Entrepreneur

An angel investor’s ultimate guide to AngelList Syndicates

Image Credit: Geir Freysson

In 2012, my last company sold to Oracle and I decided to start angel investing informally. Several of my early bets worked out reasonably well, so this year, I decided to double down on my little angel investing experiment. A few months ago, I successfully raised a small AngelList Syndicate to do so. Since then, several other angel investors thinking about doing the same thing have asked me for tips.

What follows is a list of my personal recommendations (I am not affiliated with AngelList) about how to build a syndicate on AngelList.

What is AngelList Syndicates?

AngelList Syndicates allow investors (Leads) the ability to invite other accredited investors (Backers) to share in their deals. Leads source and support the investment, but are able to contribute more capital to the company and generally make some percentage of the profits that their investment creates. AngelList maintains a great support page about syndicates that you should read before you consider becoming a Lead.

Who should launch a Syndicate?

Syndicates make the process of launching a venture capital “fund” much easier, but they don’t change the fundamentals of what makes a good venture investor. Before thinking about launching a syndicate, you should have a good reason why people should back you.

Naval Ravikant, the founder of AngelList, probably summarized it most effectively: there are three things that make a good angel — 1) access to capital, 2) proprietary deal-flow, and 3) good judgement. Before asking to trust you with their investment capital, you should have some way to show that you fit those criteria of a being a good angel. The hardest to try to prove is No. 3, good judgment.

I’ve seen people do this in two ways. The easiest is to show a good track record. Past performance doesn’t guarantee future results, but it does help prove your credibility. The second way is to explain your investment thesis. A good investment thesis describes how you will source deals and how you will make decisions on which to investments to make, in a way that is compelling to your prospective Backer.

For a good example of how to do this properly, look at David Weekly. He recently raised a syndicate with over $125,000 in backing per deal by relying on his reputation as a notable founder and as a previously successful investor (both professionally, at Mexican.VC — a successful small VC firm, and personally as an investor in Plaxo and Like.com) and founder.

Weekly’s reputation alone probably would have been enough to raise a small syndicate, but he also articulated a very believable investment thesis. Weekly’s investment thesis is that drones are going to be an important industry and that there are very few investors currently paying attention to seed-stage drone companies. By branding himself as a drone-focused investor and focusing on that market, he can easily find all of the important companies in the space.

What’s your investment thesis?

If you invested in the seed rounds of Pinterest, Uber, Facebook, and Google — you may not need to articulate much of a thesis to raise a Syndicate.

If not (even if so), you should probably think through what your investment thesis is and how you are going to communicate it to potential backers. Creating an investment thesis sounds easy, but it’s usually not. It’s like finding a good startup idea, which can be deceptively hard.

You have to find something that is both novel and something that you can explain in a way that makes prospective backers understand the opportunity. Developing the ability to explain to people why your thesis is novel, correct, and not crazy can be very hard. Luckily, like startup financing, you don’t need every backer to like your pitch. You should be fine with some people thinking your investment thesis is crazy (in fact, that may be a requirement for success).

Here’s my checklist for what makes a good investment thesis:

  • Novel idea (an underserved market or a new idea)
  • Opportunity for large investment returns
  • Early examples of success that your thesis would have seen
  • Why you’re uniquely positioned to execute against this thesis
  • How you will source potential deals
  • How you will evaluate deals, and
  • (Preferably,) evidence that this is a thesis you can execute against for several years

To Syndicate, or not to Syndicate. That is the question:

Assuming you have established your reputation and a good investment thesis, you should really think about whether you want to syndicate or not. Note that there is a fair amount of work that will be involved in sourcing deals, doing diligence, supporting your investments, and marketing yourself to potential Backers, for example. In addition to the work, you are tying your personal reputation to this in a public way — failure could lock you out of future opportunities.

You won’t need to be a full-time VC, but you are asking people to entrust you with their money which you are placing in an illiquid asset for a period of several years. You are signing up for more responsibility than the average personal angel investment requires. In addition to your money, consider the time and reputation that you’re investing in the syndicate and make sure you’re comfortable making this commitment.

Setting up your Syndicate

AngelList makes setting up a syndicate very easy. Go to your profile and open the Syndicate tab. You’ll need to fill in some basic information for your Backers, which they will use to decide whether they want to back you. Use the field labeled note to backers to quickly describe your thesis and make any expectations you have of backers clear here (e.g. “don’t expect any updates, understand and accept the risks of speculative investing”). In the Deal-flow section briefly describe how you get deal-flow and which deals you’re going to choose to syndicate via AngelList. (This is especially important if you will be doing other deals outside of your syndicate. You don’t want Backers to think you’re cherry picking the best deals for yourself and syndicating the more questionable ones in order to share the risk.)

