How to break into Startup Investing by leading your own AngelList Syndicate

Investing in startups is no longer limited to venture capital firms and angel investors who can write big checks. Enter AngelList Syndicates, a platform where you can participate in startup investment deals for as little as $1,000.

A few years ago, I backed my first Syndicate. Fast forward to today and I’ve made over 10 angel investments, and am now leading my own Syndicate with 1455 Ventures. I even got to meet Barbara Corcoran from Shark Tank (!) through Syndicates (pictures below).

In this story I will explain AngelList Syndicates, with a specific focus on leading one. I will incorporate real-life examples with input from some of the top angel investors in my network.

What is an AngelList Syndicate?

For those who don’t know, an AngelList Syndicate is a Single Purpose Vehicle (SPV) legal entity created to make a single investment in a single startup. Investors can use a Syndicate to crowd source money from other angel investors (known as “backers”) in order to reach their funding goals for a startup.

You can either lead or back a Syndicate, provided you qualify for accredited investor status. In the next section I will explain the roles of lead and backer in more detail.

The AngelList Syndicate Ecosystem Explained

There is a great community of investors and startups on AngelList — and Syndicates benefit everyone.

Syndicate backers: Ability to invest in startups for as little as $1,000 through other Syndicate leads. By backing experienced lead investors, you get access to high-quality deals. There is no limit to the number of Syndicates you can back. This means you can consistently have new startups presented to you as investment opportunities.

Syndicate leads: Share your startup deals with other backers and earn carry on successful deals. Here is a helpful guide from AngelList on leading a Syndicate. Leading a Syndicate is more rewarding than backing, as it gives you opportunity to multiply your returns vs. investing alone by collecting “carry”. Carry basically means leads get a percentage of every backer’s investment if the startup has a successful exit. AngelList has a calculator that shows how you can multiply your investment by being a lead.

Startups: Supplement your funding round with a Syndicate lead and their backers, giving you access to the expertise and networks of the backers.

So that sets the stage for what Syndicates are all about.

Now I will share the top lessons I learned about leading a Syndicate from my network and research.

Lesson 1: What is your investment strategy? Know your niche and live it.

If you’re going to lead a syndicate, you should be closely involved with the types of startups you want to invest in. This helps you add value as an investor, and enables you to create synergies between companies you invest in.

I asked John Durant of Wild Ventures for input on aligning to your niche. Wild is an angel fund focused on consumer health products and technology. I quickly found that John has a unique way of running his Syndicate, that seemed very natural and rewarding.

“My Syndicate is backed by a number of health industry experts and influencers. I get their input before making an investment, and a commitment from some of them to invest in advance of listing the deal on AngelList. That way the deal goes live with strategic money already committed.”

— John Durant, Wild Ventures

One interesting example is their investment in Thrive Market, an e-commerce retailer of over 5,000 healthy products. This allows Wild to strategically add value to syndicated startups by helping get their products into Thrive Market. Between the Thrive Market ecosystem and his industry network, John has positioned Wild Ventures to be strategically valuable to startups and to have consistent, proprietary sources of deal flow.

As a new Syndicate, think of how you can build a portfolio of startups that can be strategically beneficial to each other, to increase your strategic value as an investor. Early on, you can value immediately by harnessing your unique skillset and experiences. This is where tying your investments to your passion(s) comes into play.

Lesson 2: Finding Startups to Invest In — Deal Flow.

Understanding your near and long term deal flow strategy is essential in knowing your fate as an investor. Deal flow is used to describe how you discover startup investments over time.

Your first deal may come about in many different ways. For me, it sort of fell into my lap when a company I previously invested in was looking to raise another round. After you nail your first deal, focus on building a sustainable long team deal flow.

Phil Nadel of Forefront Venture Partners (formerly Barbara Corcoran Venture Partners) had some great insights about deal flow. Forefront is an “OG” Syndicate, being around for several years, with several successful exits. Forefront was formerly known as Barbara Corcoran Venture Partners. Yes — “That” Barbara Corcoran. I will do a separate post on blowing the mind of your Syndicate lead, as pictured below. I met Barbara at a breakfast hosted by Forefront VP.

