Princeton Young Alumni Angel Investing Syndicate

Overview:

Princeton Angel Investing Syndicate is a group of early in career Princeton grads (graduated in the last 5–10 years) who are banding together to source, diligence, and invest in early-stage startups.

Next Steps:

• Once I am eligible, become an accredited investor and start investing in a variety of startups via SPV. To de-risk, alongside known investors/VCs.
• Potentially study for and take the accredited investor test (SEC). Anyone wanna be study buddies?
• Create a mini fund if you have a tight-knit cohort, lots of buy-in, bright talent, and potential deal flow. I’m a BIG fan of GSB 2020 and think it was brilliantly architecture.
• Until then, leading the PAA young alumni angel branch would facilitate introductions to cool people in the space, give us insight into the diligence process, be the perfect excuse to invite high profile speakers, engage with young like-minded people

Key Takeaways:

• Need to make 200K + and have a networth of $1M to become an accredited investor, which is needed to angel invest :( source: Investopedia
• Value prop to the founders is a real problem. What can we as a group of young angels offer to a startup founder? Why would they take our money over a bigger name or more networked angel?
• Derisk by: investing in classmates, partnering with trusted investor
• Projections are key. Ask: How many people do you need to buy in + be likely to invest? How much $ should each persona invest?
• To make angel investing worth it, you need to invest in ~ 10 startups. Meaning, there’s a real financial and time commitment barrier to entry.
• Reverse engineer it: what kind of companies they could source and from that pool imagined what kind of companies in their dealflow, what they’d want and what they would potentially invest in them → informs how much you would invest in each and thus the fund size

Objective:

These three friends (Eric, Rachel, Dana) are people who I personally love and who I’ve had separate conversations with about investing with. We all were aligned that as early in career folk we wanted to:

Practice the art of investing

Increase access to investing

Introduce a fresh perspective

Consider diversity across a variety of slices

• Industry: e.g. social impact, fem-tech
• Ages: e.g. college founders, early in career folk
• Demographics: e.g. women, POC, geography

Motivation:

• There are young professionals and aspiring VCs who would like to build a track record. They are excited to find companies and invest in early-stage start-ups they believe in.
• Eric inspired me to consider Angel investing. Earlier in the summer, he was considering angel investing and that opened my eyes. I thought an angel investor would look like me, a young woman of color and daughter of immigrants. Sometimes, you don’t even know what’s possible until you get inspired by a friend :)
• As a new grad unexpectedly living at home, I suddenly had an unexpected influx of cash that would have otherwise been going towards rent. I’m incredibly mindful of money and don’t see it to be “play money” by any means. However, I saw this as an opportunity to get into investing early.
• One big perk of my Bessemer offer letter was having the opportunity to co-invest with the firm. “An important benefit of working at BVP is the opportunity to co-invest directly in nearly all of our deals. Subject to legal restrictions and the limitations we all face, you would be allowed to make investments you personally desire (up to $1,000 per deal, with no annual limit) in those transactions offered for co-investment that you find attractive. All such investments will be your personal responsibility and benefit; the partnership will neither underwrite nor protect your position, but nor will it charge any management fee or carried interest. You will be required to sign a standard agreement covering these investments and will be obliged to follow certain standard BVP guidelines and policies in this regard.” Could we convince a top 10 VC or Angel to let non-employees invest alongside them?

Understanding Users

We brainstormed some different (non-exhaustive personas) for individuals that might be interested:

1 — The Aspiring VC

This person wants to use the syndicate to exercise the toolset of venture. They might be a young professional in any field who wants to angel invest as a side hustle, bring in a high amount of deals and build their track record through it.

2 — The Enthusiast

This person might have a more popular idea of what it means to angel invest. They like the idea of making angel investments and want to be exposed to companies in a specific category that excites them. This is more of a curiosity or side hobby than professional stepping stone.

3 — The Observer

I imagine there will be some people that make few investments and are unable to commit as much capital as others, but still want exposure to the activities and the community of the group (events, pitch session, group information).

4 — The Tech Bro/Gal

This person is very tapped into the tech and start-up ecosystem. They have been exposed and are a nerd for the myths and traditions around entrepreneurship and Silicon Valley. Maybe they are at an entry-level role at a start-up or big tech. They may be more technical and product-oriented. They have different fleshed out philosophies around tech and certain sectors.

