Syndication has become an increasingly common practice in the angel investment world. It allows multiple investors to come together and provide the funding resources needed by one company. A typical angel round is typically made up of syndications of multiple investors… but what are they?
If you’re reading this, it’s likely that you’re relatively new to the world of investing. You may have made a couple investments up to this point but are now thinking of trying something new. You might not have invested at all but know that you’d be more confident making your first investment as part of a group (such as with friends).
In either case, it’s essential to establish why you would even consider joining or forming a syndicate in the first place. So, let’s dive into the importance of syndicates:
4 benefits for joining an angel syndicate:
1) It gives you access to bigger and better deals
Being in a syndicate allows you to get involved in a higher calibre of deal, in terms of deal size and quality.
When you pool your money together with other investors, you are giving yourself the opportunity to invest in deals which require a lot more capital. For example, if there are 10 angels in your syndicate each investing £10k, then you’re going to be able to get into much bigger rounds than if you were to just invest that £10k on your own.
Furthermore, it is more likely that the deal flow you experience as part of a syndicate is going to be of a higher calibre than the deal flow you experience as a solo investor. If you consider the same example of being in an angel syndicate comprising of 10 investors, each investor is going to have their own deal flow, meaning you’ll see more deals and, more importantly, more high-quality opportunities.
2) It simplifies the due diligence process
Firstly, a syndicate enables angel investors to combine their knowledge, skills and time together. This is particularly important when one considers the due diligence process.
It goes without saying that you need to evaluate any investment opportunity you’d consider investing in that comes your way. However, this can be a long task (it’s typically recommended to carry out at least 40 hours of due diligence on an opportunity before investing), as well as a laborious one if you aren’t great at dissecting a start-up’s financials. By teaming up with other investors, it’s more likely you’re going to be able to cover all bases of the due diligence process, increasing the quality and depth of the analysis which will ultimately de-risk your investment.
“For me, the best part of being involved in a syndicate is the chance to meet with like-minded people who I can learn from and also share knowledge with. My background is law, so I’m happy to give value to the collective when needed, such as in the due diligence process and in particular when discussing service industries. In return, I hear from more experienced angels than myself about other parts of the investment process which I know less about. Someone always has a point of view or a question that I hadn’t considered, which is why it is so helpful to work together. We’re all a ‘team’ and so we want to help each other out whenever possible – everyone has their own niche and it’s all about combining these for the best possible outcome.”
- Emma Gaudern, Managing Director of EMG Solicitors and member of the Women Angels of the North Syndicate
3) It gives the founder a broader range of support
Founders are fundamentally going to need a lot of support in order to be successful. If the founder you’ve invested in doesn’t succeed in their endeavours then you’re going to lose out as well. So, it’s in your interest to ensure that you support them in any way you can aside from just giving them money. This is far easier to do so as part of a collective.
The more of you there are coming into a deal, the more support the founder will receive. A syndicate will be able to offer: more insight through the combined expertise and experience of its members, more contacts which could prove invaluable for the founder (such as new customers, key hires, potential partners and even some other HNW investors who’d consider investing) and more capital to support the founder in the future.
"Our angel syndicate members are all successful businesswomen in their own right and as a syndicate founders can tap into a range of skillsets, knowledge and experiences to aid their path to success. As a syndicate, we offer more "person power" per pound invested"
- Carrie Ambler, Chief Scientific Officer of LightOx and member of the Women Angels of the North Syndicate
4) It’s fun!
The last reason to join a syndicate (and arguably the most important) is that it’s fun! If you are indeed new to investing, then joining a syndicate is a: great vehicle to learn from other knowledgeable and experienced angels. You’ll be teaming up with people who might know the industry you’re investing in very well, or people who can share with you the lessons they’ve learned which could prove very valuable in the future.
“Angel Investing can be a really fun team sport and by pooling resources through a group or syndicate, you also reduce the costs and the risks of investing in early space stage businesses.”
- Roderick Beer, Managing Director of UKBAA
One important thing to consider about angel syndicates is that they struggle to function without a lead angel. A lead angel investor is someone who negotiates deal terms with the entrepreneurs and then manages the syndicate (such as coordinating due diligence). This might be the investor with the most experience, or simply the one with the most expertise on one specific deal. However, the importance of a lead angel cannot be understated – we’ll get into this in a later blog, so stay tuned!
Conclusion – what now?
Syndicates can typically be free to join or cost very little and as discussed above, there are a number of significant benefits in getting involved. So, if you want to get involved, what can you do?
The Women Angels of the North Syndicate, powered by Fund Her North, is one place you could start. Our mission is to bring together women in the investment industry and help support female founders. If this is something you would indeed like to know more about, visit https://www.fundhernorth.com and become a member.