You have a brilliant idea for a startup. You know it can change the world. But you need money to make it happen.
Where do you get it?
You could try to pitch to venture capitalists, but they are hard to impress and often demand too much equity. You could try to bootstrap, but that can limit your growth and put a strain on your personal finances.
There is another option: Angel syndicates.
Angel syndicates are groups of individual investors who pool their money and expertise to back promising startups. They are like your own personal cheerleaders who want you to succeed.
In this post, you will learn How Angel Syndicates Can Help You Fund Your Startup Dream.
What Are Angel Syndicates and How Do They Work?
Angel syndicates are formed by like-minded people who share a passion for entrepreneurship and innovation. They usually have a specific focus or industry preference, such as biotech, fintech, or social impact. Each syndicate has a lead investor or a syndicate manager who scouts for potential deals, conducts due diligence, negotiates terms, and manages the investment process. The other members of the syndicate can choose to participate in the deals that interest them and contribute their capital accordingly.
Angel syndicates typically invest between $50,000 and $500,000 in early-stage startups, depending on the size and stage of the company. They often co-invest with other syndicates or investors to form larger rounds.
The Benefits of Getting Funded by Angel Syndicates
Getting funded by angel syndicates can offer you several advantages as a startup founder:
- Diversify your risk by getting multiple investors on board. This way, you don’t have to rely on one source of funding and you can balance potential losses with successful exits. For example, Spoti Angels, a Berlin-based angel syndicate founded by three Spotify alums, invests between €25,000-150,000 in European pre-seed and seed stage startups in consumer tech, the creator economy, and the future of work1. By pooling their capital, they can spread their investments across multiple startups and increase their chances of finding a winner.
- Access the expertise and network of the syndicate members. They can offer you valuable advice, feedback, mentorship, and connections that can help you grow your business faster and smarter. For example, Operator Exchange, a group of 40 founders and operators from across Europe, says they “want to be the investor that we would go to for funding. They invest individually up to €50,000, or €500,000 together as a syndicate — and aim to get back to the startups that reach out to them within a week. They also share their knowledge and network with the startups they back.
- Increase your credibility and validation in the market. Getting backed by an angel syndicate can signal that your startup has potential and attract more interest from other investors, customers, and partners. For instance, SB21, a group of 15 internet and tech entrepreneurs and angel investors who have all built successful companies which have either been sold or publicly listed1, invests in startups individually or as a syndicate. Among their portfolio startups are Adelee, Origin, and Stark1, which have all raised follow-on funding from other investors after getting backed by SB21.
The Challenges and Limitations of Angel Syndicates
Getting funded by angel syndicates is not without its challenges and limitations. Here are some of the things you need to be aware of:
- Face conflicts of interest within the syndicate dynamics. Different investors may have different opinions and expectations about your startup’s direction, strategy, or performance. You need to communicate clearly, transparently, and respectfully with your investors and ensure that everyone is aligned on the same vision and goals. Otherwise, you may end up with conflicting advice, pressure, or interference from your investors. For example, some investors may want you to focus on growth, while others may want you to focus on profitability. Some investors may want you to pivot, while others may want you to stick to your original plan. Some investors may want you to raise more money, while others may want you to bootstrap.
- Lose some control and decision-making power over your startup. As part of the deal, you may have to give up some equity and board seats to the syndicate members. You need to be comfortable with sharing your authority and trust the judgment of your investors. Otherwise, you may feel resentful, frustrated, or micromanaged by your investors. For example, some investors may have veto rights over certain decisions, such as hiring, firing, spending, or partnering. Some investors may have information rights that require you to share detailed reports and updates on your progress. Some investors may have liquidation preferences that give them priority over other shareholders in case of an exit.
- Limit availability of syndicate opportunities. Not all startups may fit the criteria or preferences of the existing syndicates. You may also face stiff competition from other startups for the limited slots available. You need to do your research and find the right fit for your startup. Otherwise, you may waste time and energy chasing the wrong investors or miss out on better opportunities. For example, some syndicates may have a specific investment focus or industry preference that does not match your startup’s domain or stage. Some syndicates may have a limited number of investment slots or a high bar for entry that makes it hard for you to get in.
How to Find and Approach Angel Syndicates
If you think angel syndicates are a good option for your startup funding needs, here are some tips on how to find and approach them:
- Do your homework. Before you approach any syndicate, you need to do some research to find the best match for your startup. There are some famous online platforms like AngelList or SeedInvest, or ask your network for referrals. In addition, you should look for syndicates that have a relevant investment focus, criteria, portfolio, track record, reputation, and contact information. Learn about their investment process, preferences, and expectations. This will help you tailor your pitch and increase your chances of getting funded.
- Build relationships. Once you have identified some potential syndicates, you need to reach out to them and start building rapport. You can contact the lead investors or syndicate managers via email, social media, or phone. You should introduce yourself and your startup briefly and politely. You should express your interest in their syndicate and ask for their feedback or advice on your idea or market. Moreover, trying to provide some value to them, such as sharing relevant insights, articles, or introductions are also necessary. You should aim to establish trust and credibility with them and show them that you are serious and committed.
- Pitch your value proposition. If you get a positive response from a syndicate member, you need to prepare a compelling pitch deck that showcases your value proposition. Your pitch deck should include the following elements: the problem you are solving, the solution you are offering, the market opportunity and size, the traction you have achieved so far, the team behind your startup, the competitive advantage you have over others, the financials and projections of your startup, and the ask (how much money you are raising and what you will use it for). Remember that you are better ready to answer any questions they may have about your startup.
- Follow up and close the deal. After pitching your startup, you need to follow up with the syndicate member regularly until you get a clear yes or no answer. Let’s keep them updated on your progress and milestones, and address any concerns or objections they may have. You should also ask for feedback or referrals from them if they are not interested in investing. If you get an offer from them, you should review the terms carefully and negotiate if needed. You absolutely need to consult with your lawyer and other advisors before signing any documents. If you agree to the terms, close the deal as soon as possible and celebrate.
Angel syndicates are a great way to fund your startup dream if you are looking for more than just money. They can provide you with support, guidance, network, and validation that can boost your chances of success.
However, they are not for everyone. You need to be prepared for the challenges and limitations that come with working with multiple investors who may have different agendas and expectations.