Food and beverage companies make up about half of the firms listed on CircleUp’s platform, which means the website’s team of experts are experienced in the space and more efficient at identifying and addressing the needs of food and beverage start-ups, said Chief Operating Officer Rory Eakin.
It also mean the website attracts sophisticated investors who are interested in food and beverage firms – reducing the need for companies to actively generate traffic to their fundraising efforts, Eakin said.
This contrasts with the experience drinking vinegar firm Genki-Su had on the fundraising website Kickstarter. While the beverage company successfully raised sufficient funds on Kickstarter, a company co-founder noted that publicizing the campaign took more effort than expected because Kickstarter seems to attract investors more interested in technology and design than in food and beverage. (Find out more tips for successfully using Kickstarter HERE.)
CircleUp also differs from other crowdfunding websites in that its investors become shareholders and gain equity in the companies in which they invest, Eakin said.
“What that means is companies can raise more significant amounts of capital” on CircleUp than on Kickstarter or Indiegogo, Eakin said. He noted that the average investment per individual on CircleUp is $25,000 compared to about $50 on Kickstarter.
Eakin lauded Kickstarter’s fundraising model and said it is a great platform for new firm’s to raise small amounts of money for specific products, such as Genki-Su’s first bottling round, or to generate buzz. But CircleUp can help firms raise 20 times as much capital as Kickstarter and is aimed at firms that already make $1 million to $10 million in revenue, have regional distribution and are ready to scale up for national distribution, Eakin said.
In exchange for the a commission on the funds raised, CircleUp provides not only an interactive platform and digital “deal room” for firms to meet pre-qualified investors, but also a “suite of services to help them grow beyond capital,” Eakin said. These include access to industry experts who can share best practices, and access to large company partners, such as General Mills.
Making the cut
Not all companies that apply to CircleUp make the cut.
Only about 50 out of the 2,000 food and beverage companies that applied to CircleUp last year were accepted on the website, which allows CircleUp to showcase the brands with the most potential, Eakin said.
He explained CircleUp evaluates applicant companies based on:
- The company’s management team – The platform considers the leadership’s experience launching previous brands or businesses, building new partnerships and distribution deals and how they interact with employees, buyers and sellers. “We look for integrity, capacity and confidence” through interviews and reference checks, Eakin said.
- The company’s financials – Reaching topline revenue of $1 million to $10 million is a prerequisite for being on CircleUp, but it is not the only financial factor the platform considers, Eakin said. The website also looks at the firm’s gross margins, which for food companies average 40%, marketing and trade spend, same store sell-through and the general health of the product in existing channels.
- The brand – “I’d love to say evaluating brands is more science than art, but it is both,” Eakin said. After evaluating 10,000 companies, the CircleUp team knows what it likes when it sees it. But factors it considers include packaging, positioning in the category, how the brand differs from competitors, whether the brand is on a trend and if the category is highly competitive or if there is sufficient white space for a new product to develop.
Landing a coveted spot on CircleUp’s website does not guarantee a firm will successfully meet its fundraising goal or that the executive team can rest on their laurels and wait for the cash to roll in.
Only about half of the food and beverage companies placed on the platform successfully raise their funding goal, Eakin said.
“It can be difficult for us to predict going in” which companies will meet their fundraising goals, he acknowledged. “We have a very tight screening process, and think all of the companies approved are interesting investments. … But even if we love a brand it might not do well.”
How responsive a company’s CEO is to potential investors’ questions and requests is a significant indicator for how well the company will perform during a fundraising round, Eakin said.
“How CEOs and managers react to investor questions and requests, how responsive they are, how on top of their numbers and [whether they provide] actionable answers make a huge difference if they are successful in a round,” Eakin said.
The second factor that is pivotal to a company’s success is the product itself, he said. “Almost all of our investors will sample the product in a retail outlet or through our network for a sample as part of their due diligence. And they will decide whether they love a product or whether it isn’t a fit.”
With this in mind, he added, companies should expect to do a “significant” amount of work once they are listed on the platform. He added: This “is a meaningful transaction on both sides and it takes time and energy and focus to be on top of the performance, of your business and projections for your business. This is a significant commitment.”
But CircleUp does what it can to ease the burden. The interface “is really well designed to streamline the process and while it requires effort, it is not like when you have to start a pitch over every time with every potential investor,” said Lisa Turner, CEO of the paleo snack company Wholly Bites, which is using CircleUp to raise funds.
With CircleUp, “we have a whole bunch of people in a virtual deal room and I can send updates to everyone at once” and potential investors all have access to pertinent information and paperwork, which eliminates redundant work, she added.
Keith Lauver, the CEO of Cooksimple, another company listed on CircleUp, agreed that the interface is easy to use and said he spends about an hour a week responding to investors on the site, which leaves him with plenty of time to also promote his products in stores through demonstrations and at a tradeshows.
By interacting with multiple potential investors at the same time, CircleUp also helps firms cut months off the fundraising process to reach their goals in just two to four months, according to the website.
The site also helped sports drink maker Amara reach “more investors than I can get to in my own time,” said the beverage company’s CEO Greg Connolly. As a result, he predicted he will easily raise the $1 million he needs before the end of the first quarter. He explained that 350 people expressed interest in his company and 50 people already are in the deal room.
Having raised funds for previous start-ups using different methods, Connolly added that working with CircleUp “definitely has been a fantastic partnership with us.”