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What are syndicates?
Syndicates are groups of like-minded investors and organizations that come together to help scale ventures in their community. There are Syndicates as small as 5 people or into the thousands. A Syndicate presents opportunities on a deal by deal basis most typically wouldn’t have access to invest in such as Lime, Opendoor, Robinhood, and others”. The investors then decide whether to invest with minimums often between $1K-$5K which provides a larger opportunity for diversification.
Imagine Meetup.com for investors. On Meetup, the groups may be IoT, fitness classes, doggy playdates, or writers groups. In Syndicates, these groups are composed of investors and others with venture expertise who have a common interest such as IoT, Main Street Businesses, MedTech, or Real Estate, your locality, or a particular entrepreneurial group. You can pick a focus and join one syndicate, or join multiple.
Is this similar to an Angel Group?
Syndicates have often been called online Angel Groups, with a few differences:
- Most opportunities to invest are presented on a deal by deal basis (more akin to an “online” Angel Network)
- Technology is leveraged to facilitate the end to end process of collaboration, deal presentation, deal closing, and communication.
- Vetting of the deal can be performed by a curated subset of the group of Syndicate members and they can be compensated for the effort they put in.
- Instead of investing directly into the company, a Special Purpose Vehicle (SPV aka a “fund”) is spun up to pool investor money to make a direct investment to the venture.
Each syndicate is composed of a Syndicate Manager, a Lead, founders, investors, and other experienced venture partners. Syndicate Managers facilitate communication among the members, ensuring everyone has the most up to date information. Syndicate Leads research and source deals to make available to the syndicate members. They typically invest 2% or more on the same terms as the syndicate members. A Syndicate Manager can also act as the Syndicate Lead, but both are typically seasoned angel investors that have experience and knowledge.
What does this mean for founders?
Founders who join a syndicate have a direct connection to potential investors that may be interested in their business. Good Syndicate Managers will leverage the investor base to make asks which benefit a venture’s growth. The networks and expertise of the investors provide more opportunity and access for a venture to be successful. Syndicates also provide easier management of administration and cap tables through a Special Purpose Vehicle (SPV) (aka. a “fund”) that invests in their startup as 1 entry on the cap table.
What does this mean for investors?
New investors can work alongside seasoned investors to learn and understand the process. With a centralized location of deals relevant to a specific interest, investors have easy access to deals vetted by the Syndicate Lead and others chosen to help vet the deal. Low minimum investments (typically $1K-$5K) allow syndicate members to diversify their portfolio by investing in multiple ventures.
What does this mean for existing Angel Groups and Networks?
Many existing Angel Groups and Networks will leverage online Syndicates to increase the participation of more investor members. There are many examples of well-known Funds (GP/LP) which also spin up what’s called a “Sidecar Syndicate” to provide an opportunity to newer investors and source venture partners which can help improve the opportunity for Return on Investment.
These online Syndicates have raised billions for founders and are changing the landscape of investing and returns. Many well-known Unicorns (ventures achieving at least $1,000,000,000 in valuation) have received investment from Syndicate SPVs who may have gotten in at a $10,000,000 or lower valuation (…$5K check to a potential $500K+ return…not a bad return at all!) These results aren’t typical and most ventures fail which is why Syndicates have gained so much popularity. The ability to diversify across many opportunities with lower minimums in a community of people who enjoy investing and helping venture scale is here.
Whether the next Unicorn or venture who doesn’t quite make it there, there are Syndicate communities focused on rolling out the next product or service used in mass. The only difference now is that more people have access to claim they helped bring it to market. Want even more insight? Check out our short deck on https://incolo.io/syndicates/ for where the future of Syndicates is heading very rapidly.
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