Looking to grow your angel portfolio and team up with other investors to build a new fund? We have observed a number of equity funding platforms we cover build the infrastructure to allow you to build your own fund. In an effort to compete and scale we have seen reduced overhead and fees for building these funds. They are able to achieve this with innovative approaches to scaling legal and back office. As the amount of capital invested in these platforms grow so too does the impact this will have on the overall industry.
AngelList syndicate investing provides infrastructure similar to a venture fund. Simply put if you feel like getting in early and improving the amount of capital behind your investments syndicates are the way to go.
Christian Catalini of MIT Sloan explains syndicates:
Historically the 2/20 fee model was fairly standard. This structure results in 2% fee for the overall assets managed and 20% for the carried interest, or positive returns. A syndicate allows investors to participate as a lead investor or a follow on to the lead in exchange for the the lead's carried interest. Carry, short for carried interest, or a share of the profits of an investment that is paid to the managers of the investment. Syndicates eliminate management fees leaving more capital for investment. On average, syndicates invest 97% of the capital they raise. This chart was a break down of the fees back when AngelList made the data public via API.
Access to Rising Star Fund Managers
The Syndicate allows a lead investor to create a fund-like structure to have Backers similar to Limited Partners. An individual can create their own or join others. We wrote an in depth article on how to do this. AngelList also wrote an in depth piece on the economics of Syndicates.
As example a lead can have 40 investors with just one signatory on an investment, which helps keep the cap table clean. The syndicates provide pro-rata rights to invest in subsequent rounds. It packages and aggregates angel money into large bundles making it easier for angels to attain rights they might not otherwise have.
One of the major attractions and benefits of syndicates are the deal access that investors receive. Investors get access to a lead’s investments and to the leads professional knowledge and experience. Syndicate Investors get access to fantastic opportunities and exciting deals, leads get carry while start-ups receive vital capital with less hang-ups and cutting down the time involved with the process. It’s a Win-Win for everyone involved.
With AngelList you can chose to invest directly into a particular company, or join a syndicate where you can reduce your risk profile by investing alongside a lead into a group of pre-selected companies. Investors get access to a lead’s investments, therefore their due diligence, and subsequently they receive great benefit from the leads experience in the sector as well as their picking and managing of investments.
Greater Access to Capital
The lead can command 5 - 10x their typical investment dollar amount. Leads can leverage this increased investment amount, giving them access to more deals. It is also possible that the lead can improve their syndicate's investor rights. A lead can enhance their brand as a fund manager. With AngelList leads gain access to a network of potential co-investors who can be experts in a broad range of industries.
And of course the start-up gets the benefit of a lead that makes a large investment along with providing direct access to a diversified and knowledgeable syndicate investor’s network without having to endure lengthy legal proceedings and complexity in their cap table.
Creating a Syndicate
In order to create a syndicate you will have to join and create a profile at angel.co. Once your profile has been created enter information about how many deals you expect to syndicate each year. Commitments start after you syndicate your first deal.
- Make a significant investment in each deal
- Provide an investment thesis for each deal
- Disclose potential conflicts of interest such as warrants
- Review and screen potential investors in each deal
- Sign a side letter making you an independent contractor of AngelList Advisors
- Respond to questions from syndicate investors about their investments
Syndicate investors have to be accredited. The fundraising information for a syndicate deal is only visible to accredited investors who have been invited to participate in the deal; the start-up can limit the information as well as exclude certain investors from observing the deal all together.
- Discuss terms with the lead
- Share information on the raise in a private deal setting
- Invite investors – AngelList affiliated funds are under NDA and are automatically invited to invest in all deals.
- Closing the deal – deals can be closed in as quickly as 72 hours.
Tax Advantaged Funds and Accounts
We started to partner with RocketDollar via their Self Directed IRA and 401k product offerings. A self-directed account holder can invest in any asset class allowed by the IRS which includes startup equity. With a Traditional IRA, you can make contributions and your investment earnings grow tax deferred until retirement. This plan is easy to qualify for and ideal for most individuals.
AngelList is not the only equity funding portal to offer fund creation as can be seen in the title image many others have built similar solutions. We hope you find this helpful and are able to build your own fund on one of these platforms. Let us know about your experiences or feedback in the comments below.