What CircleUp is doing can’t be done sitting alone at a computer at home, says Kroner: Quantifying the investment process in private markets looks like a long shot because the data is not widely and easily available. “I found what they’re building at CircleUp just fascinating because they’re doing in the private markets what Barclays Global Investors, or BGI, did in the public markets back in the 1990s,” says Kroner. Earlier this year, Ying Wang left AQR Capital Management, co-founded by Cliff Asness in 1998, to join CircleUp’s growing team. BCG was the pioneer in business strategy when it was founded in 1963. If a particular product is now sold at 300 Whole Foods stores, compared to just three last month, then “that’s a pretty interesting indication of growth,” Caldbeck says. “A couple of them have come to us and said, ‘Gosh, this seems really interesting. Although both Ryan and Rory are BCG alums, their paths never crossed during their consulting careers. An investor can look at the historical results of private equity strategies to derive a deeper understanding of their underlying beta and the “true role of alpha,” but using quantitative tools as a means of extracting alpha is hard, Arnott says. Investors may make bad decisions or miss good opportunities because they are swayed by personal tastes and interests, says Caldbeck, who grew up in Shelburne, Vermont, and earned a bachelor’s degree in public policy from Duke University in North Carolina. Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. Helio finds plentiful data on private consumer businesses online because they want people to know about their products and where to buy them. “Can I ever repeat that process again?” says Caldbeck, looking incredulous. Sign in. Then the firm learned something surprising about the most predictive data sets for determining whether it wanted to invest in a company. But Helio spotted the company’s strong growth and ranked it a strong brand, and an investment from CircleUp Growth Partners followed this year. In a nutshell, CircleUp—launched in April 2012—allows consumer product companies to raise money from accredited investors; it allows retail companies and the people who would like to invest in those companies to evaluate each other and to interact through a private network; and, through a partnership with a registered broker-dealer, it facilitates funding the transactions via its site. Ryan Caldbeck – Quant in Private Markets - [Invest Like the Best, EP.110] My guest this week is Ryan Caldbeck, a private equity investor who wants to bring quantitative rigor to the private markets. “They want something that is not commoditized away, because the public markets are so competitive.”. In an August blog post, Wang said she moved to CircleUp to help its team of data scientists, investors, and engineers fundamentally change private investing with machine learning technology. And there’s plenty of room for error either way. Arnott, who cautions about looking for patterns in unreliable data, says he’ll soon release a paper on machine learning that he co-authored with Campbell Harvey, a finance professor at Duke University who is a partner and senior adviser at Research Affiliates, and Harry Markowitz, winner of the Nobel Prize in economic sciences in 1990. “I began to think a monkey could do this,” he says. Ryan Caldbeck, co-founder and former CEO of consumer-brands-focused investment platform CircleUp, recently published an email he’d written to a … But once the data and algorithms are in place, they can help beat back the biases that so often invade investing. “I was a part of all that back in the 1990s as we were building these quantitative investment businesses.”. Is He Crazy? Caldbeck invests in companies with $1 million to $15 million in revenue that typically are growing more than 100 percent a year. “There’s huge potential here for them to disrupt the way that private-market investing is done,” says Kroner. By way of comparison, its discretionary venture fund — a $125 million pool called CircleUp Growth Partners that finished raising capital last year — will hold about 35 companies. Ryan Caldbeck is the founder and chief executive of the consumer and retail investment marketplace CircleUp. Markets Retail E-Commerce Crowdfunding Digital … “If you’re an investor, and you’re trying to decide which of this multitude of crowdfunding platforms to use, you’ll find that CircleUp has already gone through the necessary checks and balances to make sure that its securities are sold properly,” said Ryan. We did.