The Chinese stock market has taken investors on a wild ride recently:
In June, the Shanghai Composite Index was sitting at 5,000…
By August, it had dropped to 3,000—a nosedive of 40%.
To recoup their money, Chinese investors are looking to the U.S. markets.
But in an unexpected twist, they’re not focusing on the U.S. stock market...
Say Hello to Silicon Valley
China Science & Merchants Investment Management Group (CSC) is a top-tier investment firm founded in 2000…
It recently received the “Best Private Equity Institution” award from Forbes China.
Based in China, CSC manages $12 billion (80 billion yuan) of capital, making it the third largest private equity fund in the country.
Last Friday, on the heels of all the recent turbulence and fear in the Chinese markets, CSC made a stunning announcement:
It would be moving a massive chunk of its capital to the U.S.—
Specifically, it would invest $400 million into U.S.-based early-stage start-ups.
CSC Chooses a Partner
$400 million is a lot of money to invest in young start-ups.
In fact, as The Wall Street Journal wrote last week, it’s the “largest single pool of funds devoted to early-stage startups—ever.”
To allocate such an enormous sum, CSC decided to partner with a company that might sound familiar to you:
AngelList is one of the “funding platforms” we cover here at Crowdability.
Simply put, it connects start-ups that are looking for growth capital, with investors like you who are seeking high-risk/high-return investments.
AngelList’s CEO, Naval Ravikant, reckons that CSC’s $400 million will be allocated across more than a thousand different start-ups, any one of which could some day become the next Uber, Google or Microsoft.
(In fact, one of the first companies listed on AngelList years ago was Uber.)
To help it allocate capital wisely, CSC will use a feature of AngelList that we’ve often written about:
The origin of the term “investment syndicate” comes from the world of professional investors.
It describes a scenario where one investor (the “Lead”) takes charge of a deal, negotiates the terms, and commits his or her own capital. Then, the Lead shares, or “syndicates,” the deal with others.
To show how Syndicates work on AngelList, let’s use the example of a Syndicate Lead named Kevin Rose:
Kevin’s been a successful entrepreneur (he’s the founder of Digg), as well as a successful investor (he was an early angel investor in Facebook and Twitter, and he worked full-time as a venture capitalist for Google).
After Kevin signs up to run an AngelList Syndicate, he starts looking for deals. When he finds one he believes in, he invests $150,000 of his own money.
Investors like us, aware that Kevin has good instincts and real skin in the game, can choose to join his Syndicate and invest in his deals.
Let’s say 15 of us agree to each invest $10,000 into any of the deals that Kevin leads. Kevin now has $300,000 to invest into numerous deals: $150,000 from his own pocket, and $150,000 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, 20% of the profits.
(This would be like your stockbroker only charging you if he actually made you money—imagine that!).
If we change our investment strategy—or don’t like any of Kevin’s choices—we can “fire” him at any time simply by opting out of his future deals.
At the moment, AngelList offers 165 Syndicates like Kevin’s.
So far, they’ve provided funding to more than 650 start-ups.
The Leads for these Syndicates, like Kevin, are successful investors…
They’ve invested in companies from Tumblr, Pinterest and Nest, to Airbnb, Dropbox and Kayak—companies that have collectively returned billions of dollars for their early investors.
Given the size of its war chest, CSC will be backing fifty of these Syndicates.
Consider Using the Same Strategy
And here’s the best part about this story:
Because AngelList is an open platform, everyone can invest in the same Syndicates as CSC.
So even if you have just a few thousand dollars to invest, you can get into the same deals—at the same time, and on the same terms—as one of the most well-respected private equity firms in the world.
Please note: Crowdability has no relationship with AngelList, CSC, or any of the companies we write about. Crowdability is an independent provider of education, information and research on start-ups and alternative investments.