5 — The Finance Bro/Gal

This person wants to dabble in making riskier personal investments and/or make money in a sexy way like venture. They might even aim to potentially transition from their jobs in IB to VC. They have a strong grasp on business fundamentals and analytical rigor. They will be more driven by the potential to see financial returns then tech culture. They may have a strong conviction around certain sectors or themes but are more likely to be generalist/opportunistic.

Keeping these personas in mind, we set out to answer the following questions:

Who might be interested in being a part of this syndicate:

• The non-exhaustive but pretty lengthy list made by Anna Doherty ’17 of alumni in venture including entry-level roles that might be interested

How many people do we need to buy into the SPV? Is 5K too high of a barrier to entry?

To answer this question, we looked into current practices of young alumni making angel investments, and asked:

• How many young alumni are already making angel investments on their own?
• If they are, how are they doing it?
• Will there be a conflict of interest for young alumni who might have something in their contract that prevents them from investing / doing their own angel deals?

Proposal:

Here are bits and pieces of our original proposal and questions that were very top of mind. We have listed considered options and our initial thoughts.

Process and structure

Source Startups

• Tap into our Personal Network
• Big Pushes on social media
• PAA
• Top 10 VC Network (what’s the correct angle, headhunting?)
• Scout Program
• Is there a minimum # of intros you need to source to be a part of this group?
• If >1 partner knows a startup, who leads (operations) the investment?

Diligence

• PSV VC Guidebook
• PSV Due Diligence Guiding Questions
• All resources are included in the guidebook I co-authored with my PSV co-founders https://docsend.com/view/dvufhb27r5bzrpym

How do we choose to invest?

Option 1: We invest equally as a group into each startup

Pro: I strongly believe that each person should invest equally. Unfortunately, this means that investing isn’t SUPER accessible.

Con: What if a company needs a larger or smaller check size? Do we all come together as a fund? E.g. 20 people put in 5 K = 100 K fund. If we invest 20 K in startup A for 10%, then:

• Option 1a: each partner owns
• Option 1b: the “syndicate” owns the entire 10% and distributes profits

Option 2: We source as a group, people can invest individually.

I personally don’t find this option to be sustainable. I foresee this structure to result in argumentation, poaching, inequity, etc. Also, this wouldn’t be too differentiated from PAA’s structure

Option 3: Create a mini-fund (Like Stanford GSB style)

• Young Princeton alumni pool their money, source together
• Option 3a: Group of 5–7 do diligence + make investment decisions
• Option 3b: We need a consensus for investments. From Theodor Marcu: “Need to be careful with that, since decisions by committee don’t select the kind of winners that make or break a fund.”
• Be wary: this is the easiest way to lose all credibility if you lose other people’s $ w/o them having a role in decision making

FAQ

What do we look for in a company?

Note: inspired by Prospect Student Ventures

• Demonstrated capital fit (our investment will have a meaningful impact on company trajectory)
• Clear roadmap for capital allocation and value inflection points
• We prioritize companies with the potential to exceed $1B market capital. Exceptions will be made for high impact non-profits.
• Not just Princeton founders

Core values and experiences we look for in our partners:

• Experience Investing
• Domain/Subject Matter Expertise

What industries/verticals/focuses do we want to cover?

Option 1: Depending on our partners’ strengths

E.g. Our partners have experience at big tech companies, so we have an unfair advantage of

Option 2: Split partners into early-stage focused (no verticals) and late-stage investing (where verticals matter because there’s data).

Who is eligible to be part of this syndicate?

• Princeton 2020–2015
• Why limit it? GSB 2020 Fund made a good point about why they are specific to GSB. Does that apply to us?

Angel investing can be a quick way to lose all of your money. How are we derisking this?

• Investing alongside a top 10 VC firm (e.g. can we invest alongside NEA’s pre-seed deals?)
• Aligning ourselves with PAA

Why would a big VC name invest with us?

• Position on our board
• Opportunity to mentor young investors

Why would a promising startup come to us? What can we offer?

• Right now there is often a large disconnect between the founders that pitch, especially the ones working on products or brands that target millennial and gen-z markets, and the investors who are older and do not often feel the innovation resonates with them.
• Unsurprisingly, the older investors are pretty conservative when it comes to what excites them lol
• There is a perspective gap that we and young people in general can bridge
• Lean into the confidence and fearlessness of youth and young people
• Combine the fact that we’d had a rigorous education with our youthful energy. As my friend Eric says: “Whether it’s something like they’ve written their senior thesis on it / are mini experts, or maybe they’ve interned at multiple companies that are similar, or whatever — many of us DO often have a bit of expertise to offer!”
• Bring that validation to products that older folks don’t understand or are skeptical of

Who sits on the board?