… Thread Reader Ryan Caldbeck. An Interview with Ryan Caldbeck and Rory Eakin November 05, 2012 In the seven years Ryan Caldbeck worked in private equity he noticed a recurring problem. The firm is already fielding calls from large quant funds and high-profile buyout firms wanting to learn more about its efforts, according to Caldbeck. “Throughout our friendship we’ve had fantastic conversations about business, politics, and life,” Rory said. Other possible buyers include large consumer businesses seeking innovative brands to help them grow. © Boston Consulting Group 2020. CircleUp co-founders Rory Eakin and Ryan Caldbeck didn’t set out to tackle the funding gap that plagues female entrepreneurs (in 2016, only 2 percent of venture funding went to women). Potential investors visiting the CircleUp site would find 18 Rabbits in a matter of minutes, and their minimum investment would be just $1,000. With recent changes to the U.S. JOBS Act—broadly intended to help small businesses raise funds more easily (but bringing with them fears of a potential new era in investment scams)—there are more and more CircleUp lookalikes popping up every week. Started in 2012, CircleUp plans to raise a systematic fund whose quantitative methods give it an “information advantage” over traditional private market strategies, according to Caldbeck. “We’re going after a new asset class,” he says. “I think what’s going to happen is KKR, Blackstone, Two Sigma, AQR, BlackRock — all of them are going to start adopting more of a CircleUp approach to managing money.” (AQR and Two Sigma Investments, a quant firm based in New York, declined to comment on the potential for systematic strategies in private markets.). “That was a very big 'aha,'” says Caldbeck. Ryan is the CEO of Circle Up, which uses a system it calls Helio to identify attractive investments in early stage consumer brands. “They’re going to be emulating CircleUp because there’s alpha on the table.”. 1/ I have some thoughts and feelings on VCs selling early. CircleUp, co-founded with Rory Eakin, started by building an algorithm to evaluate consumer retail companies that applied for an investment from the firm. Even so, neither Ryan nor Rory is too worried about getting lost in the crowdfunding crowd. Nonetheless, their mutual BCG experience is much in evidence at CircleUp. He points to Benchmark, Sequoia Capital, and Union Square Ventures as ranking regularly among the top venture firms. Every day, Ryan Caldbeck and thousands of other voices read, write, and share important stories on Medium. 315 Connections There was a problem loading your content. Every week he would field call after call from small, early- to mid-stage consumer product companies—many of them excellent businesses with great products—that were just too small for his firm to handle. The firm is now processing about 200 terabytes of data each month, not an insurmountable amount of information for today but a volume no financial services firms were handling in 2010, according to Caldbeck. Angel funders, Ryan explains, tend to disproportionately invest in industries in which they have already worked. He cites as an example 18 Rabbits, a granola snack company touted in the September 2012 issue of O, The Oprah Magazine as "a great healthy snack bar!" It was this issue that inspired Ryan (Boston, 2001-2003), together with friend and fellow BCG alum Rory Eakin (San Francisco 2005-2007), to start CircleUp, a Web-based crowdfunding platform for small retailers and consumer brands. According to a Kauffman Foundation study titled the Angel Investment Performance Project, investors in small consumer product companies typically see a 3.6x return on their investments in a little more than four years. Oct 15, 2020. Ryan Caldbeck is planning a quant fund for private markets — a move that could (if they noticed) worry Henry Kravis, Steve Schwarzman, and the pioneers of private equity. Technology is changing the world for everyone, regardless of income. “I feel this makes us a very disruptive force for smaller companies and industries that have historically struggled to raise money,” Ryan said. That’s a much larger portfolio than is typically seen in private equity, with the firm spreading its information advantage over a wide number of bets to reduce volatility. “The biggest names in private equity still employ the same techniques to source and evaluate companies that they used 20 years ago,” she wrote in the blog. BlackRock, the world’s largest asset manager, declined to comment. “Tech venture is a gamble,”says Caldbeck. “I am deeply ashamed of my lack of self-awareness,” said the Binary Capital cofounder. “Private markets, I don’t think the data is there.”. Over time, though, Caldbeck may expand CircleUp’s systematic strategies to other areas of the private market. There’s a wide dispersion in private equity performance, with the average private equity manager failing to deliver “a meaningful premium” over public markets in recent years, the firm said in the report. “The thing that allows us to sleep really well at night is knowing that pulling this data together over years is, we think, a very big barrier to entry,” he says. His work is widely embraced by fund managers. Open in app. Bringing Investors and Entrepreneurs Together. Founders Rory Eakin, Ryan Caldbeck; Operating Status Active; Last Funding Type Debt Financing; Also Known As CircleUp Growth Partners; Legal Name CircleUp; Related Hubs CircleUp Portfolio Companies; Company Type For Profit; Investor Type Private Equity Firm, Venture Capital Investment Stage Early Stage Venture Number of Exits 5; Contact Email info@circleup.com; Phone … @ryan_caldbeck, 34 tweets, 7 min read Bookmark Save as PDF My Authors. KKR & Co., the investment firm run by Henry Kravis that helped pioneer the buyout industry, declined to comment on its interest in systematic investing in private markets. That’s what CircleUp does.”