The tech-fueled approach allows CircleUp to evaluate more companies, more efficiently, but also ensures start-ups are “evaluated on their true merit and potential, not what investors might ‘feel’ about them,” said CEO Ryan Caldbeck.
“While investing gets credit for accelerating innovation with capital, the VC industry itself has been resistant to adopt new technologies, operating more or less the same way it did 40 years ago. The scalability and conviction that Helio provides introduces a different kind of investment model. Over time, we believe Helio will be a public tool used by other innovative firms in the consumer world, as we partner with great investors to improve the ecosystem overall.”
Helio – which collects and analyses data points across hundreds of thousands of early stage companies to pick likely winners - enables CircleUp to assess more investment opportunities “than could ever be evaluated manually,” Ben Lee, managing director, CircleUp Funds, told FoodNavigator-USA.
How Helio works
But how does Helio identify which companies to evaluate in the first place, what kind of data does it analyze, and where does the data come from?
According to Lee: “Say I’m walking the floor of a store and I see a new brand. I can input that into Helio and it goes out and finds public data on that brand. But the vast majority is automated. Helio finds brands in the public world and starts tracking them. That’s the beauty of it.”
The data in question is a mix of public data (social media reviews, retailer listings etc), partner data (Nielsen is a close partner, for example), and proprietary data (from CircleUp’s marketplace and the historical financials of the 20,000 companies that have applied to CircleUp), he said.
With more and more brands selling and marketing their wares online, meanwhile, they are also leaving a “bigger digital footprint” for platforms such as Helio to draw from, he added.
The data is then organized into models for metrics that matter for investment, starting with industry classifications (so popcorn brands are compared to other popcorn brands); then expanding to distribution (breadth and quality); product quality (ingredients, nutritional profile, packaging & form factor and product attributes); brand (brand engagement, sentiment, etc); team (relevance of professional experience, length of work history and strength of an entrepreneur’s network); and financial performance (estimates of revenue and revenue growth), he added.
"Most private equity and VC firms operate with the same analog, broken process that’s been around for over 40 years."
Ryan Caldbeck, founder and CEO, CircleUp
Given that Helio has already learned a huge amount about what drives a successful CPG brand after analyzing the performance of 20,000+ brands that have applied to CircleUp’s investment platform, it can use this knowledge to assess the likely performance of new brands it is evaluating, he explained.
“Because it’s data-driven, it often picks up signals that you wouldn’t necessarily pick up via a manual process. But you can also validate certain assumptions, such as whether having chain wide distribution in Whole Foods is a signal that you can break out and be a big success. Is this true? How should that factor into our scoring system?”
So far, when it comes to picking winners, Helio’s ability to measure brand strength is one of its biggest selling points, he said. “People always say how can you quantify that? But we’ve been able to do that and seen that it’s one of the strongest indications of potential success for a company, which makes sense. If your brand resonates with the consumer, you can command higher prices, better margins, more loyalty.”
“The goal is to mimic the investor’s thought process with more data and intelligence than a human ever could manually, and without bias.”
Fund was oversubscribed
Investors in the oversubscribed fund – which has just invested in meat snacks brand 4505 Chicharrones and beauty supplements brand HUM Nutrition - include a diverse set of leading institutional investors such as Temasek and Euclidean Capital, and consumer industry veterans such as Annie’s Homegrown cofounder John Foraker.
The new fund will typically invest around $1-3m in promising companies with 12-month trailing revenues of $1m-15m. A third of the fund is reserved for follow-on investments.
“We expect to have a larger portfolio than a traditional private equity firm and we’re targeting around 18 investments a year," said Lee.
Founded in 2012, CircleUp is an investment platform providing capital and resources to early-stage consumer brands. It comprises internally-managed funds, an investment marketplace and a credit division.
"Where appropriate, CircleUp Growth Partners will be open to partnering with value-added investors to help companies thrive, and foster a more active and collaborative private market, aligned with the thesis of our marketplace.”
CircleUp founder and CEO Ryan Caldbeck