CircleUp is an equity crowdfunding platform that you can use to raise money for your startup company online.
The company started in 2010 and is headquartered in San Francisco, California. Since their launch, they’ve helped 256 companies raise $390 million on their platform.
I’ve covered many of the equity crowdfunding websites in the past and I want to dive into how these guys stack up against the competition. Whether you’re an investor or an entrepreneur, you’re going to learn something new with this article.
We’ll go over the pros and cons of using this website, who it’s for, who it’s NOT for, and how you can get the most out of this new funding mechanism. By the end of the article, you’ll feel more confident going out there and raising funds for your startup.
How CircleUp Works
CircleUp is catered towards early-stage consumer brands that have physical products (think retail). The company is a FINRA registered broker/dealer. As an entrepreneur, you can list your offering on their website, which includes access to more than 850 professional accredited investors.
Once you’ve submitted your application and passed rounds of due diligence, you’ll gain access to CircleUp Hub and be able to work on your fundraising campaign page. This will pass a final review by the company and then you’ll be able to list it on their marketplace.
On average, if you’ve done your job right, you should be able to hit your target investment amount within about 60 to 90 days. You must hit or exceed this minimum amount to be able to keep the funds that are raised.
The big difference between CircleUp and other equity crowdfunding websites is that they specialize in Reg D raises under 506(c) or 506(b). They do not allow Reg A+ or Reg CF campaigns on their platform at the time of writing.
Fees and Costs
According to the company website, CircleUp will charge a commission based on the total amount raised. In their words, the commission is comparable to “what companies pay to investment bankers in the offline world for similar size fundraising rounds.”
Personally, I’ve found a lot of different data regarding what investment banks charge for their fundraising fees. There are different formulas to come to this number. For example, when it comes to M&A transactions, Axial reports that “the Double Lehman scale is more prevalent: 10 percent of the first million dollars, 8 percent of the second, 6 of the third, 4 of fourth and 2 of everything thereafter. Variations on the structure have also become more common, tailored to each deal. “
When it comes to fundraising numbers, Global Capital Funding Group reports that, “Middle market deals classically provide for minimum success fees in the range of $250,000 to $750,000, with most minimums falling on the low side of this range…
We typically see success fees in a very competitive market starting as low as .75% for deals at the highest end of the middle market and as high as 5% at the lowest end of the middle market. Prominent middle market investment bankers with “real” industry expertise target success fees of at least $1,000,000 per transaction.”
Based on my research on websites like InvestmentBank, the actual fees for a deal are extremely variable an deal-dependent. It will vary based on timing, level of preparation, deal size, and more. Some report it can vary from 3 – 5%.
I would like to see more clarity on this point from CircleUp. I would recommend researching this point more before discussing numbers with a funding portal or broker-dealer.
Who Can Invest on CircleUp?
Since CircleUp companies are only using the Regulation D 506(b) or 506(c) rules under Title II of the Jobs Act, there are limitations on who can invest in these offerings.
You can only invest in a company on CircleUp if you are an accredited investor. What does this mean? Basically, accredited investors are wealthy individuals. They are earning $200k per year or have a $1 million net worth or more (excluding their house).
Accredited investors are not only limited to individuals. You can also qualify as one if you’re an institution like a bank, insurance company, broker, or trust, then you can also invest on CircleUp. In fact, over 50% of the capital comes from institutional investors.
Since CircleUp does not have plans to do Reg CF or Reg A+ offerings, non-accredited investors can not invest on this platform.
Who Can Raise Money on CircleUp?
This company specializes in equity campaigns for high growth product-centric or retail-oriented startups. These raises are between $1 – $5 million. Some of these industries include:
- Fashion/Apparel
- Accessories
- Pet care
- Electronics
- Restaurants
- Beauty
- Food and beverage
You must apply to be able to raise money on CircleUp. They will put you through a vetting process, where which the majority of companies are weeded out. In fact only 7% are approved to raise money on the website.
After you’re approved, you can run your campaign. There is both a fundraising minimum and maximum on this platform. You cannot raise more than the maximum on the site (though technically, Reg D has no limit).
CircleUp Popularity and Statistics
Thus far there have been 256 companies that have successfully raised money on CircleUp to the tune of $390 million in funding.
The marketplace has access to more than 800 investors, 50% of which are institutions. When it comes to Reg D offerings, quality definitely matters more than quantity.
Along with having the marketplace. CircleUp also has a $125 million Growth Partners fund which uses their AI Helio software to identify growing startups worthy of investment. They plan to invest in starts through smaller checks of ~$400k at the rate of 35-40 investments over the next 3 years.
Seeing as institutional investors make up the Growth Partners fund, it’s basically a VC operation.
Would I Recommend CircleUp?
CircleUp is different from many of the other equity crowdfunding sites that we’ve discussed in the past.
They are very particular when it comes to the types of companies they allow on their site. Also, they are only open to doing Reg D raises, so you won’t be able to offer securities to everyday ordinary investors.
I would first ask you what your goals are with the financial raise, what types of investors you want, and the amount that you’re seeking. This will determine whether or not CircleUp is a good fit for you.
From a pure fundraising standpoint, these guys have had many great companies go through their marketplace. They’ve been doing a good job. I’d like to see more clarity on their fees, but aside from that, it looks like startups have been happy with the process.
