One of the growing trends in startup investing has been the emergence of structured syndicate deals. The model revolves around lead angel investors introducing a funding deal to their group of backers who are also provided the ability to invest in the round.
The advantage for followers is the ability to gain access to proprietary deal flow that they typically aren’t connected to. In addition, investors often invest as little as $1000 which allows for portfolio building and risk diversification.
For the lead investor, the syndicate provides greater clout in the overall funding round which can translate into a board seat and/or becoming an advisor in order to have clearer knowledge of the inner workings of the company. Startups also benefit as syndicates offer a wider ownership base to promote and assist them in operating their business.
The investing model received global exposure last year following the launch of Syndicates on AngelList. Connected to its community of startups and investors, the AngelList syndicate platform created an efficient system for investors to back other angel investors for participation in their funding. The overall syndicate operates as one unified ownership structure which is an important item in jurisdictions where there is a limit on how many shareholders a company can have without needing to file a formal prospectus.
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Within the UK, syndicates have been gathering steam among angel investors, with the model being backed by the UK Business Angels Association to its 15,000 members. As a result, syndicates and equity crowdfunding now account for around 60% of funds invested by angel investors in the UK.
Among emerging players in the UK, and using a similar model to AngelList, is SyndicateRoom. Unlike equity crowdfunding platforms that are open to all investors, with fundraising typically led by the startup, SyndicateRoom is a solution for angel investors to introduce firms they are investing in to potential syndicate members.
According to SyndicateRoom, the result of their model is that startups introduced to their platform arrive with pre-existing business backers who have reviewed and believe in the company. The existence of leading angels for syndicate deals who provide a central source to connect shareholders and companies is also promoted by the UK Business Angels Association as improving the success of deals.
Completing its first full calendar year of operations, SyndicateRoom announced today that it has surpassed its 15-million-pound funding goal for 2014. While arguably the figure represents a small portion of overall angel and venture investing, the growth at SyndicateRoom represents that the marketplace approach to venture and startup investing is becoming an important trend in investing.
One of the offshoots of angel deals arriving to crowdfunding platforms is greater funding liquidity in the place. Looking ahead, there seems to be very little preventing a structured market of secondary trading of packaged startups’ equity from taking place.