The 2013 ACA Summit, “Navigating Change for Angel Success,” was held last April 17-19 in San Francisco. Aptly named, the summit included in its agenda a discussion of the latest platform innovations for accredited angel investors, including Gust, CircleUp, and AngelList.
This article explains these three popular crowdfunding portals, which can be used to invest small amounts of cash into the next Tumblr, if you are an angel investor, or to raise enough cash to start your own company, if you are a smart entrepreneur.
Gust was founded in New York in October 2004 as Angelsoft, and quickly expanded to Vancouver and Paris. It is the leading angel network, enjoying the endorsement of 1,100 investment organizations. With a presence in 75 countries, it allows cross-border investments among angels globally. To date more than 180,000 startups have used the platform to connect and collaborate with more than 42,000 accredited investors.
The company deals with both sourcing and management of early-stage investments, by supporting all aspects of the investment relationship, from initial pitch to successful exit.
Investors can find startups by name, location, industry, or keyword. Some of the sites even share helpful video tips, useful even for entrepreneurs.
Gust is focused on helping potential investors in the difficult task of finding the right companies in which to invest. Its information is mostly of interest to investors, including confidential documents that must be shared with potential investors and tracking interest among investors.
It is most useful for investigating a startup you hear about and in which you are considering investing, however, Gust is also used by investors way beyond the discovery process--actually covering their entire deal-flow management.
If you already have a product or service for sale and you need more cash to expand, Gust can help you to pitch remotely to a wider audience that is searching for business opportunities in your industry. Gust helps you apply to all its groups of investors by presenting them your core company's information prior to a potential in-person pitch. It is suitable for startups seeking its initial funding round beyond friends and family, but still in seed stage, as well as those beyond the seed round. It is most suitable for startups with some financial backing already in place, that are trying to move to the second level.
If all you have is a prototype, though, then Gust is not the right fit for you.
Unlike most crowdfunding portals that deal with tech start-ups, CircleUp covers private consumer-products companies. Typical investments are food, apparel, household and personal care, restaurant, and retail companies.
CircleUp also differs from the pack in avoiding early-stage investments. It requires that listed companies have an annual revenue of at least $1 million, plus high gross margins and growth rates. It also requires national distribution, so investors can head to the local grocery and try the products themselves. The acceptance rate so far has only been 3%, which maximizes returns and minimizes the risk for the investor. Its screening process is so rigid that COO Rory Eakin says some investors don’t even bother to meet the teams—a testament to their belief in the CircleUp system.
CircleUp’s mission is to grow brands. If you believe in a brand and its potential to grow, this is the right investment vehicle for you. Your investment will grow with the company. If the company is sold to another company or large investment firm—not impossible given the highly active M&A market in the CPG sector—you will receive your share of the proceeds as a part owner, earning a return on investment for your early faith. Thus, CircleUp provides a natural path toward liquidity.
For entrepreneurs, the site offers valuable industry insight, free legal documents, and tools to help you develop and share your story. A dozen consumer product companies have been crowdfunded on CircleUp, with capitalization of $10 million within an eight-week round. Historically, it would take more than two years for a traditional consumer products company to raise $1 million in capital.
On May 7, CircleUp reported that it raised $7.5 million from a Series A funding round led by Union Square Ventures. This adds to the $1.5 million seed fund it raised in its April 2012 launch.
CircleUp was founded in October 2011; it now is the largest equity-based crowdfunding site.
AngelList, founded in 2010, stands out because it allows entrepreneurs to link not only with investors but also with talent. AngelList makes 1,200 introductions and 60 placements between hiring startups and job seekers per week. Last month it added a long-anticipated equity-crowdfunding service for its users. It is forecasting that more than $10 million per month in investments will run through its database.
AngelList only accepts startups that already have an investment of at least $100,000 from a well-regarded accelerator, incubator, venture firm, or individual angel.
AngelList ranks accredited investors based on their past experiences founding, funding, or advising companies. If one of its deals is a big success, the investor accrues extra points and may qualify as “top-tier.” Minimum commitment is $1,000 per order.
The portal maintains a very helpful database of accredited investors, which for each investor lists the number of companies searched this year, the amount available to invest, and the companies previously invested in. You have a better chance of actually getting the attention of someone looking at companies similar to yours, and you can save a lot of time by not talking to those who already have invested all the money they intend for this year.
AngelList founder Naval Ravikant says he was surprised to see investors putting in $10,000-$30,000 without meeting the executive teams involved.
But this is not really surprising, as online angel, VC, and crowd funding platforms worldwide show that investors just want to belong. Symbid in Holland, the oldest equity crowdfunding platform in Europe, has shown how investors just want to be part of a community and live vicariously through its entrepreneurs.
Personally, my social relationships always have been my guide in making investment decisions.
Prior to investing on the AngelList site, you will be asked two interesting questions: Who do you know? And who do you trust? These are the same guide questions you can answer in deciding which among these three portals will lead you to success.
By David Drake, founder and chairman of LDJ Capital, a New York City private-equity firm, and of The Soho Loft, a global financial media company with 3 divisions in Publishing, Conferences & Expos and Consulting. For more updates on the crowdfunding industry and information on alternative investment events, or if you have comments about this article, you can comment here or reach out to me at David@LDJCapital.com directly.
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