CircleUp: Crowdfunding for the 1 percent

It's not for everyone, even post-JOBS Act. Instead, CircleUp is a service to help accredited investors find nonpublic companies to invest in.

The idea of helping businesses raise money through crowdfunding didn't start when the JOBS Act began to get traction. Over at CircleUp, which is launching today, the thinking is that the JOBS Act changes things , but "not as much as a lot of people think." At least according to CEO Ryan Caldbeck.

Invest in the small companies behind big brands. Rafe Needleman/CNET

But then CircleUp isn't a crowdfunding site for everyone. Instead, it's a service to help accredited investors -- people with incomes more than $200,000 a year or a net worth of more than $1 million -- find nonpublic companies to invest in.

The JOBS Act calls for the lifting of the ban on general solicitation (advertising), which does mean more people will be able to see the offerings on CircleUp, and this does make a difference, but the site is still a place for high-rollers to play.

CircleUp primarily focuses on selling of pieces of consumer companies to investors. It's not a tech funding site. Caldbeck says that there are plenty of small companies with big national brands that find it very difficult to raise capital. "There's no angel network for consumer companies like there is for tech in Silicon Valley," he says.

But the service does have a tech angle. To get investors more comfortable with putting money into private companies, it taps into social networks. It will show you, for example, which of your LinkedIn contacts have invested in a company you're looking at. It will also show you who among your Facebook friends "like" a company.

Caldbeck says that in addition to helping companies raise money from that would otherwise be hard to come by, the act of making customers into investors also creates valuable brand ambassadors. "There are big psychic benefits," to having your fans own a piece of you, he says.

CircleUp is a broker/dealer so it can actually transact shares in a company and take a commission on sales. (Caldbeck believes all crowdfunding portals should have broker/dealer licenses; he says it will reduce fraud.) It also only sells original shares the companies put up for sale; it's not a market for individuals to sell shares or buy other customers' shares. The shares you buy on CircleUp are not very liquid at all, in fact: Users cannot resell them for 12 months. The bet you make when you buy these stocks is that the company will have an exit: acquisition or IPO

 

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