I'm considering creating an investment syndicate an AngelList.
As a startup founder in Silicon Valley, I see a number of interesting startup companies, some of which are fundraising. Creating a syndicate would allow others to invest in these startups with me.
If you are interested in backing my syndicate, please visit https://angel.co/drodio/syndicate and sign up as a backer. The minimum backer amount is $2,500 per investment. I'm planning on doing one investment per quarter (four per year), which means you would allocate $10,000 per year to this syndicate. Only accredited investors are allowed to become backers (that may change if & when the SEC implements Title III of the JOBS act). This means to become a backer, you need to have a net worth of at least $1MM, or income of at least $200k per year for the last two years ($300k if joint income).
If I get enough backers, I'll proceed with the syndicate. If you have questions about how syndicates work, you can read the AngelList FAQs here or ask questions in the comments below.
If I do proceed with the syndicate, then I'll form a small team to perform due diligence on deals. I also plan on investing in each company myself as a member of the syndicate.
IMPORTANT! Investing in startups is an incredibly risky proposition. Many startups -- even the really promising ones -- crash and burn, returning very little to nothing to their investors. Having said that, sometimes investors do see some incredible returns. That's why I like the syndicate approach so much -- it allows you, as an investor, to make a number of small bets, instead of fewer large bets. This gives you a shot at having out-performing winners cover the losers. But don't become a backer unless you're fully prepared to lose the funds.
Hey Daniel, as the first company to go through the syndicates program, for us, it was phenomenal. Our experience wasn't typical to what other companies were seeing because it's so early, but our round allocation filled very quickly and we couldn't be happier with the result. Also, Naval is a rockstar.
Matt, awesome and great to hear. Congrats on doing the very first syndicate round! I believe that syndicates will become a great way to connect angels to startups as the AngelList platform matures.
Yes not only is Naval a rockstar, but the entire AngelList team is. The speed at which they create & ship products is insanely fast & agile. For example, I've been using AngelList to do some key hire recruiting for ShareThis, and I've been witnessing tons of upgrades to the recruiting product in the past few months. (Disclosure -- I'm now an investor in AngelList so I may be a bit biased!)
I'd be interested though I'd want to make really small bets like 100$ to 1,000$ each starting out as I'm nowhere near that level of qualifying income currently. Not sure if the JOBS act revisions will include 'splash the pot' investors. I guess something like kickstarter where you can get return. Neat idea though.
@WarInHeaven, yeah for now, investors must be accredited. What you're asking about, with smaller investment amounts, would fall under Title III of the JOBS act, which lets non-accredited investors participate in funding opportunities. But the SEC hasn't implemented Title III yet (and there's some question as to whether it will at all; some are projecting early 2014). So just hold tight for now, but thanks for your interest! I'd LOVE to hear from others who are in the same position and read this, as I'd like to know how much interest/demand there is in something like this from non-accredited investors.
OK so Frank's questions are:
1) Logistically, how does it work: Does investor send the cash up-front, or does the investor write a check for each company
DROdio: My guess is that the investors write a check per deal, but let me ping AngelList on this to see if they'll answer this one, or give me the answer. I'm not 100% sure.
UPDATE from Naval at AngelList: "Right now, check per company. But we're moving towards an escrow model where we'll hold some cash in advance for the next few deals."
2) What stops the lead from putting in very little (like $1k), but then the investors put the bulk in?
DROdio: I'm planning on being one of the syndicate investors myself. I've pegged the minimum at $2,500 per investor per deal, so I would plan on investing at least that much myself on each deal, so I have an equal amount of skin in the game. I haven't formulated specifics yet, but I'd imagine that if investors want to put in more than the minimum on a deal, that'd be fine.
UPDATE from Naval at AngelList: "If the lead invests less than their stated amount (i.e., if you say you normally invest $10K and you are investing less), then the backers can opt out of the deal."
3) Will communications come from the startup directly, or is all correspondence via me? (I.e., can the syndicate investors contact the startups directly)
DROdio: Unsure but my guess is that everything happens through the syndicate manager (me). I'll ask AngelList to provide a more specific answer, though.
4) Will you publicize the deals you're evaluating before-hand to the backers? Or only show backers the deals you're going to invest in?
DROdio: I haven't worked a specific process out yet, but I'd be inclined to have a private, shared collaborative space for my backers in the syndicate where we share knowledge. I would probably not present deals to the syndicate until they had been vetted by my team and I was sure I wanted to make an investment. And as part of being the syndicate, we would all agree not to invest directly in deals that I bring to the group (i.e., no bypassing the syndicate) -- myself included. I would also expect that I would share any deals with the backers that I passed on as part of this collaborative space, so that the backers could see why I passed and get the value of the due diligence my team did in case they decide they want to invest individually in those deals outside of the syndicate.
UPDATE from Naval at AngelList: "Comes via the syndicate manager. But your backers shouldn't bug you too much, this is a fire and forget model."
5) Do I plan on offering yearly stats on total rate of return?
DROdio: Yes I'd like to be as transparent as possible. Unsure what that will look like exactly, and remember that startups run on a multi-year cycle (which is why venture funds are 7 to 10 year funds). But generally, yes being as transparent as I can would be a goal.
UPDATE from Naval at AngelList: "Angel investing has a very long payback cycle and it's all losses in the first 5 years. If they don't understand that, they shouldn't invest."
Let me know what other questions you have!
AngelList is a platform that connects entrepreneurs to angel investors to raise seed stage capital.
Out of the $1.5 million dollars in angel funding we've raised for Socialize, over $1 million came from introductions made on AngelList. We were very early AngelList users under our AppMakr brand, with Brendan Baker doing a detailed analysis of our use of AngelList in his Anatomy of a Seed project. I also wrote a lengthy manifesto about our fundraising experience, and when AngelList was very new I interviewed Naval Ravikant, one of the AngelList founders.
Recently, using AngelList has changed the way I've been fundraising. Where traditionally, I've had to dedicate a block of time to fundraise full time, I can now fundraise passively, meaning just by focusing on having an optimized AngelList presence and a few specific techniques, I don't have to spend blocks of my time finding high quality angels. That is a game changer for us -- fundraising is an incredibly distracting process, and it's especially hard to innovate and iterate on your startup when you're distracted by bolstering the company's bank account. Being able to have angels come to me has given me a freedom as an entrepreneur that's just fantastic.
As I was talking to my friend Ben Young, CEO of Nexercise, about this sea-change in fundraising, I offered to critique his AngelList page to help him optimize it for this type of inbound passive investment.
Patri Friedman left this very smart comment on the convincing arguments post -
I’m pretty skeptical of whether researching investments is a good idea for non-professionals. Financial speculation is fun, but you are competing against specialists who have spent their whole lives studying the subject, have teams of researchers, and are betting so much that they can afford to buy the best computers, data, etc. I think almost everyone should just buy the Vanguard Target Retirement 20X0 fund.
The exception is if you’re in the startup world & you know people who you trust & respect who are doing startups, angel investing in them w/ 10%-20% of your income makes sense to me. At worst you’ll lose a little money & learn a lot about who to trust & how startups work. Another is if you know a city/region/country very well and want to own property there – ownership has advantages (ie we have done extensive customization of our cohousing community here in Mountain View) and since it’s such a big asset it’s definitely worth researching.
This is a great point.
I've been studying a lot of finance lately. One that I've really enjoyed is "The Intelligent Investor" by Ben Graham.