This Tuesday, we announced our $125 million venture fund, CircleUp Growth Partners. In his post, our CEO Ryan wrote about why we raised this Fund and why it will be transformational for private investing in consumer and retail. However, an essential element of what will differentiate this fund lies in how we think about creating value for our portfolio.
The Value Add / Scale Paradox
Early stage (seed and Series A) investing has historically suffered from what I call the value-add / scale paradox. Many investors believe that VCs have two levers they can pull to add value: governance and hands-on operational support. For a $125 million fund making a large number of seed and Series A investments, the ability to add significant value in either of these ways falls apart fairly quickly. It’s challenging to be a valuable board member if an investor is sitting on 20-30 boards. Conversely, the economics of a human-capital intensive model for value creation simply do not work with a relatively small investment vehicle. As such, many seed funds have resorted to ‘asset light’ models where their value-add consists more or less of capital alone.
With $125 million and a mandate to invest in 40 companies, CircleUp Growth Partners is challenging that paradox. We intend to partner with a relatively large number of companies and make supporting founders post-close a top priority. Our goal is to go deep with each company we invest behind, all while maintaining a scalable fund with a with a sizeable portfolio.
Value Creation That Scales
Our strategy for providing meaningful, hands-on support across 30+ companies stems from a three-pronged approach that uses our scale as an asset, not a liability. These three domains consist of: 1) Data and Insights, 2) Partnerships; and 3) Network and Community.
- Data and Insights: Unlocking Helio for our Companies.
Over the last several years, CircleUp has invested in building a comprehensive and powerful suite of insights on the consumer and retail ecosystem. We call the platform Helio because of its ability to shine a light on some of the most interesting prospects and deliver unique findings on the nuances of how winning brands succeed.
As Helio matures with our fund, we will tap into all that it can bring to bear for our companies. Our goal is to leverage Helio to not only identify and evaluate companies, but also to help them grow post-close. We think Helio will be an invaluable asset for our founders and their businesses by answering questions across a range of topics, including packaging and formulation optimization, go-to-market sequencing, social media strategy, promotional spend, channel segmentation, and more. And while there is R&D cost in developing these models and tools, once they are developed, their marginal cost is virtually $0… it can scale with our portfolio very easily. In fact, it improves as we scale, as all data points from our portfolio’s performance strengthen Helio’s predictive powers. It’s early days with this work, but by unlocking our insights for our founders, we believe it can be transformative.
- Partnerships: When scale is an asset, not a liability
CircleUp’s marketplace has worked with more than 255 early-stage consumer companies that have closed more than $390 million of equity and debt capital with our help. Our previous smaller funds have invested passively in 75 companies. Together, we’ve worked with more companies than the majority of early stage consumer investors or intermediaries.
That scale is an asset for us when it comes to collaboration with industry leaders in CPG and retail. By leveraging our scale (in addition to Helio) we are able to help retailers, distributors, and service providers find innovative brands more affordably than they’re able to on their own. The need to do so has only become more important as customer preferences have shifted toward craft and authentic products from emerging brands.
The partnerships we have in-place exist in large part because of the size of our portfolio and network. By forming a partnership with CircleUp, established market participants (both large and small) are able to get exposure to a wide variety of the upstart brands and visionary entrepreneurs that are shaping the future of the CPG industry. Our companies across all of our business units, in turn, are able to benefit from unique access to those partners.
- Network and Community: Bringing leaders together
For a young and quickly growing company, nothing can replace the experience of connecting with fellow entrepreneurs who are facing the same challenges or are a few chapters ahead. Our community and network resources create opportunities to connect companies with others to foster collaboration. When we invest behind a founding team, that entire team joins what we call CircleUp’s Inner Circle, a network that facilitates business collaborations and advice both virtually and in-person.
In addition to more general forums, we also make a concerted effort to offer members of the CircleUp community resources that are tailored to specific sectors and topics. Webinars, events and dinners throughout the year, and fireside chats that focus on the domains they care about all play a part in our community.
The Power of Relationships
Despite our unique suite of services designed for a large portfolio, we fully appreciate that building trust, compassion, and alignment with founders and their teams requires a great deal of effort that frankly, cannot be scaled with technology. Our team of investors knows that building relationships takes time and that it is something they are wholly committed to.
In addition, our entire team, from our investors to our data scientists, are here to serve and partner with every company we interact with. As a result, each company not only gains access to our fund team, it gains access to people on other teams who are completely invested in their success.
Onward
We have combined what can be scaled in our models for value addition, all while remaining focused on the need to build relationships with our founders. This hybrid approach will be transformational for our companies and for how the investing world thinks about value creation at scale.