AngelList Syndicates Let You Follow the Pros

By Matthew Milner, on Wednesday, November 6, 2013

Pop quiz! Can you name the movie these lines are from?

     Iceman: “You can be my wingman any time.”

     Maverick: “Bull@%&$! You can be mine.”

I know, I know: that was an easy one. Val Kilmer and Tom Cruise in “Top Gun.”

But here’s why it’s such an easy one. It’s because the dream of having a “wingman” — someone who’s always looking out for you; someone who “has your back” — is universal. This concept strikes a nerve with almost all of us.

Too bad there’s no such thing as a wingman for early-stage investing. Someone who has great instincts and skin in the game; someone who always has our back.

Actually, there is such a thing. And today we’re going to tell you about it.

Meet Your Wingman

Meet Kevin Rose.

Would you follow this man into battle?

Would you cram yourself into a F-14 Tomcat and join him in combat at Mach 2?

I’m going to take a wild guess and say… “Not so much.”

But would you join him if he found an early-stage investment he believed in, put his money and reputation on the line, and then let you co-invest alongside him?

If you were to ask our opinion, we’d say you should sure as heck take a quick look.

Here’s why…

A Successful Entrepreneur and Professional Investor

Kevin is the founder of Digg.com, a website that literally changed how online news and content sites operate. Anytime you see an article on the web with a “vote” button next to it (a mechanism that allows us, the viewers, to determine which articles get featured), you have Kevin to thank.

He’s also an angel investor with an excellent track-record, having invested in dozens of successful internet and consumer technology companies — from Facebook and Twitter to Fab and Square. And he currently works as a professional investor at Google’s venture capital fund — in other words, investing is his full-time job.

Kevin has a reputation for taking an an active role in the companies he invests in. As one entrepreneur Kevin backed put it:

     “Highly recommend Kevin! One of our most valuable investors…”

— Mike McCauley, founder of Bufferbox

Why am I including this quote in today’s post? Because it’s important to point out that when professionals invest in startups, they don’t just “pick” a few good ones and walk away. They actively help their companies execute on their plan. They help handle the good things that arise (e.g., talking through an offer to sell the company), as well as the bad (lawsuits, slowing growth, new competitors, etc.).

When a startup is “hot,” it can choose who they allow to invest. Based on feedback like the above (you can see more here), it’s likely that Kevin will get access to good deals — this is one of the reasons that, in an ideal world, we’d be able to “back” him and invest alongside him.

And now, as part of a new program from AngelList (one of the platforms we cover at crowdability), we can “back” him.

In fact, Kevin is offering to become our wingman.

Let me explain…

Syndicates

AngelList’s new program is called Syndicates. The origin of this term comes from a common practice among professional investors whereby one investor (the “Lead” investor) takes charge of a deal, negotiates the terms, and commits capital — and then shares, or “syndicates,” the deal with a number of other investors.

Let’s look at how it works on AngelList using Kevin as an example.

Basically, Kevin sets up a “Syndicate.” He takes the lead in looking for deals (in fact, borrowing further from the lingo of traditional syndicates, Kevin is called “the Lead)” and commits to investing his own money — let’s say $100,000 — into each one.

A bunch of Individual investors like us think Kevin would be a great wingman. We request to join his group as “backers.” Let’s say 15 people agree to each invest $10k in any of Kevin’s deals. Kevin now has $250k to invest into numerous deals: $100k from his own pocket, and $150k from us, his syndicate.

Kevin doesn’t charge us anything for access to his deal flow. His compensation comes later if the deal works out well: he might receive, say, 10% of the profits, also called “the carry.”  (This would be like your stockbroker only charging you if he actually made you money — imagine that!)  He gives 5% of the 10% to AngelList for handling the admin.

Is This a Win-Win-Win?

Let’s summarize the “pros” and “cons” for each of the participants at the table.

Backers

On the “pro” side, backers like us get access to the Lead’s deals, and can invest alongside them with the same investment terms. We can “fire” them at any time by opting out of future deals. And the Lead only gets compensated if they do well.

That’s a lot of “pros.”

On the “con” side, since Leads aren’t required to syndicate all their deals, how do we know if we’re seeing the best ones? We don’t know — but the fact that they’ll be concerned about their public track-record eases our concerns.

Another con is that most Leads won’t be professional investors; they’ll be angel investors who don’t focus on investing full-time — so they might have limited track-records, and they might not be as successful at finding and managing deals.

Leads like Kevin 

On the “pro” side, Leads can “leverage” their capital and reputation to write bigger checks. This will give them access to more deals, and allow them negotiate better terms.

On the “con” side, it’s possible that entrepreneurs might not want Leads to bring so much money; sometimes they just want Kevin Rose, not us!

Startups raising capital

On the “pro” side, startups get more capital, and spend less time going from meeting to meeting raising it. Not a whole lot of cons there — unless they don’t want so much capital.

Wrap Up

Given the pros and cons, here’s our advice to you:

If you’re going to join a Syndicate, back professional investors who do this full-time. Remember: you want a wingman who’s always going to be there for you.

Here are two candidates:

Kevin Rose

Kevin is committing $150,000 per deal. He’s not charging anything for management fees or carry (AngelList still receives their 5%). He expects to do 5 deals per year. Minimum investment for each backer is $1,000 per deal. If you join Kevin’s syndicate, you’ll be in good company: check out his Syndicate page to see who else is backing him.

BetaWorks

Betaworks is a professional investor as well as an operator of companies. They’re an investor in such companies as Tumblr, Twitter and Kickstarter.

They’re committing $150,000 per deal, and charging a 20% carry. They expect to do 12 deals per year. Minimum investment for each backer is $1,000 per deal.

(Please note: Crowdability has no official relationship with, and zero financial interest in, AngelList, Kevin Rose or Betaworks.)

Good luck finding your investing wingman!

Best Regards,
Matthew Milner

Founder
Crowdability.com

Comments

If you enjoyed this article, subscribe to updates:

Sign-up today and you'll receive our daily insights on early-stage investing, as well as our FREE "Equity Crowdfunding Action Kit" – where you'll learn:

  • The Ins & Outs of Equity Crowdfunding
  • A step-by-step path to get started
  • Tips from dozens of Venture Capitalists
subscribe to updates

Thank you for subscribing!

Tags: Equity Crowdfunding Crowdfunding Early-stage Investing Angellist Angel List

Share This:
comments powered by Disqus