• The member who leads the investment or introduces us to the startup

How do we guide young investors?

• Develop a board of current and experienced Angel investors
• Derisk through a mentorship program?

My learnings

• I moved “what would it take to angel invest as a young person” from the “I don’t know what I don’t know” bucket to the “I know what I don’t know” bucket to the “I know what I need to get to where I want to go bucket” with a head start of 2 years before I’m eligible to
• I have a better understanding of all considerations of the angel investing timeline and learned a ton about sourcing, role of network, and different architectures of angel groups.
• I had some great virtual conversations that gave me a lot of energy and inspiration :)

Risks

There were a few key main areas of risks that we identified at the onset:

• I think the foremost limitation that comes to mind: who has the money at this age! Most students and new grad do not have the disposable income such that it would be a smart financial move to angel invest, nor do they qualify as accredited investors. On the other hand, some may be able and eager to invest, but not have access to deals that would make the risk compelling.

source: https://twitter.com/minal_hasan/status/1292655464715452416?s=20

Still, I know that I and a few friends have been at least hungry to learn more about what it takes to angel invest and how we could do it while we both learn together and of course make money!

• Legal Feasibility — Would all members need to be accredited investors? How could all participants become one — is it possible with the new guidelines?
• Syndicate Structure and Governance — How would investment decisions be made? Would every individual invest in every deal for a more democratized structure, and in that case what is the voting/veto mechanism? On the other hand, should individuals have autonomy to decide which deals they invest in and how much?
• Fund Economics — If we decided on a structure closer to a fund or “investment club,” how much should we raise total based on what we could reasonably deploy? How many deals could we expect? What would be the average check size? How model returns?
• Deal Sourcing — How do we build an edge in and robust deal flow? Would individuals source from their network? What other strategies could we employ? How could we gain access to top tier deals? How could we access dealflow and co-invest with VC funds?
• Deal Dynamics — What is the minimum investment? How do you accommodate members with different levels of experience, commitment, interests, and check sizes?
• Diligence — How do we delegate this responsibility, and what are the deliverables?
• Operations — How could we facilitate the investment transaction in a professional way? How to incorporate the upfront costs of an SPV, and services that could guide us (i.e. Assure)? Would it be better to go on the cap table as individuals or as one group?
• Value Proposition — Why would a founder let us invest in them? What value add does the group bring to the table for founding teams beyond capital? How become credible?
• Education — How could we include a curriculum that would onboard both members who have not invested before and help all members grow to become better investors?
• Culture — How do you build a cohesive community within? What is the sticking point?
• Accessibility — Is it possible to make the experience accessible and available to those who can’t write checks? How do we ensure equity and equal footing in our mission?
• Board of Advisors — How could we form our board of advisors and with who? What more experienced alumni could support our mission and guide us to best execute it?

As we fleshed out this idea, we spoke with leaders at two alumni-based angel investing groups: Rob Walk and Christine Brumback of Princeton Alumni Angels and Steph Mui at GSB 2020.

Key Insights from my friends:

• Most syndicates are driven by deals and SPVs form around deals. It is not as common to have a sort of blank-check syndicate waiting for a deal. It is more likely that an individual found a deal and a group of friendly investors all want in. There are associations that may create a shared understanding and put them in a shared network (i.e. current and former employees of Uber). However, it is less community-first and more opportunistic and driven by why it is strategic to invest together as a network.
• Lack of investor accreditation is a non-starter. We expected this to be the biggest limitation, and indeed it was! The majority of members would expectedly not be accredited. This poses a legal and reputational risk that would be hard to solve for. Creating an “investment club” may be a non-perfect, but creative work around.
• Culture was more important and critical than I thought–and even embedded into the legal definition of an “investment club,” which is the structure at GSB 2020.
• It was hard to determine what put us in a differentiated position to succeed. It wasn’t yet clear how the syndicate would manifest and what our secret sauce would be. It was mainly a thought-experiment and an early brainstorm for a potential initiative. It was not a syndicate coalesced around a deal. We would need to prove out in practice that we could actualize deal flow and compete to get on the cap table of the best companies.

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This retro was co-authored with Dana Iverson Rachel Yee and Eric Stinehart.

Big shoutout to my friends Albert Wang Theodor Marcu Rohan Shah Ali Partovi Steph Sher Eno Reyes Nitish Jindal David Awad for letting me pick their brain about this :)