So far most of the top funded AngelList Syndicates look, well, not surprising. Capital has lined up behind social proof – angels with notable reach or track record. Additionally, funds such as Foundry Group and Google Ventures have taken their own approaches – the former creating a separate early stage entity, the latter encouraging their seed stage partners to create standalone personal syndicates. While these are all credible let’s be honest – it’s a little boring. I’m an individual investor in AngelList (pre-Homebrew) and remain excited about opening up supply and demand within early stage investing. As part of my seed fund Homebrew, we were also one of the first VCs to co-lead an investment alongside an AngelList syndicate (see Shyp).
Ultimately my hope is to see AngelList Syndicates do more than fund the same companies, just by different people (the “syndicates vs VCs meme”). Here are three types of AngelList Syndicates which I believe could be profitable for their investors and additive to the ecosystem.
1) The International Dealflow Syndicate
US-based seed VCs rarely invest outside of the country (500 Startups is one exception) leaving a potential gap in the market for folks with international expertise. Lee Jacobs is one example of a Syndicate lead who is sourcing deals from South America. While larger funds are interested in these companies at later stages of development, the resources it takes to cover the international markets at seed stage is likely not one they want to make. Instead a series of AngelList Syndicates could serve as complements or substitutions for local in-market dollars overseas.
2) The Bundled Expertise Syndicate
20 hardware engineers getting together to form a Syndicate. Now that would be interesting. If I was funding a relevant company I’d love to have such expertise investing. Let the Syndicate handle filtering for membership – it would almost feel more like an investment club – but they would see themselves as value add angels, without the company needing to add them all individually to the cap table or hold 20 separate pitch meetings. This model applies to any vertical or expertise – imagine a Syndicate of 10 great growth hackers – would you not salivate to have them in your deal? And accordingly, they’d be able to attract investors not because they have a large Twitter following but because they’re bundling a scarce and desired skill.
3) The Alternate Liquidity Syndicate
Institutional VCs rely a model which optimizes for billion dollar outcomes via an acquisition or IPO. Smaller liquidity events can still be valuable to a fund (very dependent upon size, stage and ownership percentage), but if you’re in the venture business, you’re playing into some variation of the ‘swing for the fences’ mentality.
But what if there were a group of investors who were comfortable with different types of businesses or different funding cycles. Instead of doing increasing financings every 12-18 months, what if a company took a smaller amount of money, went back to their investors infrequently and got to profitability. Maybe they’d throw off cash dividends for years to come. Or have different liquidity assumptions beyond acquire or IPO. Venture firms turn their back but Syndicates set up with this investment model might think differently. We look at AngelList today as a platform for early stage venture-style tech investing but as software eats the world, there are startups enabled by tech but not necessarily startup rocketships, in model or ambition. With seed capital requirements which fall somewhere between a bank small business loan and venture. Would Syndicates be a solution?
One of the most exciting aspects of platforms are you can’t always predict how they’ll be used. If AngelList is open to the experimentation, I’m hoping that Syndicates will evolve and push in many new directions.