An Unlikely Romance Between a Venture Capital Fund and a Crowdfunding Platform Promises to Shake Up Startup Financing

VC firm Collaborative Fund and crowdfunding platform CircleUp announce a partnership, portending a future where the two industries increasingly sit together at the same table.

learn more about Catherine Clifford

By Catherine Clifford

Entrepreneur Media

Opinions expressed by Entrepreneur contributors are their own.

Crowdfunding is, at its heart, driven by a grandiose, ideological utopian vision of a democratization of finance in which the power of the purse strings is pulled down from the elite circles of legacy hierarchy and put in the hands of the people. It's born of a rather anti-venture capital ethos.

That's why it's particularly remarkable to see a venture capital firm and a crowdfunding platform coming together.

New York City-based venture capital firm Collaborative Fund -- an early investor in Kickstarter, Lyft and Reddit -- announced this week that it is partnering with San Francisco-based equity crowdfunding company CircleUp, which currently has 200 startups raising money on its platform. (Collaborative Fund is also an investor in CircleUp.) The $10 million fund, called Collab+Consumer, will go to early-stage, mission-driven companies in the consumer products and retail industry.

Collaborative Fund will get access to the CircleUp pipeline of startups, which it uses proprietary algorithmic technology to analyze. CircleUp's Classifier compiles and analyzes about 92,000 data points per company, including financials, leadership, brand, customer engagement and deal and exit potential.

Related: Analysis of 170,000 Kickstarter Campaigns Reveals 3 Fundamentals of a Crowdfunding Success

"As a venture capitalist, there is no way I would be able to -- no matter how many analysts I hired -- do the due diligence that I am provided through the underlying technology that CircleUp provides," says Craig Shapiro, founder and managing partner of Collaborative Fund, in a conversation with Entrepreneur.

For its part, CircleUp gets more investors with deep pockets putting money behind the startups it is featuring on its platform. That's valuable exposure for consumer-product startups, which are often overlooked by venture capitalists for technology startups, the cultural darling of the VC world.

Also, potential investors on CircleUp may find the confidence to invest in a startup if a professional venture capitalist has shown interest. "The importance of having a lead investor can't be underscored enough," says Shapiro. "We can spark a fuse. We can be that catalyst to lead certain investments whereby other investors will have more confidence to come in behind us."

Bringing venture capital eyeballs and dollars to CircleUp is not just an altruistic, magnanimous effort for the CircleUp team, though. The more money that investors dump into startups on CircleUp, the more money the fundraising platform itself makes. That's because CircleUp, which has reported helping more than 160 companies raise more than $180 million, earns an average 5 percent commission.

Related: When Kickstarter Hit Its Tipping Point

The partnership between Collaborative Fund and CircleUp is a likely a harbinger of future innovations in the way that startups get access to money and the way that investors identify startups seeking capital. "Private financing was limited to a really small number of wealthy people, historically, and I think that pendulum is shifting more towards a democratization, more towards being inclusive of a broader group of people," says Shapiro.

Click to Enlarge+
Image credit: CircleUp

Indeed, CircleUp markets itself as pioneering "marketplace investing," rather than embracing the term "equity crowdfunding." That's because the word "crowdfunding" belies, for many people, the size of the investments being made on the platform. When CircleUp launched four years ago, the average investment was about $15,000. Today, it's more than $100,000. We're not talking about Kickstarter here. CircleUp says that the term "marketplace investing" promotes the notion that it's easier than ever before, thanks to the Internet, for investors to find companies that are seeking investment.

That's not to say that venture capital or crowdfunding will entirely disappear as finance models, but rather that they will increasingly become synergistic. "I think it's more of a grayscale or a blend than I do a black or white thing. I don't think it's VC or crowdfunding. I think there are advantages and disadvantages to both," says Shapiro. "In the long term, I think it's a symbiotic relationship."

Related: Kickstarter Wants to Be More Than a Crowdfunding Platform

That symbiosis is as follows: Crowdfunding, or marketplace, firms bring together investors with entrepreneurs. Venture capital firms bring larger pools of money and hands-on mentorship in advising and guiding startups, says Rory Eakin, COO and co-founder of CircleUp, in a conversation with Entrepreneur.

What's happening in startup finance is very similar to what has recently happened in the lending world, says Eakin, pointing to recent deals between JPMorgan Chase and Lending Club and Blackrock with Prosper Marketplace. Transportation technology companies are also, though in a perhaps more abstract way, forming similar alliances, says Eakin, pointing to the recent General Motors acquisition of autonomous driving software company Cruise Automation.

"We are seeing traditional incumbents recognize that online platforms, and the digitization of their industries, can be beneficial for them," says Eakin. "We don't view ourselves as competitive at all with Collaborative Fund, or with the best venture capital firms do, and their operating model. We are a tool to help them be more effective."

Related: Only 1 in 3 Americans Have Heard of Equity Crowdfunding

To be sure, not all venture capital firms will partner with crowdfunding platforms. There is always resistance to change. "The best venture firms will thrive in this environment, but not all venture firms will adapt," says Eakin. "If you are supportive of helping entrepreneurs thrive, creating more opportunity for more small businesses across the country and spurring economic innovation, you want to bring all parties to the table. You just want to do it in a more transparent, open way, not a historical old boy's network that has lead to disproportionately fewer new ideas being funded."

But for the most innovative people in the space of entrepreneur finance, the new no-man's-land between venture capital and crowdfunding is a dynamic grey area with a lot of fertile ground for opportunity. "For a small, kind of scrappy venture capital firm like Collaborative Fund, that works in our favor," says Shapiro. "We are embracing that change instead of trying to thwart it."
Catherine Clifford

Senior Entrepreneurship Writer at CNBC

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.

Related Topics

Editor's Pick

The Dark Side of Pay Transparency — And What to Do If You Find Out You're Being Underpaid
Thinking of a Career Change? Here Are 4 Steps You Can Take to Get There.
A Founder Who Bootstrapped Her Jewelry Business With Just $1,000 Now Sees 7-Figure Revenue Because She Knew Something About Her Customers Nobody Else Did
Everything You Need to Know About Franchise Law
Business News

'I Don't Feel Like It's Unreasonable': A-List Actor Refused Service At Hotspot For Not Following Dress Code

Academy Award-winning actor Russell Crowe had quite the afternoon after trying to stop at a Japanese steakhouse in Melbourne, Australia following a game of tennis.

Business News

This Ghostwriter Made $200,000 Last Year Writing Tweets for Venture Capitalists

One man's side hustle makes him more money than his day job, and only costs him five hours a week of his time.

Business News

'Angry and in Shock': Fashion Label Orders Former Sales Reps to Return Commissions in Wake of Bankruptcy

The once upscale NYC-based fashion label went under in 2020. Now, former stylists are being ordered to return commissions earned prior to the company's collapse.


Why Interactive Content Will Boost Your Customer Loyalty

Interactive content provides a cost-effective way for businesses to enhance campaign participation, customer engagement, and loyalty, regardless of their size and budget.


The Benefits of Investing in Talent: How It Impacts the Music Industry and Beyond

The music industry's growth and success rely on supporting emerging artists, promoting diversity and fueling economic growth. Attending live shows, streaming songs and purchasing music are effective ways to support up-and-coming talent, fostering a vibrant and diverse musical landscape for the future.