More and more start-ups and entrepreneurs are turning to crowd-funding for the finances to get their projects off the ground, with the crowdfunding economy estimated to be worth a whopping $5.1 billion in 2013 (all projects), up from $1.5 billion in 2011, according to Clarity.fm, a company that connects knowledge seekers with experts.
Many people will have heard of the likes of Kickstarter, Indiegogo, and Crowdtilt, but these are just the tip of a larger iceberg. Indiegogo and Crowdtilt allow for any project to be proposed for funding, while others target niche segments. Kickstarter, for example, is only for creative projects, while Petridish.org and Microryza are for scientific research, and DonorsChoose for education crowdfunding for school supplies.
The likes of Indiegogo and Crowdtilt are for non-accredited investors, meaning that John or Jane Doe on the street can put their money (up to a limit of $2,000 for people with less than $100,000 in income) into a project.
SmartyPants – a true success story
On the flip side are platforms such as CircleUp, which brings qualified investors together online where they can hear companies tell their stories and can also view backing documents via a secure server. SmartyPants, which specializes in delivering vitamin formulas via a gummy delivery system, has been with CircleUp since the start and is very happy with its performance.
“The $4.7 million we’ve raised on the CircleUp platform brings a new level of credibility and momentum to the SmartyPants brand,” said Gordon Gould, co-CEO and co-founder of SmartyPants.
“CircleUp has made it possible to achieve our aggressive growth goals. By leveraging the CircleUp platform we have also increased our visibility in the CPG nutrition and technology markets, and connected with potential future investors, partners and key advisors we may not have met otherwise.”
The second round of funding will be used to further accelerate SmartyPants growth strategy including key hires and new products, said the company, and growth has been impressive thus far with most recent year-over-year 1st quarter sales climbing 181%.
Efficient and transparent investment
Rapid growth is matched by the rapid fund-raising through CircleUp, which is filling a funding gap for consumer companies with less $10 million in revenue, said Katie Fitzgerald, Business Development at CircleUp.
“The average consumer product or retail company with less than $10M in revenue has historically had a difficult time raising capital and many spend at least 12 months doing so,” Fitzgerald told us. “Companies on CircleUp raise the capital in 2-3 months on average, and we also have a great network of consumer-focused investors that can add-value beyond capital.”
The crowdfunder takes a value-add approach as a platform through partnerships like those with General Mills, Procter & Gamble, Virgin America, SPINS, Presence Marketing, etc, she added. “For investors we offer a more efficient and transparent investment process and curated dealflow. Our backgrounds in consumer private equity also add value to both companies and investors.”
The $4.7 million raised overall by SmartyPants marks one of the largest raise totals to date for CircleUp, said Ryan Caldbeck, CEO and co-founder of CircleUp, and it’s the first follow-on round.
For every SmartyPants there are start-ups struggling on other crowd-funding sites to raise the capital necessary to realize their dreams.
Indiegogo, for example, has numerous examples of supplement propositions that failed to meet their funding goals. There are, however, some success stories in the natural product space. 1HourBreak – an “all-natural oral spray” that claims to eliminate stress and anxiety once swallowed – set out with a target of $20,000 to get the project off the ground. As of May 5, 2014, it had raised $83,404.
Natalia Lukina, CEO of Vital Formulas, LLC, is another entrepreneur using Indiegogo. She studied biology at CalTech and has done research in cell biology at the Scripps Institute. She is now trying to raise capital to launch a set of products called Balanced Trio. The trio is a patent-pending synergistic multivitamin system that groups complementary ingredients into three distinct formulas that provide supplements for the body's three unique daily phases, helping to bring energy in the morning, endurance during the day, and relaxation in the evening.
The success of such projects is dependent on how much face time an entrepreneur is willing to give, and success of crowd-funding is usually determined by the amount of media coverage the campaign receives, she said.
“We are actively working now on getting media attention to our product and campaign. We are confident that it will get funded. We chose crowd-funding vs a private investor because crowd-funding serves as a marketing tool and helps us attract future customers,” she told us. Her goal is $20,000, and she has a ways to go, with $2,360 raised so far and 36 days to go (as of May 5, 2014).
The first $100k is the toughest
So why has SmartyPants been successful where so many other vitamin supplement start-ups have struggled?
CircleUp’s Fitzgerald said that investors look at product, financial performance, team, and the deal structure when deciding whether to invest. “SmartyPants has a great product and brand and has continued to perform – winning great accounts and growing quickly,” she said. “The SmartyPants team is great and they have highly relevant experience to draw from which is important to investors.
“They also did a great job engaging existing investors and potential investors during the fundraising process – communicating the story, being proactive and this engagement continued after their first raise which helped them in their second as many investors participated in both rounds.”
Having existing investors evangelize your proposition is important, Gould told NutraIngredients-USA. He was also ready with additional advice for supplement start-ups: “Also, take advantage of samples when appropriate - investors that try your sample may be more likely to invest.
“Try to achieve and maintain momentum,” he added. “Raising the first $100k is the toughest.”