See Katie’s presentation at Cosmoprof North America 2014!
1. How does CircleUp help companies?
At CircleUp, we connect innovative consumer product and retail companies with consumer-focused investors so that companies can raise capital more efficiently and investors can access dealflow, conduct diligence, and invest in consumer companies more efficiently as well. We saw a huge gap in the marketplace for consumer companies with less than $10M in revenue because the private equity firms and strategics don’t focus on companies below that size.These companies would typically spend 12 months fundraising and have a difficult time getting in front of relevant investors. We also think consumer is an interesting industry for earlier stage investors as there is less selection bias and easier to understand business models.
2. Why are you doing this online?
As a registered broker dealer, CircleUp is working with companies offering securities through the exemption companies typically use in a private placement, whether online or offline. We offer companies the ability to offer securities through our online platform because the added efficiencies and reach that brings for companies and investors. Both companies and investors have historically been limited by physical location; however, through our platform, we can connect companies with investors anywhere in the world, allowing them to focus on relevance not location. Investors also benefit as it provides them access to more dealflow than what they would see in their personal or local network which we think contributes to quality and more educated investment decisions. The online process also fosters transparency. There are of course things that need to be considered when sharing company information online and we take security very seriously at CircleUp and that’s why we have tools and procedures to give companies control over who views their sensitive information.
3. What do you look for in companies you work with?
As former private equity investors, we look at companies through an investors’ lens. We look for companies with a strong brand, differentiated product offering, and strong positioning within the addressable market. We also look for companies that have strong financial performance including high growth and strong gross margins as well as a capital efficient business model. Team is also incredibly important, especially at earlier stages, a good team gives investors confidence that someone is steering the ship in the right direction and able to migrate through the industry and overcome challenges. Last but not least is valuation – a really exciting company can otherwise be a bad investment decision if priced incorrectly. Companies and investors need to consider the relevant market terms; that said, things outside of just multiples need to be considered including stage, growth, margins, equity offered, etc.
4. What is behind the partnership you have with Procter & Gamble and other CPG
We strive to provide companies that we work with access more than just capital including resources, connections, and advice from those relevant in the industry. Part of this is provided through connecting companies with relevant consumer investors. The other way we achieve this is through our partnerships, like those with Procter & Gamble, General Mills, and service providers. We hostincubator days and mentorship programs with these partners where companies can create greatrelationships and receive valuable advice.
5. What are some of the most common mistakes companies make when raising capital?
One of the most common mistakes and reasons we pass on companies is valuation. We have seen many companies spend a lot of time chasing a valuation that the market just won’t bear. Investors need to believe they can make a good return and they are investing today and taking on the risk alongside the company, so companies can’t price in all the future growth. At the same time, investors need to understand that for some companies, particularly really young companies, multiples are not always a relevant metric. We look at a combination of multiples and the amount of equity being offered and compare that with market for similar sized companies with similar financial performance metrics.
6. How can companies increase the likelihood that their fundraise is a successful one?
Aside from having a compelling investment offering, the next most important thing is to be engaged. Assessing the strength of the team is a very important part of the investment process and investors can’t do this if the team is not engaged. It can also send a really bad signal to investors if a founder isn’t responsive. More than that though, the most proactive entrepreneurs tend to get more respect and interest from investors. Help investors learn about and understand your business – without that you won’t get a check.
7. How can a company decide when it is time to bring in outside capital?
Companies should first understand where the opportunities for growth lie and whether bringing in additional capital can help to grow the business and increase value. Companies often comment that they don’t want to reduce their ownership; however, the goal of bringing in outside capital is to drive growth such that the retained equity is more valuable – smaller piece, bigger pie. Companies should not wait until they have a very short term need since there is some preparation and time involved in raising capital – planning ahead is important.
8. Does it always work?
Every situation is unique, so the time it takes to complete a financing can vary widely, if at all. Recent experience suggests, 60 to 90 days to raise the Investment Target amount once your company has been listed on CircleUp. However, this can vary significantly, and we always suggest your talk with your lawyer about the specifics of your offering, and all risks associated with a potential financing.
Katie joined CircleUp after gaining substantial experience from positions in investment banking and private equity. She began her career at Deutsche Bank advising technology companies in mergers & acquisitions. Later, Katie was with H.I.G. Capital, a global private equity firm, where she focused on identifying and evaluating investment opportunities, executing transactions, and working closely with portfolio companies across various industries and sectors, including consumer products. Katie has also gained substantial experience in both evaluating and fundraising for early stage consumer product and retail companies.