Investors have been talking this past week about AngelList Syndicates and its nuances and potential implications, but mostly as it all relates to investing. Having run two of the first six Syndicates on AngelList – successfully generating over $800K in reservations and oversubscribing both in under 24 hours – I’ve inbounded a lot of calls and emails from entrepreneurs asking how AngelList Syndicates impacts them. Below is my personal (not AngelList official) FAQ for any entrepreneur thinking about Syndicates.
What is AngelList Syndicates?
For a detailed answer you can refer the link here, but the short answer is it allows anyone to invite investors to co-invest with them via the AngelList platform. It’s like your trusted adviser or friend becoming your Super Angel by raising money on your behalf for an allocation in your round, on demand and in real time.
What does it cost to Syndicate?
No. In exchange for access to the investment and the guidance that the Syndicator is expected to provide to the company over the life of the investment, the Syndicator charges a carry from Syndicate participants (like a VC); you pay nothing.
The Syndicator gets carry like a VC? Will they add value like a VC?
This is the big question that investor blogs are going back and forth on. It comes down to this: like with VC firms, it’ll depend on the Syndicator. Super Angels and VCs who have proven themselves as entrepreneur friendly and resourceful are rewarded with great deal flow; the same will likely happen with Syndicators.
If you have access to a big-name Syndicator, get clarity from them around expectations post-syndication. If you want more support than they can offer, ask them to come in as an individual on your cap table and find a Syndicator committed to being a value add.
Are Syndicates only for Angel-sized rounds?
No. With “backers,” Naval Ravikant & Co are allowing anyone – including traditional fund LPs – to get behind a Syndicator and invest alongside them, meaning A (and B?) sized allocations are possible.
If a person can raise a capital just fine, why would he want to syndicate?
This is the biggest question in my opinion, and as the platform evolves, the answer is becoming clear: it depends. Perhaps you want to:
- Attract brand-name investors you don’t have access to but might get via your Syndicator or as commitments are shared.
- Close out your round quickly because you have the key folks you need already on board and your time is better spent executing.
- Enhance your presence on AngelList because it’s become the single best place to hire developers and designers in the Valley.
- Roll in a bunch of small checks from friends and family into a single entity on the cap table, allowing them to participate in your company’s growth while keeping them an arm’s length away (as Manager of the Special Purpose Vehicle LLC created to make the investment, the Syndicator will be the primary contact for all members of the LLC).
- Build some public buzz around your company, either in advance of an A, or for customer acquisition, or just because.
- Avoid having to deal with an institutional investor “get in the way” because you’re a seasoned entrepreneur who knows what to do and just need the raw capital to prove product/market fit.
- Do an entire bridge round quickly without having to take any meetings.
- Or any number of company-specific, good reasons to Syndicate.
If a person has trouble raising funds, will Syndicates solve that?
If the usual suspects don’t get your story despite incredible traction or similar, then perhaps. Say you’re addressing an unsexy or difficult-to-understand, but big, problem; you can now find an expert in that domain to invest and then syndicate like-minded investors also passionate about that domain.
But if you’re failing to raise capital because of more fundamental issues, Syndicates might not be much help, as Syndicators will only be as good as their investments. That said, there will likely be Syndicators without a track record but with access to long-tail backers, but taking their capital – like taking capital from a tier III VC – might have downstream consequences on your ability to raise brand-name capital (if that’s your plan).
How can one find a Syndicator?
Anyone can be a Syndicator. Start with friends or advisers or investors you work well with and who have the ability to fill your allocation based on existing backer commitments, experience or street cred. Or, try and connect with someone with an existing AngelList Syndicate and make your pitch.
How much round should a person Syndicate on AngelList?
If you have a strong Syndicator with plenty of backer capital to start, and you’re more concerned with raising capital quickly than exactly who is on board, you could syndicate the whole thing. I suggest getting a few folks to kick off 30-50% of the round with their brand and name – folks you want involved and on your cap table – and then syndicate the balance.
What should be expected from the Syndicator? and What is expected from the person?
While having a Syndicator can greatly reduce the amount of effort involved in raising on AngelList, it’s a partnership, which is why finding a Syndicator you want to work with is so important.
Together you will build or spruce up your company’s AngelList profile, selling the sizzle and the steak.
In addition, you will decide how much of the round to Syndicate, and what the minimum allocation is (what you start with for size of round) and maximum allocation is (if you get oversubscribed, you can increase the allocation). There shouldn’t be an unreasonable delta between these two, and you probably don’t want to move the goal line more than once. You can always oversubscribe a second time and still take down more capital than listed as allocated.
You will also decide together whether you want to go broad or start with a targeted group of investors which you can reach out to via AngelList if they follow you or your Syndicator, or via email. You can also try and get featured by AngelList, but even if not there will be a viral component as followers of folks who make reservations will be notified, and thus made aware of the Syndicate.
The Syndicator will write a personal note that will go out to the target audience explaining the why; below that note, the email will have a snapshot of your AL profile.
As capital gets committed, celebrate. If it’s not getting committed, ask yourself if you’re reaching the right audience, a big enough audience, or are telling the right story. Much of this will be the Syndicator’s responsibility.
After a few days or a few weeks, whether the Syndicate is undersubscribed or oversubscribed, it’s closed by the Syndicator. At that point the Syndicator and the CEO collaborate to decide whose reservations to accept, modify or reject. Note that if a round is not oversubscribed, or if someone committed before a round oversubscribed, you’ll have fewer grounds on which to reject investors – so if you are concerned about who joins, share in phases.
The Syndicator then works to collect the capital via AngelList, which takes a couple of weeks.
The net for entrepreneurs is this: If you’re raising an angel or Series A round in the next few months, AngelList Syndicates is absolutely worth exploring. Figure out the best person to take your story to AngelList and raise value-add capital on your behalf, and get them to Syndicate an allocation. Just be sure it’s someone you’ll enjoy working with before, during, and years after the Syndication process.