A syndicate is a popular venture capital alternative. Today, we will discuss the benefits and drawbacks of an angel syndicate platform for an investor considering joining this network. We hope you enjoy the post and get the best choice to decide whether to join.
What is Angel Syndicate?
We did explain in Angel Syndicates 101 that an angel syndicate is essentially a group of investors who agree to invest together in a specific project. A syndicate can include angels or investees from any source; syndicates frequently include angels from more than one investment network. While no additional conditions are required, in order for the syndicate to be viable, all investors would typically reach a (non-legally binding) agreement on how the syndicate will operate.
In an angel syndicate platform, there has a professional who manages the network, screening potential investments and making recommendations to the group. Its structure varies, but typically the group will enter into a limited partnership agreement with the professional investor who manages the fund. A sidecar fund, which is a separate fund that invests alongside the main syndicate, may also be part of the group.
Angel Syndicates for investors
If you’re an angel investor, you’ve probably thought about joining an angel syndicate.
Syndicate investing is a straightforward method for a group of investors to pool their resources to fund a specific startup or project. They frequently do so through a Special Purpose Vehicle (SPV), a type of micro-fund. The syndicate may be “led” by one or two investors.
How to be a part of Angel syndicates?
The requirements for membership in an angel syndicate vary depending on the angel group or organization, but some common factors to consider include:
Accreditation: Any angel syndicates require members to be accredited investors, which means that they meet certain financial criteria and are regarded as having a higher level of sophistication and ability to bear the risks of investments.
For example, if you want to be a member of AngelList, you must meet one of the following definitions to qualify as an Accredited Investor:
- Individuals with annual income over $200K (individually) or $300K (with a spouse or spousal equivalent) in each of the last 2 years and an expectation of the same this year
- Individuals with net assets over $1 million, excluding the primary residence (unless more is owed on the mortgage than the residence is worth)
- An institution with over $5 million in assets, such as a venture fund or a trust
- An entity made up entirely of accredited investors
- SEC- and state-registered investment advisers
- Exempt reporting advisers filing with the SEC
- Individuals with certain professional certifications (Series 7, Series 65, and Series 82 licenses)
- “Family offices” with over $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act
- Any entity with over $5 million in investments that were not formed for the specific purpose of investing in the securities offered
- A rural business investment company (RBIC)
Nevertheless, the fact that each syndicate model would have a different requisition to choose their members. As put by the team at Investopedia, “An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.
In the U.S., the term accredited investor is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include high-net-worth individuals (HNWIs), banks, insurance companies, brokers, and trusts.”
Experience and expertise: Many angel syndicates seek members with experience and expertise in specific industries or fields, such as technology, healthcare, or finance. This can contribute to the investment process by providing valuable insights and connections.
Investment history: Some angel syndicates may take into account an individual’s prior investment experience, including the types of investments made and their track record of successful investments.
Values and goals alignment: Many angel syndicates have specific values and goals that they seek to advance through their investments. They may seek members who share these values and goals, as well as those who are committed to using their investments to make a positive difference.
Network and connections: Some angel syndicates may take into account an individual’s network and connections in the startup and investment communities, as these can be valuable resources for identifying and evaluating potential investments.
Overall, the criteria for membership in an angel syndicate can vary greatly, and each group or organization may have its own distinct set of criteria and requirements. To ensure that you are a good fit for their community and investment philosophy, it is critical to research and understands the specific standards of each angel syndicate you are interested in joining.
How Angel Syndicates benefit investors
The ability to diversify your investment portfolio is the primary advantage of investing in an angel syndicate. You can spread your risk and potentially increase your chances of profit by investing in a group of companies.
Furthermore, investing in an angel syndicate can provide access to professional investors who have experience screening potential investments and providing guidance to the group. These professional investors can bring valuable knowledge, expertise, and experience to the table, helping you to make more informed investment decisions. By pooling resources and knowledge, angel syndicates can provide their members with a higher level of due diligence and analysis than individual investors would be able to do on their own.
Additionally, the group dynamic of an angel syndicate can encourage more robust and informed decision-making, helping to mitigate individual biases and enhance the overall investment process. This can assist you in making better decisions about where to invest your money.
On the other hand, as a member of an Angel Syndicate, you will be joining a community of people who share your interests, values, and goals. Most Syndicates encourage their Angels to interact and share ideas in order to foster a sense of community. There are numerous advantages to doing so, including the opportunity to meet interesting people, make new friends, and even find commercial and job opportunities.
The final one is to obtain the best Share Deal Flow and Due Diligence. Individuals working in groups can make much better decisions and solve problems more effectively than individuals working alone. Angel investors could even pool not only their deal flow, but also their knowledge, experience, and resources – their collective intelligence – through syndicate investing. They are able to source more opportunities and conduct extra informed due diligence on the startups they review by leveraging the collective intelligence of the entire angel syndicate. This improves deal selection.
Some drawbacks investors could consider
While there are many benefits to investing in an angel syndicate, there are also some disadvantages to consider, including:
Reduced control: When you invest as part of an angel syndicate, you give up a degree of control over your investment decisions. The group dynamic means that investment decisions are made collectively, which may not align with your individual investment goals or risk tolerance.
Limited liquidity: Angel investments are typically made in early-stage companies and startups, which means that they are illiquid and may take years to realize a return. This can make it difficult to access your funds in a timely manner, and you may need to be prepared to hold your investment for a longer period of time.
Risk: Investing in early-stage companies is inherently risky, and there is a high likelihood that you may lose some or all of your investment. By investing as part of an angel syndicate, you are spreading your risk across a range of investments, but this does not eliminate the risk associated with angel investing.
Complexity: The investment process for angel syndicates can be complex, involving due diligence, negotiations, and ongoing management of investments. This can be time-consuming and may require specialized knowledge and skills.
Cost: Angel syndicates may charge fees for their services, including management fees, transaction fees, and performance-based fees. These fees can add up and reduce the overall return on your investment.
It’s important to carefully consider both the benefits and disadvantages of angel syndicates before making an investment. It may be helpful to seek the advice of a financial advisor or investment professional to help you understand the risks and make informed investment decisions.
How to join Angel Syndicates
The application process for an angel syndicate may differ depending on the specific group or organization, but here are some general steps you can take:
Review the syndicate’s website: Start by reviewing the angel syndicate’s website to learn more about the group’s investment philosophy, values, and goals, as well as its membership criteria and requirements.
Prepare your information: Gather information about your background, experience, and investment history to include in your application. You may also need to provide information about your financial standing as an accredited investor if required.
Submit your application: Submit your application through the angel syndicate’s website or by contacting the group directly. Be sure to include all of the information requested in your application and provide a clear and concise explanation of your interest in becoming a member of the angel syndicate.
Follow up: After submitting your application, follow up with the angel syndicate to confirm that they have received your information and to inquire about the status of your application.
Attend an interview or information session: Some angel syndicates may require applicants to attend an interview or information session to discuss their investment experience and background, and to answer any questions about their interest in the group.
It’s critical to understand that applying to join an angel syndicate can take time and that the specific requirements and steps may differ from one group to the next.