Building the Future of Private Investing: Introducing CircleUp Growth Partners

Today we are extremely proud to announce the creation of a new, first-of-its-kind venture capital fund: CircleUp Growth Partners.

CircleUp Growth Partners is an early-stage consumer fund with a scalable, data-driven approach to investing in visionary entrepreneurs and products.

It’s time for change

Technology has transformed nearly every type of enterprise in recent years — but private market investing has been a notable exception. Venture capital and private equity firms today largely operate the same way that they did 30 years ago. Deals are sourced and analyzed using a time-consuming, manual processes riddled with human bias. Investment decisions are often based on feeling and “gut” rather than data and facts. Post-close “value-add” is typically a partner with years of experience as an investor (not operator) who spends 10% of their time attending board meetings that are split between 8–10 companies (read: hard to truly add value). This problem is particularly acute in the world of consumer and retail. Investors who want to invest in consumer and retail usually have to spend upwards of 75% of their time sourcing deals manually — this includes going to trade shows around the country to meet companies in-person. It’s hard and expensive for investors to find emerging consumer and retail companies, so many don’t even bother looking.

This means that countless promising consumer brands and entrepreneurs are overlooked, despite the fact that these companies have, on average, a higher return on investment than tech companies. This also means that the some of the most innovative brands aren’t funded efficiently or effectively, and may not be able to grow quickly enough for their products to be available for consumers to buy and enjoy.

At CircleUp, we think there’s a better way. We believe that capital should be deployed based on merit- not personal networks or where a company happens to be headquartered. Our mission is to help entrepreneurs thrive by giving them the capital and resources they need. That’s why we’re launching CircleUp Growth Partners.

A new kind of fund

CircleUp Growth Partners (CUGP) has raised a $125 million fund that we will invest in early-stage, innovative consumer and retail companies across a variety of categories, from food and beverage to beauty, pet, household products, restaurants, and apparel.

CUGP relies on Helio, our machine learning platform that analyzes billions of data points in the U.S. consumer goods industry. Helio evaluates more than 1.2 million consumer and retail companies and uses a variety of criteria to predict their potential for success across an array of metrics, from brand, to product, to distribution, to team. It was built internally by dozens of engineers and data scientists over several years, and it continues to grow every day. The consumer sector is an ideal entry point for this type of data-driven approach because it’s an industry that is rich in data with relatively uniform business models, which lends itself well to algorithmic analysis. We’re able to capitalize on this in a powerful way.

Because of the diversity of the billions of data points that go into Helio, we’re not limited to a particular sector or a particular way of looking at the world. Helio allows us to take a 50,000 foot view of the entire consumer sector at once. We can then zero in on the things that are important to us, or important to the entrepreneurs and investors we work with. For example, if we want to look at every pet food company based in Texas with distribution in a certain set of retailers, we can. If we want to be more specific and look at dog treats companies that only contain natural ingredients and launched in Houston within the last last two years and are currently sold in 5 stores or less, we can.

We can analyze companies based on where they’re located, how consumers and industry experts talk about the brand, how unique their product is, how we think they will grow, where their products are sold, what their revenue is now and what we think their revenue will be, how their labeling looks, how their team is composed, and much much more. The utility of this approach to investors, retailers and other industry participants is probably self-evident, but why does this matter for entrepreneurs?

Imagine the founder of one of those pet treat companies in Houston who makes a product that pets love. She has strong sales growth, but currently only sells in stores in the Houston area so has revenue that is less than $5 million a year. The founder has the vision, has the drive, and has the product to build a successful company- the one thing she’s missing to fully realize her potential is the funding. Private equity firms won’t go near the company because it’s too small, and the founder doesn’t live in San Francisco or New York, so venture capital funds hardly even know she exists. Historically, she may have just accepted that her business would only ever grow so much, but we’re building a different way forward.

Helio could flag the growth and brand interactions of a company like this and identify it as an opportunity for CUGP to pursue. This story isn’t just a hypothetical; some form of this narrative is how we’ve already discovered many of the greatest brands we’ve invested in.

