A syndicate is a group of angel investors coming together and investing collectively in startups. While angel groups have existed formally and informally for a long time, syndicate is a more structured form, helmed by a lead investor.
The lead investor sets the course for the syndicate, setting the investment structure and goals for the group. They are also responsible for sourcing and evaluating deals as well as identifying and presenting investment opportunities that members can choose to participate in. In turn, the lead earns Carry, a percentage of profits, as incentive for the work done on behalf of other investors.
If you are a syndicate lead or considering forming a syndicate, here are five things you must know.
Have your pull
Leading a syndicate often comes down to the influence and reputation among startup founders and fellow investors. It is important to understand why any founder would knock on your door for investment before going ahead to start a syndicate. On the flip side, if you do not have that pull, it might be too early for you to start a syndicate of your own. You can build your brand as an angel investor by establishing your credibility and expertise, so founders and startups come seeking your investment and guidance.
Don’t rely on gut instinct alone
Arun Tadanki, a full-time syndicate lead investor, says the key difference between closing an investment deal as a syndicate lead and as an individual investor is that one can’t just rely on gut instinct alone.
“It is a lot easier to write your personal checks than a syndicate check because I can write my check without any solid logic or reasoning but just on the basis that I feel good about it,” says Arun.
It is especially important to conduct thorough evaluation for syndicate deals because a lot of angel investors rely on the lead investor’s due diligence and judgment and participate in deals. According to Arun, with a bigger responsibility and other people’s money riding on your judgment, the process of evaluation and sourcing requires ten times more diligence.
Manage risks effectively
The lead should ensure that its investment deals align with the syndicate's risk appetite and investment goals. Once an investment is made, syndicate leads should continue to monitor the progress of the investment, mitigate any potential risks, and make necessary adjustments to the investment strategy if needed.
You should also be prepared to take corrective action when necessary to mitigate any risks that arise.
Maintain effective communication
As with any other endeavor, syndicate groups can also benefit greatly from maintaining effective communications to set clear expectations. This includes defining investment objectives, criteria, and expected returns for each deal.
It is best to establish a communication plan from the beginning, informing how you will communicate with syndicate members, the frequency and format of communication. Regular updates and reports can help keep syndicate members engaged.
Stay abreast of market trends
The private market is constantly evolving, and as a lead investor, you should stay up to date with market trends and emerging opportunities. This can include attending industry conferences, networking with other investors, and staying updated on industry news and developments. Needless to say, it will help make better decisions for the syndicate as well.
Managing a syndicate as a lead investor can be a challenging task, but with the right approach, it can also be a rewarding experience.
(To learn more about angel investing, explore Learn by LetsVenture, a destination portal for lessons across stages of angel investing and free resources.
If you are ready to start angel investing, do join LetsVenture.)
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