CircleUp is hitching its growth fund to Helio. The online fundraising platform today announced the launch of a $125 million venture capital fund that will incorporate the proprietary machine learning platform as a tool to help guide investment in early-stage consumer and retail companies.
Alison Ryu, a recent hire from TSG Consumer, will join CircleUp veteran Ben Lee as the fund’s general partners alongside CircleUp co-founder and CEO Ryan Caldbeck. Lee ran the company’s previous, $22 million fund. Limited partners in the new enterprise include investment company Temasek, Euclidean Capital, Annie’s Homegrown co-founder and former CEO John Foraker, Plum Organics founder Gigi Lee Chang, Bumble and Bumble co-founders Tevya and Deva Finger and outsourced investment offices of pensions and endowments.
The fund will take an approach that involves a relatively large number of bets on consumer brands. The goal is to approach at least 18 a year, according to CircleUp, and informing it all will be Helio, a massive program that collects and analyzes billions of data points from over 1.2 million companies.
“The thesis behind the fund is the belief that there is a white space at the early stage of the traditional CPG market,” Ryu said. “Our belief is that early-stage consumer investing has either focused on the intersection of consumer [goods] and technology… or that more traditional CPG investors want to write larger checks, north of $10 million.
Caldbeck said the fund and the technology behind it will break the mold of an investment and business paradigm that has operated in the same way for the past 30 years.
Right now, “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,” he wrote in a post on LinkedIn announcing the fund’s launch.“Investors who want to invest in consumer and retail usually have to spend upwards of 75 percent 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.”
CircleUp Growth Partners believes it can turn this model around. Other large funds, Ryu said, typically focus on larger capital investments and must deploy all capital within a few years in order to yield a successful rate of return. CircleUp Growth Partners will write smaller checks ranging from $1 to $3 million, with the ability to flex up or down, in early-stage companies with revenues between $1 to $15 million.
“Because the sourcing function in traditional consumer funds is very human driven, it is expensive and time consuming to send humans around the U.S. looking for brands that might be interesting,” Ryu said. “And because that model is harder to scale, it does naturally bias towards outcomes where we are investing in brands that are within reach of that human network.”
Rather than having to send a sourcing team around the country looking for new investments, Helio does much of the initial legwork, or perhaps, data work. The platform helps the team identify a list of brands that would be beneficial to speak with and see if they are looking for a capital investment. From there it’s a balance of man and machine.
After identification by Helio, the fund’s team reaches out to the brand and gets to know them. If the decision is made to proceed, Helio assists with due diligence, understanding the category and evaluating what possible outcomes may look like. The team then takes this data and uses it to craft final deal terms.
The fund announcement includes its first two investments — female-focused supplement brand HUM, which closed a $4 million dollar round with CircleUp Growth Partners as the lead investor, and meat snack brand 4505, which is in the process of closing a round of capital with CircleUp Growth Partners as the lead investor. The fund will also take part in rounds in which it is not the lead.
Kira McCroden, director of public relations for CircleUp, told NOSH that Helio ran a meat snacks analysis and 4505 was one of the top performing brands — scoring in the top one percent for its category and top 10 percent in distribution for its category.
This combination of an early-stage company with high performance but low distribution is a sweet spot for CircleUp Growth Partners, McCroden said.
“Where Helio is really interesting is in showing us which brands are really pulling ahead earlier and what brands are scoring exceptionally well but maybe lower in distribution,” McCroden told NOSH. “That [combination] is usually an interesting investment thesis because with the right distribution and investment in capital you can solve for that and it will catapult growth.”
As with the previous CircleUp fund, one concern for brands is that information they’ve shared with the crowdfunding side of the CircleUp platform could be used for the benefit of brands that the company’s VC arm is backing; information used by Helio is anonymized, however, she said.
Brands who take investment from CircleUp Growth Partners will also benefit from Helio after the investment closes, according to the fund. As portfolio companies think about entering a new channel or expanding a product line, the CircleUp team can also use Helio to help guide these choices and give founders the data to make better choices. CircleUp also plans to leverage its relationships with Amazon, Starbucks, Bed Bath & Beyond and Nielsen for its portfolio companies.
One place it probably won’t help, though, notes 4505 CEO Ryan Farr, is on how things taste.
“All decisions are not data driven,” Farr told NOSH. “There’s a lot of personal touches in our world… at the end of the day you gotta like what you’re putting in your mouth and the product has to taste good. I try to make decisions with my stomach first and then back in the facts.”