NEW YORK (
) -- Somewhere in the middle of a crowdfunding portal and a private placement Web site lies
, a site that could be the framework for a new breed of investing in high-potential industry-specific companies.
CircleUp aims to get young, but already revenue-generating ventures in the consumer goods sector connected with investors to provide the financing to expand their business. For young companies, particularly those not in the tech sector, the process for finding capital could take months or years in some cases, exceedingly long for a business trying to get off its feet and expand. Investors are usually isolated either by their geographic boundaries or from beyond personal networks.
"It's increasingly difficult for investors to find high-growth private companies to invest in. Similarly, the process of businesses finding investable companies, particularly in specific verticals is equally difficult," says COO and co-founder Rory Eakin.
Erik Vandekieft, CircleUp's director of engineering (left), Rory Eakin, CircleUp's co-founder and COO (middle) and engineer Bryce Drennan, sit amongst brands that have successfully raised money through the crowdfunding site.
So why is CircleUp focusing on promising consumer-goods businesses?
Simply because consumers goods -- products like baby food, skin care and kale chips -- are tangible and have business models that are easy for investors to understand as opposed to tech companies, for instance.
"Not everyone can properly
use due diligence on a software startup. But everyone buys consumer products," Eakin says. "They have straightforward economics, the balance sheet is understandable and people can go and try the product."
Tech companies will generally be funded by venture capital or angel investors, meaning if you've got a really good tech concept, "chances are you are going to be discovered," Eakin says, noting that those tech ventures that do put up campaigns on crowdfunding platforms are essentially companies that have been "passed over" by other investors.
However, "there's no Silicon Valley" for consumer goods, Eakin says. "There's no central clearing place for the market to operate."
The area is also a natural focus for CEO and co-founder Ryan Caldbeck. Before CircleUp, Caldbeck worked in consumer product and retail-focused private equity at TSG Consumer Partners and Encore Consumer Capital. It was through his experience, working with many consumer and retail-oriented companies too small to obtain funding through traditional private equity channels that he got the idea for CircleUp.
Already the model is working. CircleUp was launched in 2011, but has only been operational for one year. In that time frame, the Web portal has already helped 12 companies raise $10 million in growth capital.
While the average food company on
raises less than $10,000, the average company on CircleUp raises close to $1 million, according to the company.
The companies, on average, have had more than $1 million in annual revenue, are growing at more than 70% per year and raised money in just over two months, the company says.
"We think there is a huge opportunity in consumer.
It's very underserved by financial markets," Eakin says.
"Most have done a friends and family
investing round, but this will be their first round of expansion capital beyond that," he says.
Friday marks the first anniversary of
, which, in its most basic sense, relaxed the stringent rules attached to small private companies from raising capital. One specific in the law opens up the gates for investment-based or equity crowdfunding allowing accredited as well as unaccredited investors to make investments in promising entrepreneurial ventures or small companies looking for expansion funding. However, the Securities and Exchange Commission has dragged its feet on finalizing rules for investment-based crowdfunding, putting implementation likely in 2014 at this point.
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Once the rules are settled, speculation regarding the potential for investment-based crowdfunding is astonishing. Some experts believe that
could grow to be a $300-billion industry, but there are high hurdles to jump to get to that level, such as legal and cultural barriers to get past.
"I think it's realistic, but you really have to look out not months, but years -- many, many years," angel investor Chris Camillo said at the inaugural Crowdfund Texas Conference in Austin.
That said, Camillo, in an interview with
on Wednesday, said CircleUp's sector-specific focus is a good bet on the future of crowdfunding portals.
"Specialization is at the core of crowdfunding portals," Camillo says.
"I am not sure if that correlates to thousands of specific portals or a small handful of mega-portals . . . that have successfully found a way to create micro-communities within their portal where they can group like-minded investors and connect
them with crowdfunding startups that kind of match their specialization or their background," he cautions.
Still he relates the idea to specialized accelerator programs and uses the example of an educational software accelerator program in Dallas.
"They have a lot to offer startups -- dozens of mentors that started in the education space or professionals that are currently running in the education software space," Camillo says. "As a result they have the ability to provide a tremendous amount of value in the education software space. I really see crowdfunding moving in that same direction."
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So does CircleUp.
CircleUp is partnering with big name consumer corporations like
Procter & Gamble
. Through the partnerships, General Mills and P&G will offer mentoring to the companies on things like growing brands, licensing deals, etc.
The partnerships then give the corporations a view of the early-stage consumer products market and the ability to screen potential investments or eventual acquisitions.
One criticism against CircleUp is the amount of data and financials a company has to provide in order to be listed on the site. Startups worry that it will lessen their competitive advantage if they essentially give away all their secrets, but others say it's the price you pay if you want funding.
"It's one way that were trying to add value not only to the companies, but the ecosystem overall," Eakin says.
The company also dismisses criticism of whether it should be called a crowdfunding or private placement site, with Eakin saying: "we are a crowdfunding site that provides investment opportunities for accredited investors. We enable individual investors to come together to invest in a private business. Current regulations limit this model to accredited investors only, and we follow those regulations."
The main challenge for the company right now is keeping up with demand both from companies seeking funding as well as investors hungry for investment opportunities, he says.
"We believe the models like CircleUp -- and there are others -- have demonstrated the Internet can be an efficient tool to start
investors' due diligence processes," Eakin says. "It's a way of connecting potential investors to high-growth small businesses in a way that wasn't possible so far."
-- Written by Laurie Kulikowski in New York.
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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.