Barbara, my friend Jamie, and I. I studied abroad with Jamie, who coincidentally is also an investor.

“Since starting Forefront Venture Partners our deal flow strategy has evolved as our reputation has grown. One thing we have focused on is forming relationships with other Angels and VCs to find and share deal flow. For example, a VC connection that is closing a round may reach out to our Syndicate to offer allocation in the deal. On the other hand, we may introduce one of our syndicated companies to VCs at a later time when they are seeking more funding. Creating this mutually beneficial relationship provides value to everyone, and helps our pitch to prospective companies we Syndicate.”

— Phil Nadel, Forefront Venture Partners

As Forefront’s reputation and connections grew, deal flow increasingly came from VC’s. People want to invest in companies that other reputable investors are involved with, so aligning with VCs is a great way to increase confidence in your deals. As a new investor you likely don’t know many VC’s… but this gives you perspective on how to think long term.

New leads should find the right startups to Syndicate first, and then dial in on a future deal flow strategy. What things should you be doing in your first year as a Syndicate lead to open doors down the road? For experienced investors, deal flow sort of comes naturally. For new investors, you need to be proactive and get the wheels turning.

Here are some examples of how you can build your deal flow.

• Get involved with startup communities around you
• Seek invites to accelerator demo days
• Research early stage startups and proactively make connections with founders
• Find startups within industries you are involved in

Lesson 3: Know the tradeoffs of creating a Syndicate under your name vs. as a company.

There are two types of Syndicates on AngelList. One is a personal Syndicate, which will display as your name. The second type is a company Syndicate, which will display as the name of your choosing and allows for multiple team members. As a new Syndicate lead, how do you choose what is best for you?

To get some guidance on this, I asked David Chang. David has invested in over 40 startups, including Crashlytics which was acquired by Twitter for $259.5M in 2013. His Syndicate is under his name allowing him to show value through his investments, experiences, and expertise.

“Here’s the decision point. If you think you are really deep in the angel world or would like to get deep, it makes sense to set it up on your own. This way you can utilize and grow your personal brand, and grow backers that are interested in your investment thesis. If you have a company Syndicate, then you almost don’t care what the thesis is. The company’s mission will be tied to a niche or specific strategy, and backers will first look into that rather than into you as an investor.”

— David Chang

Of course, it goes without saying that your personal brand and connections are important regardless of the path you chose. I think the lesson learned here is: think about your goals as an investor. Do you want to grow your presence personally as an Angel, or would you rather create a company Syndicate that has its own unique mission and investment thesis?

Here is an example of how a Company Syndicate displays vs. a Personal Syndicate displays on AngelList.

One important thing to note is that company Syndicates allow you to have multiple deal managers, and each deal manager can submit his or her own deals. Also, note that you don’t necessarily need to have a legally formed company to run a company Syndicate. Rather, think of it more as a Syndicate setup that’s suitable for groups. My syndicate Disruptor.vc is setup as a company syndicate, as we have multiple deal managers.

Lesson 4: Decide how you want to raise capital.

There are three main ways you will raise money for your Syndicate, as well as typical investment amounts for each type, based on my experience. These amounts can vary, but should be helpful as general guidelines.

1. Angel connections. If you are already an angel or venture investor, you will have a network of other investors to join your Syndicate. These investors typically invest between $1,000 and $25,000.
2. Crowdsourcing. Share your Syndicate as far and wide as you can and target getting as many investors involved as you can. I have joined several Syndicates myself just from receiving “cold” messages directly on the AngelList platform. These investors typically invest between $1,000 and $5,000.
3. LP approach. LP’s, or Limited Partners, are investors who contribute large portions of money to your investments. These deals are typically done totally offline, between Syndicate leads and known major investors. These investors typically invest $25,000+.

Most of my early capital was sourced from #1 and #2. Over 50% of capital committed was from sharing my Syndicate on social media, AngelList, and word of mouth. Early on it is difficult to raise capital from #3 (LPs) as investors aren’t willing to write big checks until you have a proven track record.

