All About crowdfunding

All crowdfunding capitalists should ask this question

By Ryan Caldbeck

One of the most common questions I hear about equity crowdfunding as the CEO of CircleUp, a leading equity crowdfunding platform, is this: Will investors actually make money?

There’s no question that private investing in early stage businesses is a high-risk, highly illiquid endeavor. That doesn’t mean that investors can’t earn attractive risk-adjusted returns. To do so, however, they will need to use high-quality crowdfunding platforms to decide which companies to invest in. While there are many ways to judge crowdfunding platforms, there is one that stands out: How thoroughly does the platform vet the companies that apply to the site?

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At CircleUp, we only accept a low-single-digit percentage of companies that apply to our platform. This alone, however, doesn’t guarantee that only high-quality companies make it through to investors. What are some other factors that might lead to greater accuracy in the vetting of businesses? Focus? Expertise? Experience?

Our own focus is on one industry: consumer products/retail. We chose this area because the return profile of angel investments in the consumer sector is very strong and because that is where our investing experience lies. According to the Kauffman Foundation, angel investments in consumer and retail have generated average returns of 3.6x invested capital in just over four years (while the Kauffman Foundation’s data set is limited, it is the best data available).

It was my experience as a private equity investor at TSG Consumer Partners and Encore Consumer Capital — firms that focus exclusively on investing in high-growth consumer companies — that led me to found CircleUp. At these firms, I evaluated thousands of investment opportunities and observed highly distinct patterns both in companies that were successful and those that were not.

Due diligence

While our vetting process eliminates all companies not in consumer and is highly informed by our consumer investing experience, the next level down focuses on the specific company.

Ryan Caldbeck.

We look for companies with a strong performance history and compare the company’s internal metrics to important industry benchmarks. For example, we use SPINS data to verify consumer take-away of a company’s products at retail (this tells us if companies are just loading retailers with inventory or if consumers are really buying the product), and we now have a dataset of more than 2, 000 companies that have applied to CircleUp to compare applicants across many different benchmarks.

Looks like there is hope!

by hwnwiz

Hey StinaJ!
I am feeling you... I am still paying off Student Loans and the market is terrible. And it is funny on how you mentioned crowdfunding because I just had a friend raise money for his film and asked if this could be done for student loans and unfortunately it can't... so I searched and searched for something like that and nothing is available. I spoke to him to see if any other sites can be like that and he told me of a group that is focusing on student loans and there has been lots of students that are taking interest... and they are all complaining about loans and being able to pay for school

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