. As it turned out, they were pieces of information CircleUp did not need to ask private businesses to provide. CircleUp’s data include valuable private financial information collected directly from the tens of thousands of early-stage consumer companies that have applied to the firm for an investment or a loan. A scathing private letter from Caldbeck to an unknown investor and chair of the board at CircleUp also circulated social media. Barclays sold BGI to BlackRock for $15.2 billion in 2009, as Wall Street was recovering from the financial crisis. Invest Like the Best. But they’ll still go down that path, he says, because when CircleUp proves it can be done, everyone else is going to follow. Follow me on Twitter @ryan_caldbeck. But Caldbeck questions the odds of it happening twice. Getty Images . As for quant investors, some see CircleUp entering a new hunting ground for alpha — and they want in, according to Caldbeck. Founder. In the private consumer sector, CircleUp has created a data moat, according to Kroner, who meets regularly with the firm as an adviser. CircleUp’s machine learning technology platform, Helio, tracks 1.4 million consumer retailers across North America to identify breakout brands in the private market that the firm will back with venture capital. This San Francisco Investor Wants to Revolutionize Private Equity. In public markets, quant investors have enough data to be successful — or to “get yourself into trouble if you’re careless about it,” warns Arnott. Why don’t we do this with you?’” he says. Boston Consulting Group is an Equal Opportunity Employer. “We take what we believe to be the proper and necessary steps to protect our companies and our investors. “I never knew where to send these high-growth brands,” Ryan said. In the email, Caldbeck recounts the toxic relationship with the board member that led CircleUp to buy the investor out and severe ties. “Not all of them are interesting,” says Caldbeck. CircleUp co-founder Ryan Caldbeck has opened up about the emotional hardship driving his decision to step down as chief executive officer from his firm, which backs consumer companies. CircleUp has volumes of data that no one else has on these companies, and in his view, it’s enough to analyze them within the systematic strategy the firm’s developing. We also have partners, including General Mills and other Fortune 500 consumer companies, that are interested in meeting the companies that are successful on our platform.”. An investor pressured us to facilitate it for them several years ago. “And to sell a hundred companies is even harder than selling public stocks.”. And he likes that consumer retailers all share the same basic business model, making it the same game of chess over and over again. Get started. A few months in, recalls Caldbeck, he began to get frustrated. She’d then probably tell you, ‘If you want me to fly out to see you, then your minimum investment would have to be $50,000.’ That’s a very real scenario with two very real commitments—time, and a high minimum investment.”. Indeed, crowdfunding itself is shaping up to be the hot new start-up trend. With several million in revenue, 18 Rabbits has recently doubled in size and enjoys excellent national distribution. When investor Justin Caldbeck resigned from his San Francisco-based venture capital firm amid allegations of sexual harassment, he issued a statement thanking the women who had spoken out against him. According to Caldbeck, it’s helping the firm build a “scalable and repeatable” system that removes some of the blind hope and bias of discretionary managers building concentrated portfolios. Caldbeck, who declined to name the investors, recently hired a portfolio manager from a large quant firm as part of CircleUp's data science push. He was working for TSG Consumer Partners, the job he had landed after earning an MBA from Stanford in 2005. Caldbeck didn’t name the VC so the Valley started sleuthing his identity. After stepping down, Caldback took to Twitter and Medium, opening up in a 41 tweet story about why he chose to leave. “The more we listened to investors, the more we were hearing that they wanted access to small, private companies and to allocate small portions of their investment net worth to alternative asset classes. The fundraising for the systematic strategy has not officially begun, but institutional investors have proactively started reaching out to the firm about its plans. Typically, these small businesses would be left to raise money from family and friends. How have you seen technology change the world of the accredited investor? All qualified applicants will receive consideration for employment without regard to race, color, age, religion, sex, sexual orientation, gender identity / expression, national origin, protected veteran status, or any other characteristic protected under federal, state or local law, where applicable, and those with criminal histories will be considered in a manner consistent with applicable state and local laws. View Ryan Caldbeck’s profile on LinkedIn, the world's largest professional community. Even professional angel investors were less interested in consumer products. Ryan is the CEO of Circle Up, which uses a system it calls Helio to identify attractive investments in early stage consumer brands. The risk is that the signals detected by investors are spurious due to an overwhelming amount of noise in the data being considered. “They’re on the verge of doing something truly