P&G, General Mills Tap Into Startups

Alliances With Crowdfunding Site CircleUp Allow Big Firms a New Look at Trends

By LORA KOLODNY

Venture capitalists typically pay little attention to consumer-packaged goods startups. But industry giants General Mills Inc. and Procter & Gamble Co. are using their partnerships with a "crowdfunding" site to get to know more about them.
The two companies recently teamed up with CircleUp Network Inc., a San Francisco company that connects consumer-goods startups to individual investors on the Web.

Ben Sklar for The Wall Street Journal

Scott Jensen, left, and Keith Wahrer, co-founders of Rhythm Superfoods, have raised money on CircleUp.

CircleUp is providing trend reports to General Mills and P&G about startups in 18 categories, including pet foods, beverages, snack foods and infant products. The information provided includes which category had the most startups seeking capital each quarter and which types of companies garnered the most interest from accredited investors using CircleUp.com.
For its part, Cincinnati-based P&G said it offers the founders of startups listed on CircleUp mentoring as well as help setting up licensing deals or joint ventures. A P&G spokeswoman also confirmed that P&G may occasionally acquire a startup's business or technology. The company, whose partnership began last month, wouldn't say whether it paid CircleUp for access to data, or for connections to investors and startups.
A spokeswoman for General Mills declined to comment on its partnership with CircleUp. That alliance began in August.
Founded in 2011, the nine-employee CircleUp only accepts 2% of startups applying to raise funds on its site. Since 2012, it has helped nine startups raise $8.5 million in funding, with most deals just shy of $1 million. But it expects to expand quickly in the next two years, as more consumer-goods companies turn to crowdfunding to raise capital.
Rory Eakin, CircleUp's co-founder and chief operating officer, says his company pursued partnerships with industry giants because they're "strategics" whose executives can give a newer company a helping hand, or become an acquirer. "Getting access to companies like P&G and General Mills is not easy," he says. "Our brands were very excited about the opportunity to talk with them."
Mr. Eakin says the firm is on a mission to bring much-needed capital and assistance to worthy companies overlooked by traditional venture funds. The company's partnerships should ensure success, not hurt these smaller players, he says.
Some entrepreneurs, however, are wary about disclosing business specifics—customer lists, how much they spend to do business or the amount of money they have in the bank—online to raise funds. A key concern is whether rivals or potential rivals might be able to make strategic use of such details.
Scott Jensen, chief executive and co-founder of kale chip maker, Rhythm Superfoods LLC, says that he "had concerns about sharing our information" on CircleUp.com. "Anyone on the platform who was in the same business could see what we were doing...and who our customers were."
Mr. Jensen says that he had to "get over it and look at the upside of how much time the company could save raising this money online." In October, the Austin, Texas-based company raised $750,000 in a convertible debt-financing round on CircleUp.com.
He says Rhythm Superfoods needed money to ramp up manufacturing of its "nutritionally dense snack foods" to meet demand from grocery partners including Whole Foods Market Inc., Wegmans Food Markets Inc. and several others.
With the funding, Mr. Jensen wants Rhythm Superfoods to retool its manufacturing, double the number of full-time employees at the company to 12 from 6, and surpass the $10 million revenue mark this year. Last year, his company raised $2.3 million in a Series A round led by angel investors in Texas.
"Disclosure is a concern," says Nick Wells, an intellectual-property attorney who advises entrepreneurs using crowdfunding sites, such as CircleUp. "Startups will want to generate excitement but not with specifics that allow someone to recreate what they are planning to work on," he says.
CircleUp CEO and co-founder Ryan Caldbeck says the site prevents "snooping" by accredited investors, partners or anyone else who may try to use it with strict terms of service, and ongoing reviews of all investors on the site. "As part of the terms of use...there are confidentiality clauses. And users have to review deals as an investor," he says.
Investors permitted on the site can see a basic business plan from a company, but if they want to dig more into a company's financials, they have to get verified by CircleUp and the entrepreneur raising money before proceeding, Mr. Caldbeck says.
Rhonda Kallman, a co-founder of Boston Beer Co. Inc., maker of Sam Adams beers, says CircleUp's partnerships with big conglomerates could be "a good thing for a business that's looking to get acquired, eventually" but "discomforting" for others who want to "maintain creative control."
"Why tell the world your positioning, or where you see a gap in the market," says Ms. Kallman, who so far hasn't used crowdfunding to raise capital for her new business, Boston Harbor Distillery LLC.
In 2012, consumer-products companies took in $579.43 million in total from venture capital firms, just 1.95% of all venture investments into U.S. companies, as measured by Dow Jones VentureSource.