Once you’ve got your Syndicate setup, I suggest announcing it to your personal connections — especially folks you’ve co-invested with in the past, and invite them to back you. Here’s an example of an email I sent when launching my Syndicate, which you can feel free to use:

Hey [redacted]. I’m putting together an AngelList Syndicate to invest, when the opportunity is available, in companies I’ve seen have the best progress from my very early-stage advising and investing. I really enjoyed working with you on [redacted] and would love to have your backing if you’re interested in angel investing (even at just 5 or 10k).

You can find the details, and also make a commitment if you want to, here: https://angel.co/l/APs8g

As an important note, I intend to do a very small number of syndicate deals (one every year or two), so you will only see what I think are my best deals. In order to help those companies control information distribution, I intend to syndicate most of my deals privately (to my backers only). So if you’re interested in seeing my first deal, I’d encourage you to become a backer now.

Let me know if you have any questions!
Tyler

PS: This is an experiment. I’ve laid out my intentions above, but I expect to learn as I go. Because of that, I don’t expect your backing to be a binding commitment. I’m OK with you evaluating each deal on its individual merits — you can choose whether or not to participate in each deal without penalty.

Notice that I describe my initial investment thesis (doubling down on already successful investments) and the critical details anyone should know before backing. I also make it clear that they have the option to evaluate each deal on a case-by-case basis. This is an idea that I took from Naval’s syndicate. Unlike a traditional venture capital fund, you can’t think of your syndicate as secured funds. Your backers can commit or un-commit at any time. Make sure you understand this well — it changes the way that Backers and Leads interact and it also affects the importance of selecting your deals, especially early on.

Finding the perfect first deal

The way venture capital historically worked, you could raise money from LPs and not worry whether you had the money. Once you had their commitments, you generally had their money (barring macro-economic explosion). In the ideal world, this meant investors could take the long view – they could make bets that their LPs might not understand until years later.

You should realize this as a syndicator — your reputation, and the dollars backing your syndicate, will fluctuate based on the perception of every single deal you choose to do. You should always, but especially early on, be aware of the fact that you need to have a very high quality filter. You should strive to make your syndicate deals the best deals you do, period. Do this well, and your reputation and access to capital will increase. This isn’t much different from the advice I would give non syndicate angels, or traditional VCs five years ago, but it’s something that first time syndicate leads need to hear loud and clear. If you’re investing other people’s money, you have to be just as careful (or more careful) as you would be with your own money.

This is all to say, please do a proper amount due diligence. Obviously the amount of diligence you should do (or even could do) on a seed investment is very different than a Series B round, but don’t commit before you’re confident in the company and willing to stand by that decision. The amount of diligence needed is different for each deal and each investor. Here are two suggestions from other sources: call a few people or prepare a hundred page investment memo (the right answer for the average early stage deal is a lot closer to the first suggestion than the second).

For your first deal (and every deal), I’d recommend you find a company that has strong traction and an opportunity that is easy for your Backers to understand. Ideally this company is also willing to open the syndicated deal to all accredited investors on the site (not just your backers). This allows you to invite anyone to participate, and not just your current backers. This is a good way for you to market the deal, making it easier to raise money. Good deals will also act as good marketing for your syndicate.

Marketing your deal

AngelList offers a bunch of channels that help surface information about great deals — the social network dynamic on the site means that when someone invests in a company, follow them, or like their progress, any investor following that person sees the activity. The homepage of AngelList also surfaces companies that are trending, as well as ones that have been handpicked by AngelList staff, which are shown as Featured.

Assuming you’ve done a good job of picking your first investment, you should invest the extra time it takes to make the deal look more attractive to prospective backers. This isn’t just the entrepreneur’s job — you should work closely with them and help them understand how investors will perceive their profile.

Here’s a quick guide on how to improve the company’s profile:

  1. Make sure that all relevant and information is updated, add the founders, the team, etc.
  2. Clearly show traction using metrics that are meaningful
  3. Add a video demo and several high quality screenshots
  4. Refine your pitch deck to make it more compelling, then include it on your profile
  5. Shortly before you launch your syndicate, add any past investors, advisors, etc.
  6. Get commitments to the current round, and list them, before your syndicate launches (so the round looks more full when people evaluate your deal)
  7. Do a syndicate deal that is open to any accredited investor, not just your backers
  8. Ask people that are connected to you or the company to follow, like, and share once you’ve launched the syndicate

Marketing, the four letter word

I expect many people to take offense to the idea that you should market an investment. The rhetoric in venture has often been that marketing is bad, but this is a case where common rhetoric and the behavior of the winners have been wildly out-of-sync for a few decades.

