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CircleUp vs. FundersClub: Which Is Right for Your Small Business?

Feb. 12, 2015
Small Business
CircleUp vs. FundersClub
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Is your promising small business in need of growth capital? One potential financing option is to raise money via an equity-based crowdfunding website, like CircleUp or FundersClub.

Equity crowdfunding allows groups of entrepreneurs and investors to fund small businesses or startups in exchange for a percent ownership in the business, called equity. Investors make money if the business is successful, while small business owners get the capital and resources they need to grow their business and take things to the next level.

On the downside, equity crowdfunding companies like CircleUp and FundersClub are highly selective and come with a few pros and cons that should be considered before you apply.

CircleUp

Launched in 2011, CircleUp is an equity-based crowdfunding site that matches investors who have at least $1 million in net worth or $200,000 annual income with entrepreneurs running innovative consumer and retail companies.

Financing type: Investors typically receive shares of stock in the company for their investment, which represents an ownership stake in the company. If the business is sold in the future, the shareholder is entitled to a percent of what’s earned in the sale. Stock ownership also entitles the investor to dividends (a distribution of a portion of your company’s profits) if you decide to pay them out in the future.

To have your company considered for an investment on CircleUp, you first need to apply to list your company on the site. If the company thinks your business is a good fit and meets its requirements, they’ll reach out to you to learn more about your business and conduct a due diligence process.

Business requirements: There are a few requirements to be aware of. Companies on CircleUp typically have $1 million in revenue for the current fiscal year and the company requires at least $500,000 in annual revenue. Retail companies on CircleUp usually have more than one location.

Your company must focus on an innovative consumer product and/or retail brand, and must offer a tangible product or retail outlet that you can touch, taste, use or visit, according to CircleUp.

Potential advantages: Raise money with CircleUp and you can connect with experienced, knowledgeable investors in your industry, who can potentially help you grow your company faster and provide one-on-one guidance. You also get access to CircleUp’s network of operational partners, like Johnson & Johnson and eBay, who can share business expertise and potentially help with product development and manufacturing.

The downside: CircleUp only accepts a small percentage of the companies that apply, and it often takes 60 to 90 days to raise the target amount of money once your company is listed on the site, according to CircleUp. And if the minimum amount is not met, 100% of the money raised is returned to investors.

FundersClub

FundersClub is an online venture capital marketplace where investors—again, with $1 million in net worth or $200,000 annual income—can become equity holders in promising startup companies. The goal is to provide deserving companies the money they need while giving investors access to early-stage, high-potential investments, according to FundersClub.

The FundersClub community is made up of more than 12,000 accredited investors who have invested more than $27 million and funded 108 companies to date, according to the FundersClub website. Investments are typically $3,000 to $5,000 per contributor, which makes it easier for investors to build a diversified portfolio.

Financing Type: FundersClub allows up to 95 investors to invest in a single company. Investors typically receive equity ownership in the business, which entitles them to a portion of the proceeds upon a sale of the business or future dividends.

Business requirements: FundersClub selects companies that it believes are high-promise startups. It looks for businesses that show strong early traction and growth, address a big market and have a strong founding team, according to the FundersClub website. A panel of investor members made up of angel investors and entrepreneurs review candidate companies and give their opinions on whether or not each should launch on the site.

Potential advantages: The FundersClub investment team has years of experience in entrepreneurship and investing, and members can invest alongside venture capital firms like Intel Capital, Spark Capital, First Found and Y Combinator.

The company provides access to some of the world’s top entrepreneurs and their own professional networks and contacts; the experience, advice and connections these networks may provide can add value to your venture. Over 70% of the site’s members are C-level executives, vice presidents, directors and managers, according to FundersClub. Active investors at FundersClub include top employees at companies like Apple, AT&T, CNN, eBay, Facebook, LinkedIn and Goldman Sachs.

The downside: It’s extremely competitive and the process is quite thorough. Fewer than 2% of companies that are reviewed by FundersClub are accepted.

The verdict

CircleUp appears best suited for high-growth companies in the retail and consumer products sector. You’ll need at least $500,000 in annual revenue, and your company must focus on an innovative consumer product and/or retail brand.

FundersClub looks even more selective than CircleUp. It’s likely best suited for high-growth tech startups that offer a compelling product in the tech space. You can view a list of companies currently on FundersClub to get a better idea of what types of companies are accepted.

  CircleUp FundersClub
Requirements $500,000 in annual revenue Must be a startup with high traction or growth
Types of companies Consumer products or retail brand High-promise startups
Potential advantages Access to investors and CircleUp’s operational partners, like Johnson & Johnson and eBay.  Access to networks of entrepreneurs and investors who can help you grow your business.
Disadvantages Takes 60 to 90 days to raise the target amount of money once your company is listed, and 100% of money is refunded if goal is not met. Fewer than 2% of companies reviewed are selected. The process is lengthy.

 

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