I asked this sourcing question to Nelson Schubart from the Grand Central Tech incubator (now company.co). GCT is a known incubator in NYC but also uses AngelList to allow investors to participate in funding incubated startups. Exciting startups come through GCT, and it’s common to have outside investors want to get involved. GCT leverages AngelList for this purpose; typically filling their Syndicate deals with just 5–10 “bigger” investors contributing, closest to variation #3 above.

It is important to know how you will raise capital. It varies by person, experience, and investment types. Be strategic and tactical in your early investments to ensure you can raise enough capital. The minimum amount AngelList allows you to raise per deal is $80,000. Don’t take on a new deal if you can not raise at least $80,000.

I’d also like to cover in this section that AngelList allows two syndicates to “Co-syndicate” a deal. Co-syndicating is an attractive option for new leads, as it helps you line up more backers for your deal.

Lesson 5: Don’t sweat the technicalities but know the parameters.

Before I reached out to any Syndicate leads, I created a list of 10 questions relevant to starting up a Syndicate. A lot of them were about the actual process that you go through to submit a deal. For example, what is it like once you submit a deal to AngelList? What should I be prepared to provide? Will they take my deal?

I very quickly threw out that list after my first call with Zach Coelius, who is a known Syndicate lead with the first $1 Billion exit on AngelList.

“Setting up the deal is super easy, just focus on your deal flow. In the beginning of a Syndicate, the deals that have strong institutional backing from other investors succeed easily. For example, a famous VC firm or several known Angels. Focus on finding deals that have that sort of profile.” — Zach Coelius

All you need to do is follow the parameters outlined when submitting your deal. I won’t cover these in this post, but I’d recommend reading AngelList’s Guide to Leading a Syndicate.

One of note is that you should have a minimum of $80,000 in backing in order for your deal to close. If you do not yet have this backing signed up for your Syndicate, AngelList may request you to provide a list of capital commitments to prove your ability to close.

So don’t sweat the initial process, spend more time thinking about your deal flow, backing, and how to create a successful Syndicate in the long run.

Lesson 6: Understand the “hard parts” and how you will tackle them.

Here are what the leads I interviewed identified as the hard parts of running a successful Syndicate.

1. The hardest part is building a loyal base of investors and Syndicate backers. — Phil Nadel
2. Everything else is trivial besides deal flow and getting involved with deals that have VC backing. — Zach Coelius
3. To grow and engage your backers… the more you can demonstrate good deal flow or a unique angle. Show them! — John Durant
4. It took several years for people to “care” that I was in on the deal as a deciding factor for their investment. Your deal needs to have social proof which often requires the involvement of known Angels or VCs. — Zach Coelius
5. At one point Syndicates were a major focus of AngelList, but it now has diversified into other focuses such as recruiting. It used to be easier to grow your backers by just using the platform. In the current state, you have to do more to bring your backers into your Syndicate. — David Chang

What Next? How do I get started?

The lessons learned above gave me guidance and clarity into the Syndicate process, which in turn gave me the confidence to get it done. Take the time to think through your Syndicate strategy as I did, and then take ACTION. Make sure your heart is in your Syndicate mission, and then focus on getting tactical. The more aligned your mission is to your passions, the more driven and successful you will be in the long run.

To get you started, here is a bulleted list of some things you can spend your time doing. I wish you the best of luck on your Syndicate journey.

• Find your first deal. There is no better way to get started with a new Syndicate than to have a potential deal lined up to put some urgency on the Syndicate formation.
• Create a “letter to your backers” that you can send to potential backers on WHY they should join your Syndicate. This will be your investor pitch material. Don’t be afraid to send it out.
• Create a spreadsheet to list your potential backers. Figure out the best timing to contact them. I’d recommend doing it a couple weeks before your first deal.
• Codify your deal flow strategy. Write up a document and brainstorm all of the ways you have to source deals. Think about your current opportunities, but also think about the future opportunities you can create.
• Action over hesitation. Be confident that you can run a successful Syndicate (or at least give a good run) and then get to work.

In the future I will be writing more about how to execute the steps above, and about angel investing in general. If you’re interested in learning how to get started in investing, follow me!

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