 minutes and within a day, a decision is made as to whether or not the proposed product is a fit for CircleUp’s investors. From there the additional vetting takes place, the profile page is created, and all relevant documents uploaded. Once launched, the typical raise duration is 2 – 3 months. There is no fee to list an opportunity on the CircleUp platform, however, there is a commission to be paid upon successful funding. The actual percentage varies but CircleUp states that rates are consistent with those associated with traditional investment banking.
CircleUp for Investors
Once vetted by CircleUp, the company is listed on the site and can be reviewed by prospective investors. While investors are given access to company financials and presentations, they are also permitted to make direct contact with the entrepreneur directly to request additional information or even a conference call or face to face meeting. CircleUp even has suggestions on the types of questions to ask, for example, the skills of the entrepreneur’s team, how the product is differentiated from its peers, competitors, and exit strategy. Each listing on CircleUp is provided with an Investor Forum to facilitate these sorts of discussions. CircleUp claims that their average investment is greater than $100,000.
Once an investor has completed their due diligence and has made a decision to invest, they can do so via the CircleUp site directly. Money is held in escrow until such time as the investment target has been reached. At that point, the money from all investors is transferred to the entrepreneur and the investor becomes a shareholder in the company. If the target is not met, 100% of the money is returned to the investor. There are minimum investments, however, these differ for each campaign and are set by the entrepreneur. There are also limits to the number of investors accepted into each deal. Until the JOBS act is signed into law, there is a maximum of 500 investors permitted for each opportunity. There are no geographical restrictions as to where an investor be located, however, you must be an accredited investor, meaning that you meet minimum requirements with respect to net worth and/or income.
An alternative to direct investment is offered by means of Circles. A circle is a group of investors that contribute to a common fund, which in turn makes investments in deals or in portfolios of deals on the platform. Investors that opt for this route do not become shareholders in the company, but instead, own a portion of the fund that the Circle manages. Circles are created and managed by other investors, and each typically has a theme. There are strong comparisons here to mutual funds in the traditional investment world. Circles allow investors to enjoy a lower investment minimum, and gain higher diversity, arising from the fact that each circle typically invests in several opportunities.
Crowdfunding Platforms similar to CircleUp
There are few other crowdfunding platforms currently with the degree of focus on a specific target industry (consumer retail), which limits the number of competing platforms. Fundable is one platform however that offers equity investments, but also runs a number of rewards-based campaigns. Requirements for both hosting and investing in opportunities are much less stringent than on CircleUp.
What do you think?
Have you made an investment on CircleUp? Was it a direct investment in an opportunity or did you make use of their Circles? Please share your experience with us in the comments below!