Angel Syndicates is no longer a strange term among startup investors. Apart from looking for investments through bank debts, venture capital funds, or angel investors, Angel Syndicate is also a good choice that investors and startups are looking at. Let's learn more about this model in this post.
What is Angel Syndicate?
As the name implies, an Angel Syndicate consists of a group of investors who agree to invest in the same project together. In a Syndicate, Angels or other investors can be gathered from any source, and regular syndicates can have Angels from multiple investment networks.
In another word, a Syndicate is a club organization that brings Angel Investors together to present deals to its contributors. The individuals then determine to whether make investments in their personal money inside the organizations on offer. Angel Syndicates manage deal flow, due diligence, and transactions on behalf of the investors there. It usually takes 1-6 months or more for Angel Syndicates to complete their deals.
You could refer to some popular Angel Syndicate platforms recently: Angelist, Odin, The Syndicates, ACFInvestors (Angel CoFund), etc.
Why Angel Syndicate?
The popularity of Syndicate investing is not accidental. For startups, Syndicates are interesting because they enable rapid advancements:
Higher sums of capital
When a Syndicate presents a deal to its network, a bunch of investors will commonly look to make investments in the company, which often means, startups can near their funding rounds speedily.
In some cases, Angel Investors form their own so-called "Angel Funds" to pool their capital collectively and spend money on multiple startups in a fund layout. The funds are in higher amounts compared to individual angel investors for startups, which could be up to 1 million dollars in some cases.
The Syndicate platform will represent this group of investors to process, execute deals, negotiate, and do due diligence with startups. So, founders don’t have to deal with numerous and different investors.
The Angel Syndicates investment is not just beneficial for startups, it can bring limitless potential to individual investors as well:
Syndicate investing allows angels to build larger portfolios.
Rather than eg. investing $100k in a single deal, you can invest $10k in ten deals. Portfolio diversity is well-known as good practice for investors in general, but it is particularly important in angel investing and venture capital.
An Angel Syndicate increases your odds of hitting a winner and dramatically increases your chances of tripling or quintupling your invested capital. Additionally, you are less likely to lose money altogether.
Shared Deal Flow and Due Diligence
When organized in the right way, groups of individuals are able to make better decisions and solve problems more effectively than people working alone.
By connecting investors, identifying and evaluating potential investment opportunities, and managing their investments, Syndicate platforms provide a central location for investors to connect. Therefore, investors don't have to touch their fingers too much on these sides.
Community and professional development
As a member of an Angel Syndicate, you will also join a community of individuals with similar interests, values, and ambitions. Most Syndicates foster a sense of community by encouraging their Angels to interact and share ideas. There are various benefits to this - you meet interesting people, make new friends, and can even find commercial and job opportunities.
How does it work?
Syndicates proposal originates from an institution there remains a requirement for a “lead angel” to lead the proposition on behalf of the syndicate.
This individual, as well as at least two private individuals in the Syndicate, should be investing a meaningful amount in the business at their own discretion. In instances where an institution forms the counterparty to the Syndicate Agreement, it will need to be in a position, either directly or through constituent investors, to meet the obligations to report on the portfolio company and monitor its performance. The lead investor then works with other accredited investors to raise the rest of the money.
In fact, Syndicates do not need to be formally constituted and may form around a transaction where the members have agreed to invest. However, the Syndicate members should be actively engaged with each other prior to the investment and work together in terms of sharing due diligence and negotiating terms. Additionally, the syndicate platform requires investors must have been and are not tied to the startups being invested.
Does Angel Syndicate have fees?
When investing in a Syndicate, investors pay a portion of the setup cost (proportional to their investment amount) and usually carry (around 20%) to the lead or the investment advisor. The Agreement for the fees in Syndicates could change on each platform. In rare cases, there is no setup fee or carry.
In summary, we have learned about Angel Syndicates, their operating models, and the meaning of why this model is significant. In the following post, we will explore Angel Syndicate in more depth, so readers will have the most insight and may be ready to join.