Angel Groups and Syndicates

Part of Our Research Series for Angel Investors

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Given the growth in wealth in the United States over the past several decades, most certainly due in part to the success of Silicon Valley, the number of Angel Investors has continued to grow. It is less common today than in the past for Angels to act as soloists, instead banding together into groups and/or syndicating investments together. This is a boon to the community as the benefits a formalization of the approach has begun to unfold. These benefits include:

• Shared knowledge and multiple sources of deal flow
• Distributed risk across the entire group (i.e. each Angel is investing a smaller amount of money, and therefore has a limited risk relative to one who writes larger checks on their own)
• The ability to develop a ‘branded’ operation to leverage in order to grow and garner even better deal flow
• Potential assistance from hired staff to handle the operational work

Many Angel groups and syndicates are loosely tied together and may offer limited value. Professionalized Angel Groups that have strong and recurring communication, experienced members, and enhanced screening and diligence processes will likely be the best options .

Angel Investors who have the ability to write checks of $50K+, a robust deal flow pipeline, a well developed diligence process, and an ability to commit substantial amounts of time to their portfolio companies may wish to operate as an individual Angel Investor. Being able to invest larger amounts brings the benefits of larger ownership, larger potential returns, and a seat at the table but also comes with more risk.

That is why, among other reasons, Angel Investors may choose to band together with others as part of an Angel Group or invest as part of a syndicate (when Angels pool their money and invest a sum into a company).

Angel Groups

Angel Groups are professional organizations that collectively work together to find investment opportunities, perform diligence, circulate to members, and culminate in interested collectively writing a single check into a company. To join, these groups will set out specific investment minimums, determine a collective philosophy and designate any specifics as it relates to sector, stage, or other qualifiers.

Founders benefit from having an entire network to tap as across the group, there is likely experience across every industry, market, and challenge. Typically, founders will engage with a select group of Angels (generally those sourcing the opportunity) and may pitch to the entire group. The Angel group will then run through it’s diligence process and effectively vote as to whether or not to invest, how much, and under what deal terms.

Angel Syndicates

Angel Syndicates, on the other hand, are informal occurrences where Angels can invest smaller amounts into a deal that is ‘syndicated’ by those interested individuals, not unlike crowdfunding.

Angels can leverage platforms such as AngelList or Assure to get information on the investment opportunity, and these platforms facilitate the collection of invested capital and transfer to the startup. This takes out many of the administrative headaches that Angels either face or choose to ignore (introducing operational risk into their process).

By centralizing all key documents, communications, and sources of information, Angel Syndicates can offer a real advantage when compared to operating independently — while retaining the flexibility to choose which companies and how much to invest.

To Syndicate Or Not to Syndicate

When considering investing as part of a Syndicate, Angel Group, or doing so independently the choice often comes down to the level of experience and tools available to an investor. Experienced Angel Investors who prefer to write large checks and feel comfortable with managing all aspects of the process stand to benefit from investing independently as it often means owning a larger part of the company and being able to potentially dictate better terms.

On the other hand, investing as part of a group or syndicate can simplify the process and allow Angels to spend more time adding value and less on administrative tasks. Of course, these are not mutually exclusive so keeping your options open and channel surfing may present the best risk-reward tradeoff.

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