Feb 12, 2016 · 25m · 20vc
20VC FF 035: Why Crowdfunding Is Not Right For Tech Startups with Ryan Caldbeck @ CircleUp
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, host Harry Stebbings interviews Ryan Caldbeck, founder and CEO of CircleUp, discussing the nuances of equity marketplace investing in the consumer sector, the pitfalls of equity crowdfunding for tech startups, and regulatory challenges around the JOBS Act.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 24.6% of the talking time here. How this is scored →
Harry as informed peer 3.5 Guest teaching 3.3 Guest disagreement 1.8 Harry pushing back 2.2
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 10:33 Dismissing Tech Crowdfunding
Ryan forcefully rejects the idea that tech startups should use online equity platforms, asserting that ample VC capital exists and online listings signal adverse selection.
Hardest push from Harry ▶ 8:26 Challenging Title III Marketing BenefitHarry refuses Ryan's dismissive framing of Title III JOBS Act regulations, challenging him with a counter-argument about consumer marketing reach.
Biggest teaching moment ▶ 6:00 Educating on JOBS Act Title III BurdensRyan educates Harry on the specific regulatory burdens and financial disclosure requirements of SEC Title III that deter top-tier startups.
Harry holds his own ▶ 20:12 Citing Twitter Exec on Transparency PitfallsHarry demonstrates relevant interview expertise by invoking Twitter product lead Jeff Seibert to challenge conventional wisdom around workplace transparency.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Podcast Audio Bumper | 1 | 2 | 0 | 0 | Harry introduces Ryan and asks a standard open-ended question about the origin story of CircleUp. Ryan explains his background in consumer private equity and the market dislocation for early-stage consumer brands. | |
| Marketplace Investing vs. Crowdfunding | 4 | 4 | 3 | 5 | Ryan presents a contrarian view on Title III of the JOBS Act, arguing that financial disclosure costs discourage high-quality startups. Harry actively pushes back, pointing out that engaging a large base of unaccredited investors provides significant brand marketing value. | |
| Why Equity Crowdfunding Is Not Ideal for Tech Startups | 4 | 5 | 4 | 2 | Ryan candidly argues that tech startups seeking capital on crowdfunding platforms are subject to adverse selection because venture capital is already abundant. Harry sharply summarizes the implication that unaccredited investors end up receiving low-quality deal flow. | |
| Institutional Capital Adoption in Equity Marketplaces | 5 | 5 | 1 | 1 | Harry demonstrates sector knowledge by contrasting US marketplace investing with the UK market's struggle to attract institutional capital. Ryan outlines CircleUp's shift toward institutional capital and compares their growth trajectory to Lending Club. | |
| CircleUp's Venture Fundraising Journey and Founder Resilience | 2 | 2 | 2 | 1 | Harry asks about CircleUp's venture fundraising journey and how Ryan handled early rejections. Ryan explains facing over 60 seed rejections and how investor skepticism fuels his internal drive. | |
| Quickfire Round: Books, Culture, Productivity, and Future Goals | 5 | 2 | 1 | 4 | During the quickfire round, Harry challenges absolute corporate transparency by citing a counter-example from an interview with Twitter's Jeff Seibert. Ryan responds by explaining how CircleUp balances transparency with employee privacy during departures. |
Statements from this episode (13)
Consumer private equity firms only invest after $10M to $15M in revenue
“Most investors We'll only invest after a company hits 10 or fifteen million dollars in revenue.”
Early consumer investments yield 3.5x returns in 4.5 years
“The returns at the earlier stage Are extraordinary. On average, about three and a half times your money in four and a half years.”
Title III of the JOBS Act will not impact marketplace investing
“Our view is that it won't be it won't have a major impact, and we believe it will not have a major impact in part because of the costs to the companies.”
Title III crowdfunding will suffer from severe adverse selection
“I think what's more likely, to be frank with you, is that companies will fail in trying to raise from accredited investors and then turn to unaccredited investors. That's adverse selection, and that concerns me.”
Tech companies should not use online equity fundraising platforms
“Well, first and foremost, I think tech companies, to be candid with you, shouldn't use any online platform.”
Tech investing returns over the past 15 years were very poor
“Returns in tech Investing over the past 15 years have been very poor.”
CircleUp's average check size grew from $12K to over $100K
“In 2012 when we first started the average check on circle up was 12,000 dollars and it was all from individual investors accredited investors in 2015 the average individual check was over a 100,000 dollars into a single deal on circle up and half the capital c…”
CircleUp portfolio companies average over 100% annual growth and 50% IRR
“The average company is growing at more than a hundred percent per year since raising on CircleUp, or the unrealized average IRR on CircleUp is over 50%, five zero.”
Consumer private equity has half the volatility of tech
“In addition to that, this is an asset class that's not correlated with the overall economy and has half the volatility of the tech market.”
CircleUp's 2012 seed round was rejected by over 60 investors
“And raised our seed round, which Maveron and Clayton Christensen wrote the book called the innovators dilemma through his hedge fund, Rose Park. They led that back in in 2012. That was a very hard round for us to raise, to be frank with you. And I think we wen…”
Union Square Ventures reversed its anti-crowdfunding stance to invest in CircleUp
“Union Square had said very energetically that they would never invest into an online equity investing platform. And they met us, and they changed the Their view because they realized that we were filling a need”
Founders should avoid VCs who require 45 minutes of market education
“Targeting investors, and this is, it sounds so obvious, but targeting investors that have an understanding of the underlying pain that you're trying to solve is critical, and when you go to an investment firm that has, that needs to be educated for 45 minutes …”