Crowdfunding startup CircleUp raises $7.5M

In a cash-flush display of the growing popularity of crowdfunding, CircleUp, which gives investors a platform to invest in small-ish businesses, announced this morning that it has raised $7.5 million in its latest round of fundraising.

The amount raised is the largest-ever by an equity-based crowdfunding company, and it came with some big-ticket names. Union Square Ventures, whose portfolio includes Twitter, Kickstarter, Lending Club, CodeAcademy and Etsy, led the round. Other investments came from Google Ventures and San Francisco-based Maveron.

Crowdfunding is a model of fundraising that brings a group of people together — usually online — to donate to a cause or directly fund businesses, individuals and organizations. Traditionally, crowdfunding has consisted of nonprofits and individuals relying on everyday people to donate a few bucks to a cause. One of the earliest and most popular crowdfunding sites is Kickstarter, which helps people raise money for creative projects. But CircleUp takes a different approach — it helps retail and consumer companies raise money from investors to jump-start their businesses. CircleUp finds the investors and matches them with promising companies, such as a line of baby food or dried fruit manufacturer.

CircleUp’s gangbuster fundraising round is not only good for the San Francisco startup, but it’s even better news for the many small businesses owners looking for a line of funding to grow their companies. With big-name investors like Google getting into the scene, crowdfunding gets more visibility and credibility as a legitimate way to do business in Silicon Valley. Crowdfunding is not just for struggling musicians trying to go on tour or a small NGO raising money for girls in Africa, but it’s a viable alternative to the old venture capitalism model.

“The idea that crowdfunding only for artists and projects is quickly eroding, ” said Rory Eakin, chief operating officer for CircleUp. “It’s becoming very mainstream.”

Investors are quick to throw their money behind tech startups, but consumer companies have a tougher time raising capital, Eakin said. An app that promises to be the next Instagram is a lot sexier than a granola company, but that doesn’t mean the granola will be any less profitable. On average, businesses that use CircleUp raise $1 million in about two months. Offline, that sort of fundraising could take up to a year or more.

“We think we are solving a very inefficient market,” Eakin said.

Since CircleUp launched last year, it has raised more than $10 million for about a dozen companies, including organic granola bar company 18 Rabbits and NurturMe, an organic baby food line created by two moms, which each raised about a half million dollars. These companies are often too small for banks or private equity companies to fund, Eakin said, and taking a loan or racking up credit card debt isn’t the best way to grow a business.

But with crowdfunding, these small business owners have gotten the attention they need.

Heather Somerville Heather Somerville (221 Posts)

Heather Somerville is a business reporter covering venture capital and startups for the Bay Area News Group.