While other VC and PE firms rely on human analysts and associates to do their legwork, CUGP uses Helio to help power every stage of the investment process, from sourcing more efficiently, to helping to evaluate opportunities more effectively, to providing valuable post-close insights to entrepreneurs. The investment process is more efficient and CUGP are more effective partners, pre and post-close, because of Helio.

This approach also means that we identify promising investment opportunities much earlier than investors who rely on word of mouth, more common data sets and other human heuristics. CUGP provides capital and support in a company’s most formative, early days, establishing meaningful relationships with the entrepreneurs who are building the future of the consumer goods industry. And unlike other funds that tend to be insular and opaque, CUGP will drive openness and collaboration in consumer investing, welcoming co-investment opportunities that bring in industry strategics and firms with complementary expertise.

Pairing cutting edge technology with industry expertise

As important as technology and data are, they’re often most powerful when paired with human expertise.

In 1996, IBM supercomputer Deep Blue became the first computer system to beat a grandmaster at a game of chess. Since that time, chess programs have advanced so quickly that today a chess iPhone app could beat most grandmasters. Despite these advances, research has found that the best chess player is not a computer operating by itself, but rather a computer paired with an experienced human chess player. The computer is able to process data at a far faster rate than the human would ever be able to and make quantitatively informed suggestions, but the human is able to ultimately validate the computer’s suggestions against their own experience and moves suggested by other chess programs.

Similarly, as powerful as Helio is, its true power comes from the fact that it is paired with our all-star team of investors who have years of experience specifically devoted to helping consumer brands raise capital and grow. Our team is able to marry the insights produced by Helio with their knowledge of the sector to build an investment approach that is constantly evolving and improving.

If a particular analysis is useful for our work, we can run it with Helio, but what’s especially exciting about Helio is that it can also run useful analyses by itself. Because it is always evolving , it doesn’t just answer our questions, it prods us to ask new kinds of questions.

How CUGP fits into CircleUp

CUGP will allow us to move quickly and with conviction to provide a better and more meritocratic funding experience for entrepreneurs. CUGP now operates alongside our marketplace-which connects companies with investors, and our credit arm-which extends working capital financing to companies, meaning that CircleUp is able to meet a wide variety of financing needs, and help entrepreneurs in the way that is best for them. Helio is the foundation which powers our equity funds (including CircleUp Growth Partners), our credit business, and the marketplace.

Beyond financing, we also help entrepreneurs build relationships with retailers and distributors who share a similar thesis to us- they want the most innovative companies on their shelves -not just those brands that happen to be large enough to flag their attention at a tradeshow like Expo West. An entrepreneur working with CircleUp finds these relationships to be particularly powerful.

While there are network effects to Helio itself (it gets stronger as it gathers more data), there are also network effects to the CircleUp business model. Each of the three business units is stronger because of the existence of the others and the units get better as they learn from one another on how to best engage with and serve entrepreneurs. For example, Helio may identify a company as an investable opportunity for the fund, but on contacting the company, the fund may learn that the company is really looking for credit financing. The fund team can easily intro the company to our credit team, but beyond that, they can also take the feedback to our data science team to improve the way Helio identifies an entrepreneur’s financing needs. All our units are working towards building scalable capital allocations for businesses that provide strong returns to investors, resulting in more net capital to the ecosystem and more funding for entrepreneurs.

The consumer and retail field as a whole is increasingly being shaped by emerging innovative brands, which in recent years have outpaced industry incumbents in developing innovative and authentic products that consumers crave. We think this trend is only growing, and our mission at CircleUp is to get more of these companies the capital and resources they need to thrive.

It’s a privilege to be able to support these companies and entrepreneurs with crucial capital and resources in their most formative days. I look forward to the success of CircleUp Growth Partners, the new relationships it will help us foster, and the amazing new consumer products it will help us fund.