revolutionary, and I want to be a part of it,” he says. ... Ryan founded CircleUp after nearly seven years of investing experience in consumer product and retail-focused private equity. That’s essential for CircleUp because it’s investing in small deals, typically writing $2 million checks. “They’re not going to tell you everything, but they tell you a lot of information,” Caldbeck says. To be listed as an investment opportunity on CircleUp, a company must have a minimum of $1 million in annual revenue. They just wanted to make it easier for any promising entrepreneur to raise money from accredited investors. “Helio is a collection of algorithms and data sets which go out into the world, find, and evaluate companies,” says Caldbeck. Private-equity gains in the consumer-and-retail sector have been strong in the U.S., according to a Cambridge Associates report this year that tracked internal rates of return from companies that received initial investments from 2000 to 2016. Rob Arnott, founder and chair of Research Affiliates, is deeply skeptical about systematic investing in private equity. Log in or sign up to find connections to Ryan. All rights reserved. One of CircleUp’s most noteworthy investors is Harvard Business School professor and BCG alumnus Clayton Christensen (Boston, 1979-1981), architect of and the world’s leading authority on disruptive innovation. “KKR will find that out and they’ll find it out the hard way.”. “That analytical ability and those analytical frameworks have been invaluable to me, first during my time in private equity, and now in starting CircleUp.”, Both agree that being part of—and having access to—the BCG alumni network has brought what Ryan calls “tremendous advantage.”  “It’s a powerful network. Ryan founded CircleUp after seven years as an investor with consumer product and retail-focused private equity firms TSG Consumer Partners and Encore Consumer Capital. 17 min read On October 13th 2020 I stepped down as CEO of CircleUp, the company I started in 2011 with my co-fou n der, Rory Eakin. While many VC funds invest in tech, Caldbeck says CircleUp runs into little venture competition in consumer packaged goods. Helio is designed to do a better job of consistently finding companies worthy of investment — and with more ease — than the traditional method of attending parties, meetings, or trade shows across the country. Investors can invest as little as $1,000. He says that when evaluating deals, private equity managers judge a product’s packaging by using their own eyes. One of the worst parts of fundraising is a lack of feedback from potential investors. I want to share them because I think it's really hard for companies to talk about this topic publicly. Get started. “Systematic quant VC/PE funds are coming, and they will grow quicker than anyone expects.”. It appeared nobody else in the private equity industry knew where to send them either. Ken worked with BlackRock and its predecessor organizations (including Barclays Global Investors, or BGI) from 1994 through 2016. Caldbeck’s idea for systematic investing strategies. But he believes it’s a hurdle CircleUp will clear. CircleUp is solving the technical and business challenges that have kept systematic investing from private markets, according to Wang, who earned a physics degree from Peking University and a PhD in electrical engineering from Princeton University. Patrick O'Shaughnessy. The line can be blurry. We’ve had great feedback from investors consistently impressed with the superior standard of the companies on our site.”. “I have to gather and synthesize a lot of new information in a short period of time. He was exposed to the … Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact. The firm expects the systematic fund will make primary investments over three years, with follow-on investments in companies likely to be made within two years of the initial deal. CircleUp. Both men subscribe to the philosophy that any U.S. company selling equity online should be required to register with the Financial Industry Registration Authority (FINRA), the governing body for broker dealers, just as it would be required to do in the offline world. We are fiercely proud of this and believe that this is what will help keep us above the fray,” said Rory. Follow. Namely, that practically none of the thousands of investment firms in the United States is willing to invest in … Sometimes the few managers in charge of a fund might pass on investing in a new snack because they don’t like the taste. CircleUp expects to raise about $375 million for a systematic fund that will buy minority stakes in about 150 companies. Ryan Caldbeck says Clayton expressed interest in CircleUp because he saw it to be a disruptive technology. Ryan Caldbeck's stories. In its own quant-style push, CircleUp says Helio is analyzing billions of data points across the companies it tracks to understand and predict their success. Each week, someone would hand him hundreds of names of consumer companies and task him with identifying which to contact for a potential deal. “We want to fuel all of the ones that will be successful.”. “There are 400 popcorn companies in the U.S. all trying to be the next Orville Redenbacher — all privately held,” Kroner says. 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