A Beginners Guide to Syndicates
AngelList has been at the forefront of democratizing startup creation and investing ever since it was started by Naval Ravikant and Babak Nivi in 2010 following the success of their VentureHacks blog. I plan on doing a write-up on the AngelList ecosystem in another post, expanding upon how all of their brands intertwine into the same mission of democratizing startup creation, investing, and hiring.
What are syndicates?
- Syndicates are a SPV ( Special Purpose Vehicles) that were introduced by AngelList in 2013
- Syndicates are single-deal VC funds that let you invest deal-by-deal in specific startups — think of them as a collective of accredited investors that back a lead angel with the same terms
- Syndicate leads are experienced angel investors with a track record of successful technology investments
What are the incentives for lead investors/backers to leverage syndicates?
- Lead investors can earn carry in the scenario of a liquidation event
- Access to proprietary deal-flow for backers that they most likely wouldn’t have had access to without this vehicle
- Aligned interest with syndicate leaders
- Less tedious paperwork (less fricition in general)
- Less risk — syndicate leaders have vast experience and a history of distinguishing good deals from bad deals
- Ability for backers to invest less money (sometimes as little as $1K-$10K)
- Higher returns by eliminating management fees in most syndicates
What are the incentives for startups to leverage syndicates?
- Access to more capital
- Simplifies the fundraising process
- Keeps the cap table clean through the SPV
- Broadens the financial and human capital resource base of the company — a wider breadth of investor knowledge and network to be leveraged by the company raising
Who can invest in syndicates?
- Unfortunately right now only accredited investors can invest in syndicates
- If you don’t meet the annual income/net worth requirements you can obtain a Series 65 license; anybody can sign up for this test, you do not need sponsorship — the test is a 130 question multiple choice test which you have 180 minutes to complete — it costs $187 but it’s recommended that you spend some $ on study materials prior to the test — check out this thread if you would like to learn more.
Since the introduction of Syndicates, a number of investors solely invest via these vehicles. Another interesting trend is the introduction of a number of “alumni” angel syndicates — employees of technology startups that have had a liquidation event are grouping together to invest together and share their unique insights on particular industries, markets, or functions.
Who are some investors/funds that are currently leveraging syndicates?
- Duro Ventures led by Sundeep Ahuja is one of the most active syndicate leads with over 1400 unique LP’s
- Flight.vc has made 73 deals in the last 12 months with over 1800 unique LP’s
- Unpopular Ventures has made over 50 deals in the last 12 months with over 900 unique LP’s
- Forefront Venture Partners has made 15 deals in the past 12 months with over 1000 unique LP’s
- Super Angel Jason Calacanis’ syndicate has over 5000 unique LP’s
Browse other active syndicates here.
Some examples of Alumni Angel Groups investing via syndicates:
How does the process work on AngelList?
- Apply to become an investor at angel.co/v/start-investing
- You will be asked to provide some details such as your investment history — in order to unlock syndicates on AngelList it’s required that you have either worked for, invested in, or advised a startup before
- Approval will take a few days — once approved you will have access to the platform and be able to request access to join specific syndicates and back lead investors
- Once approved by the syndicate lead you gain access to their current and future deal flow and can pick investments on a deal-by-deal basis
- Backing a syndicate lead doesn’t mean you have to make an investment, but it’s recommended that you diversify by backing more than one syndicate lead