LendingClub shook up the finance industry by creating an online marketplace to connect borrowers and lenders and using sophisticated technology to underwrite and service loans. The model propelled LendingClub to an IPO in December and a market value that sits near $7 billion.
Now a younger start-up headquartered a half-mile from LendingClub on San Francisco's Mission Street thinks it can apply that crowdfunding formula to equity. (Tweet This) But there's one thing missing: Evidence the strategy will work.
CircleUp spent the past three years building a marketplace to link hungry investors with small consumer businesses that want to raise about $1 million. The company's pitch is that in the consumer packaged goods market, there's been no efficient way for investors to find early-stage brands. Winemakers, clothing companies, Indian restaurants, Kombucha tea brewers and other young companies with $1 million to $10 million in annual revenue have a new option that doesn't require turning to a costly bank loan.
Like LendingClub, CircleUp registered as a broker-dealer, which enables it to take a cut of about 5 percent every time a company raises money on its site. For a $1 million round, CircleUp banks $50,000. And both companies have developed algorithms to judge applicants and predict success. In January, CircleUp added LendingClub Chief Operating Officer Scott Sanborn to its board of directors.
And some of the same venture investors who backed LendingClub are ponying up for CircleUp, including Canaan Partners, Union Square Ventures, and Google Ventures (LendingClub raised money from Google's later-stage investing arm).
"Making the investing process easy, efficient and much more emotionally resonant is something LendingClub has done extremely well and something CircleUp is doing extremely well," said Dan Ciporin, a general partner at Canaan Partners and CircleUp board member who invested in LendingClub in 2007. "CircleUp is enabling people to access an entirely new asset class."