For angel investors, Syndicates are one of the best ways to get access to deals. But how do you know which syndicates are worth joining?
Syndicate Basics
Syndicates are groups of angels who invest together. For new angels, they can provide instant access to deals.
A lead, usually a more experienced investor, brings in deals. Each angel can decide if they want to invest or not. You never have to invest.
In return, the lead usually gets 20% of the profits (called the “carry”).
Even if you’ve been investing for a while, a syndicate might bring you opportunities you otherwise would miss.
These days, I do some deals through syndicates and others directly. It depends on where I find the best deal.
How to Pick Syndicates
I’m a member of around 100 syndicates. Here’s how I find the best ones:
1) Strong lead. The lead investor has to know more than I do. Otherwise, why pay them?
You want a lead who has been investing for at least five years. Make sure she has at least one unicorn.
You want to be investing alongside someone with great deal flow and a track record of success.
2) Reasonable fees.
Syndicate leads usually charge a 20% “carry.” Syndicate deals also have set-up fees. These cover the cost of forming a Special Purpose Vehicle (SPV).
An SPV is an LLC that holds all the syndicate members’ money. You need an SPV in order to gather the money and give it to the startup.
These fees are usually about 3-7% of the amount you invest. Sometimes they reach as high as 10%.
You pay these whether the deal succeeds or not.
If you’re seeing a carry higher than 20% or fees higher than 5-10%, the syndicate may be charging too much.
3) Detailed information on each startup. The best syndicates give you lots of information on each investment opportunity.
You should get a detailed deal memo with revenue numbers, figures for burn and cash in bank, and a lot more.
Many of the best syndicates also give you a chance to meet the founder and ask questions.
A good syndicate gives you ample information. A bad syndicate gives you sketchy info and pushes you for a quick decision.
4) Hold the FOMO. The worst syndicates are always trying to scare you.
You’re going to miss out! The round is closing today! This is the last time the company will raise!
This is all crap.
I’ve seen startups that “would never raise again” back in the market in a matter of months.
Syndicate leads and founders resort to FOMO when they have nothing better to sell. If they had killer revenue growth or a unique product, they’d sell that.
But they don’t, so they sell fear.
You don’t need to worry about getting into every great deal. Even one will make your career!
Take your time, evaluate each company soberly, and ghost anyone who tries to FOMO you.
My Favorite Syndicate
Now that you have a better idea what a good syndicate looks like, let me tell you about my favorite syndicate. It’s run by Jason Calacanis, an early investor in Uber, Robinhood, and Calm.
Jason’s syndicate does not deal in FOMO. Instead, it presents carefully vetted opportunities and gives you plenty of information to decide.
If you can only join one syndicate, this is it.
Wrap-Up
Syndicates help angel investors start on second base by providing access to someone else’s network. If you use them intelligently, syndicates are an invaluable tool.
Do you invest through syndicates? Why or why not?
Leave a comment and let us know!
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