Tech

A new fund uses A.I. to invest in consumer and retail products with the best chance of success

Key Points
  • CircleUp Growth Partners closed a $125 million fund to invest in consumer and retail products.
  • Temasek, Euclidean Capital and the co-founder of Bumble and bumble are among investors in CircleUp's new fund.
  • The fund uses AI to track more than 1 million consumer companies and identify the hottest potential deals.
CircleUp co-founders Ryan Caldbeck and Rory Eakin

San Francisco-based CircleUp got started as a crowdfunding platform connecting food and beverage start-ups with accredited angel investors.

Over time, it looked more like an investment bank, managing funds and giving large institutions access to baskets of private consumer brands.

Now, the company is going a step further. It has closed a $125 million quant-style fund called CircleUp Growth Partners, with backing from Singapore's Temasek, former BlackRock executive Ken Kroner and others.

To identify the hottest consumer start-ups for potential deals, CircleUp will be using its proprietary machine learning software, called Helio. The software sifts through data that the company continuously aggregates on more than 1.2 million consumer companies, things like yogurt and organic snack makers and skincare products.

CircleUp CEO Ryan Caldbeck said the sheer number of consumer companies makes it challenging for early-stage investors to find and filter out the most promising ones.

Unlike tech companies, whose products can be found on a handful of app stores, consumer products are sold through fragmented grocery and retail networks. For example, one beverage may sell at health food stores, while another is featured at Starbucks and yet another sells through big-box retailers and groceries.

There are 240 kombucha brands, 832 popcorn brands and 4,684 nail polish brands in the U.S. alone, according to Helio analysis shared with CNBC by Caldbeck.

While CircleUp uses its software to sift through data on myriad companies, all of the fund's investment decisions are ultimately made by its human managers. The fund has already backed Hum Nutrition, which makes beauty supplements, and 4505 Meats, a producer of all-natural pork rinds (4505 Chicharrones).

In general, CircleUp's platform helps investors to avoid the time-consuming and costly legwork of scouting out consumer deals. Typically, they'd have to travel to tradeshows and take meetings with brands in smaller cities around the country to figure out what's trending and likely to go mainstream.

"That kind of travel is not worthwhile if you're going to write a $100,000 check as part of a $1 million to $5 million seed deal," Caldbeck said.

Other limited partners in CircleUp's first quant-style fund included Tevya Finger, the co-founder of hair care company Bumble and bumble, organic food industry veteran John Foraker and Euclidean Capital.

In addition to investing in fledgling companies, CircleUp Growth Partners will provide the start-ups it backs with business intelligence reports from Helio, which they can use to win over new merchants, distributors or other important business partners.