Traditionally, VCs only had to market themselves, and their portfolio performance, to a small group of institutional investors. So they focused their marketing energy on networking, closed room sessions, and LP events. You have the luxury (and challenge) of working in a time when there’s far more transparent access to information, and a larger universe of potential Backers that you want to influence. So, you’ll need to think more about marketing, and how you want to present yourself. I’d recommend that you create a marketing plan for your syndicate.

Potential Backers will evaluate your potential will be based on a three key things: investment thesis, prior success/reputation, and perceived quality of the recent deals you’re investing in.

Here’s the easiest form of a marketing plan: anytime you can show prospective backers that you are doing a good job on one of those three things, do it. Here are a few examples of what that looks like.

If you’ve got a great thesis figured out and you know how to explain it, doing some interviews at industry events or in the press could be beneficial. If you have a great syndicate deal, and the entrepreneur is comfortable with sharing the details with accredited investors on AngelList, you should open it up to the community and talk about why you’re so excited by the company. If Google just bought one of your earlier investments for a billion dollars, you should make sure potential Backer’s know about it.

Setting up your first deal

When you’ve found your perfect first deal, you can go to your syndicate page (click “Manage Syndicate” from your profile page) and click “Syndicate a Deal.” Make sure you look at the sample timeline — it will walk you through what to expect in terms of closing.

You’ll be asked to fill out the details you’ve worked out with the founders — what your allocation is, whether this is a private or open syndicated deal, and whether your investment is on the same terms as your syndicates. AngelList will then email the founders to confirm.

Once your deal goes live, you should write down your reasons for investing and share them with your backers and with any other targeted investor. Both you and the entrepreneur should be prepared to answer anyone’s questions about the deal. Often times people will leave questions on the FAQ section of the profile (make sure to answer these questions quickly, as other investors seeing the profile can see the unanswered questions), other times they will message you or the founder directly.

After the commitments roll in, you can begin to close your deal. You should expect that you’ll close on about 70-90 percent of the total commitment. If the commitments didn’t roll in, it’s time to ask yourself the harder questions about whether you need to reach a broader audience or whether you can tweak the pitch to make it more attractive. If you have a big problem here, it’s possible that your quality filter wasn’t high enough in the initial selection of the company as a good candidate for syndication.

Deal’s done, now the work begins

In addition to all of the things you have to do for each deal, you should also make sure that you are always dedicating some time to two activities: communicating with your Backers and adding value to your investments.

Once you’ve finalized your investment, you have a responsibility to manage that investment for your Backers. You should be checking in with the entrepreneur and continuing to add value where possible. This is obviously different for every company and every angel, but do your best to abide by the golden rule for angels: always be helpful.

Also, don’t let your Backers lie in wait for your next deal. Sending them updates on past deals or new deals can be a fantastic way to stand out from other Leads. Again, David Weekly offers a great example here; he shares updates with his backers where he tells them about most of the things he’s doing for Drone.VC on any given week. The update might be a report from an industry conference or news about new advisors he’s bringing on, but it’s always interesting and it helps his Backers understand the process that he’s using to find and pick his next investment.

Don’t overwhelm them, but helping your Backers get periodic insight into your process is the easiest way to keep them engaged over a long period of time and make sure that they’re ready to do a deal when you come knocking. If you’re keeping them in the loop, they know all the hard work that’s gone into verifying that your deal is an investment worthy of their capital.

Good luck!

Hopefully you feel armed to make the decision on whether you should start a syndicate now, and you at least have the first few steps laid out for you. If I missed a key question you have, feel free to leave it in the comments or tweet me, and I’ll try my best to help.

Tyler Willis-HeadshotTyler Willis is an angel investor in early-stage technology companies and an enterprise software executive. He is currently the Vice President of Business Development at Unified. Prior to Unified, he was part of the founding team at Involver, which was acquired by Oracle in 2012. After that acquisition, Willis became an active investor – noted for his participation in companies across many different verticals (from synthetic biology to computer vision). An accomplished executive and angel investor, Willis specializes in helping early-stage startups become world class businesses. He has helped grow companies like Involver, Hired, and BranchOut.


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8 comments
Alison Lewis
Alison Lewis

Tyler. This is great. I've been trying to figure out how a start-up gets someone to start a syndicate for them? It has a rule that you must have 100k from an investor before starting to do your own syndicate; but doesn't say anything about how to meet or contact potential investors through Angel List. 

Seattle Startup
Seattle Startup

Good angels never need other people's money.  Be very, very wary of all angel syndicates.  

Steve Green
Steve Green

Hi Tyler,


I would like to make an average investment of X over Y companies for 3 years for a total investment pool of Z.


What would you say is the "minimum viable investment" for X, Y and most importantly Z? 


Cheers,


Steve

Alexey Karlov
Alexey Karlov

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