If you’ve ever wanted to get into startup investing, you may have come across a number of ‘Angel Syndicates’ or ‘Angel Networks’ who offer membership for investors to join and invest in startups. But what exactly is an Angel Syndicate, and what are the benefits of joining?
In this article we pool together all that we have learned in setting up and running our own angel syndicate – ifg.vc – over the last year and a half.
Its been a rollercoaster journey. We’ve gone from professionals in the venture capital community but with no actual experience of investing, to developing a syndicate where we now have multiple successful founders (including 3 unicorn founders) investing with us.
In this article we will break down:
- What an Angel Syndicate is
- What are the benefits of joining an Angel Syndicate
- How to go about finding and joining an Angel Syndicate
What is an Angel Syndicate?
An Angel syndicate is a group of startup investors who come together to invest alongside one another. An Angel Syndicate could be as simple an informal group of investors who share startup deals with one another, or it could have a formalised organisational structure which is registered as its own entity.
Angle syndicates are normally formed around common themes, such as investing in a specific sector, or all investors coming from a similar background, or investments focused around a particular geography.
Within the structure of an Angel Syndicate, you would normally have a lead investor and follower investors. A lead investor is the investor who has found the startup deal and introduces the deal to fellow members of the Angel Syndicate. They will also lead the group’s investment into the startup.
The lead investor has normally done their own due diligence into the startup, and initial term sheet negotiation before introducing the startup to the Angel Syndicate.
Follower investors are the investors who invest alongside a lead investor.
What are the benefits of joining an Angel Syndicate.
Investing together as a group has several benefits to both investors and entrepreneurs.
By investing alongside others in a syndicate you will be spreading your monetary risk, enhancing your investment capacity by pooling funds with others and bringing together different individual areas of business experience and industry knowledge, bringing added value to enable an early stage business to succeed.
Below we highlight some of the many reasons why startup investors would decide to invest as a group rather than investing individually into a startup.
- Higher quality startups. There are four reasons Angel syndicates will be exposed to higher quality startups than individual investors.
- Angels have investors who are deeply embedded within the startup world – so they see the best deals and share with the syndicate.
- Angel syndicate are private. The best startups typically don’t want to list on a crowdfunding platform or equivalent and would rather keep their financial data and sensitive commercial information to themselves. Angel syndicates can do that.
- Angel syndicates are able to invest higher amounts (as all investors pool together funds). This means they are more attractive to startups as it reduces the effort of fundraising.
- Name recognition. Angel Syndicates are able to make a large number of investments, and if they back a number of successful startups, they can start to build a name for themselves within the startup community up to the point where an angel syndicate can actually have brand recognition. This means higher quality startups will come knocking on the angel syndicate’s door.
- Larger choice of startups to invest in. Because investors within an angel syndicate are sharing startup deals with one another, it means that each investor is getting exposed to a lot more startup deals to invest in than they would be able to find by themselves.
- Lower investment size per startup deal. When you invest in a startup as a sole investor, you would normally be expected to invest at least £20k – £50k. As you are now investing as a group and pooling investments together, the amount each individual investor needs to invest in a startup is much lower, normally around the £5k mark. This also means you are now able to invest in a larger number of startups and spread your risk further.
- Shared due diligence. When all investors in an angel syndicate are scrutinising the same deal, you have the added advantage of sharing information, insights and due diligence into a startup to help you make a better investment decision.
- More information on the startup is made available. Again, because Angel Syndicates are able to invest higher amounts in each startup, they can also have more say and so get access to more in depth information about the startup’s operations than a smaller investor would.
- Less administrative and legal work. There is a lot of administration and legal work that goes into investing into a startup. Whether that is negotiating term sheets, claiming tax benefits, or ensuring all proper shareholder documents are issued. These can be costly and time consuming when investing as an individual, but when investing as a group the costs are shared, and sometimes the Angel Syndicate will hire somebody to specifically deal with the admin, saving investors time and money.
- Being part of a community. Joining an Angels syndicate is becoming part of a community and that has a lot of added advantages outside of pure startup investing. It means you are constantly networking and meeting other investor who are normally accomplished in their own right.
Disadvantages of joining an Angel Syndicate
Although the advantages of Angel Syndicates far outweigh their downsides, there are some disadvantages that you should be aware of.
- Many angel syndicates will charge fees to cover the administration and legal costs it goes through. These differ from between 2% – 5% per startup investment. There can also be a success fee if the startup successfully exits with the Angel Syndicate taking a percentage of the returns.
- Group think. As an investor, you can become complacent and trust the judgment of others in the syndicate rather than doing your own due diligence into a startup which can lead to bad startup investments as proper due diligence is not done.
How to find and join and Angel Syndicate
So, you’re convinced and want to join an Angel syndicate. So where can you find one that suits you?
The first thing you want to ask is what are your investment preferences. Do you like a certain industry and want to invest in it? Do you come from a certain background and want to invest alongside others like you? This will help narrow down your search.
Once you’ve decided on what kind of angel syndicate you want to join, the next step is go about finding one.
If you’re in the UK, or interested in investing in UK-based companies, a good place to start would be the UK Business Angels Association (UKBAA). They are a trade body which represents Angel Syndicates across the UK to the public and UK government, and encourages the development of the startup sector.
The also contain a useful list of all their members (which compromises almost all angel syndicate in the UK) You can scan their page, filtering by your preferences and read summaries of over 160 angel syndicates. You can find the full list here.
You’ve gotten to the end of the article! I hope you are now more familiar with the intricacies of Angel Syndicates. You can always reach out to us if you have any questions around startup investing. It is our full time job 😉
At IFG.VC we run our own angel syndicate where we’ve invested over £3m in over 10 portfolio companies in the last year. All our startups are sharia compliant and we invest in each one ourselves. Feel free to sign up to our list here. You’ll be joining hundreds of other investors.