Related Expertise: Technology Industry

Bringing Investors and Entrepreneurs Together

An Interview with Ryan Caldbeck and Rory Eakin

In the seven years Ryan Caldbeck worked in private equity he noticed a recurring problem. Namely, that practically none of the thousands of investment firms in the United States is willing to invest in consumer companies with revenues below $10 million.  Every week he would field call after call from small, early- to mid-stage consumer product companies—many of them excellent businesses with great products—that were just too small for his firm to handle.

“I never knew where to send these high-growth brands,” Ryan said.

It appeared nobody else in the private equity industry knew where to send them either. Typically, these small businesses would be left to raise money from family and friends.  Even professional angel investors were less interested in consumer products.

While consumer products account for about 20 percent of the U.S. economy, they attract only 4 percent of its angel funding.  “With less money flowing into consumer companies than it should, potential investors might think other people aren’t investing there because there’s no money to be made, but that’s just not true,” he said.

According to a Kauffman Foundation study titled the Angel Investment Performance Project, investors in small consumer product companies typically see a 3.6x return on their investments in a little more than four years.

A strong return by any standards, yet small consumer product companies are still mired in an inefficient and underfunded section of the economy.


Angel funders, Ryan explains, tend to disproportionately invest in industries in which they have already worked. The only well-established angel investor community in the U.S. is in the technology sector in Silicon Valley.

There is no such established angel network for consumer products.

It was this issue that inspired Ryan (Boston, 2001-2003), together with friend and fellow BCG alum Rory Eakin (San Francisco 2005-2007), to start CircleUp, a Web-based crowdfunding platform for small retailers and consumer brands.

Rory explains crowdfunding as a process by which individuals come together to fund a project or a company, where that funding can take the form of donations to a project, donations to a company, or investing debt or equity into a company.

“The more we listened to investors, the more we were hearing that they wanted access to small, private companies and to allocate small portions of their investment net worth to alternative asset classes. We launched CircleUp to help individuals invest into high-growth, private consumer brands,” Ryan said.

In a nutshell, CircleUp—launched in April 2012—allows consumer product companies to raise money from accredited investors; it allows retail companies and the people who would like to invest in those companies to evaluate each other and to interact through a private network; and, through a partnership with a registered broker-dealer, it facilitates funding the transactions via its site.

To be listed as an investment opportunity on CircleUp, a company must have a minimum of $1 million in annual revenue. Investors can invest as little as $1,000.

CircleUp currently has six full-time and three part-time employees, and it profiles 15 companies, a number whittled from more than 600 applicants.

“For CircleUp to be a sustainable business, investors need to be successful on our site,” said Rory. “They are more likely to do well if the companies we profile are of very high quality. We’ve had great feedback from investors consistently impressed with the superior standard of the companies on our site.”

He cites as an example 18 Rabbits, a granola snack company touted in the September 2012 issue of O, The Oprah Magazine as "a great healthy snack bar!"  With several million in revenue, 18 Rabbits has recently doubled in size and enjoys excellent national distribution.

However, says Ryan, had this company tried to raise money off-line, it would have taken them about twelve months.  “We helped 18 Rabbits raise money from terrific investors in about 60 days because its growth, its brand strength, its size, and its distribution are exactly the things consumer investors are looking for. Those investors are out there; the trick is connecting them with companies. That’s what CircleUp does.”

When we talked with Ryan and Rory in September, CircleUp had already funded four companies in the space of three months, making it, they claim, more active than most private equity firms or investment banks in the country in the area of small consumer products.

Indeed, crowdfunding itself is shaping up to be the hot new start-up trend. With recent changes to the U.S. JOBS Act—broadly intended to help small businesses raise funds more easily (but bringing with them fears of a potential new era in investment scams)—there are more and more CircleUp lookalikes popping up every week.

Even so, neither Ryan nor Rory is too worried about getting lost in the crowdfunding crowd.

“If you’re an investor, and you’re trying to decide which of this multitude of crowdfunding platforms to use, you’ll find that CircleUp has already gone through the necessary checks and balances to make sure that its securities are sold properly,” said Ryan. “We provide investors with the information needed to help them make great decisions; we run background checks on all of the entrepreneurs and the companies; and we provide a transparent market place.

“In addition, we have a number of partnerships that add value to both companies and investors.  We have partners that provide third-party diligence materials, including industry data, to investors for free. We also have partners, including General Mills and other Fortune 500 consumer companies, that are interested in meeting the companies that are successful on our platform.”

Both men subscribe to the philosophy that any U.S. company selling equity online should be required to register with the Financial Industry Registration Authority (FINRA), the governing body for broker dealers, just as it would be required to do in the offline world.  Both have gone through the rigors of becoming registered representatives, and both hold FINRA Series 24, 63, and 82 securities licenses.

“We take what we believe to be the proper and necessary steps to protect our companies and our investors. We are fiercely proud of this and believe that this is what will help keep us above the fray,” said Rory.

Although both Ryan and Rory are BCG alums, their paths never crossed during their consulting careers.  They met and became friends at Stanford Business School, both graduating in 2005.

Nonetheless, their mutual BCG experience is much in evidence at CircleUp.

“I find many of my days here resemble the early days of a BCG client case,” Rory said.  “I have to gather and synthesize a lot of new information in a short period of time. BCG is where I learned the ability to balance different work streams and make decisions without complete information.”

Ryan says his BCG training gave him the frameworks necessary to break down complex problems.  “That analytical ability and those analytical frameworks have been invaluable to me, first during my time in private equity, and now in starting CircleUp.”

Both agree that being part of—and having access to—the BCG alumni network has brought what Ryan calls “tremendous advantage.”  “It’s a powerful network.  BCG alumni have been visiting CircleUp because they are interested in investing in private companies and they are excited about our approach.  By providing free access to great private investment opportunities, we are expanding participation in early-stage investing.”

Indeed, one of CircleUp’s largest investors, Clayton Christensen—the noted Harvard Business School professor and author of The Innovator’s Dilemma—is a BCG alumnus (see sidebar).

A Disruptive Technology