If the start-up isn’t a tech company, it may have a hard time finding investors. In fact, unless a consumer products company has surpassed $10 million in sales, it doesn’t even begin to attract private equity investors. As a result, these food, agriculture, retail and other consumer oriented businesses have a difficult time breaking into the market.
However, the Securities and Exchange Commission has been leery about fully endorsing crowdfunding. Crowdfunding was a part of the Jump-Start Our Business Start-Ups Act which President Barack Obama signed last April. Without the help of crowdfunding, many smaller entrepreneurs are forced to max out their credit cards in hopes of getting their company off the ground.
A company called CircleUp was launched, aiming to connect up-and-coming consumer products companies with investors. CircleUp takes applications from companies with $1 million to $10 million in revenue. “Companies whose applications are accepted make their pitches to investors behind a firewall on the CircleUp Web site, offering equity stakes in return for capital” (Cortese, Amy.” The Crowdfunding Crowd is Anxious.” New York Times January 2013). CircleUp does take a small cut of the money.
Despite certain reservations that seem to be arising, it is important to keep in mind that consumer goods businesses make-up a large part of America’s businesses. It is worth creating new methods and structures like crowdfunding to ensure these start-ups get the funding they need to keep America’s economy going strong.
CircleUp gives entrepreneurs a way to raise money while providing investors with opportunities they may not otherwise hear about. In seven weeks, one of the seven companies CircleUp has assisted called Little Duck Organics raised nearly $900,000 from about a dozen investors on the site.