A syndicate allows investors to participate in a lead investor's deals. In exchange, investors pay the lead carry.
Here's an example:Sara, a notable angel investor, decides to lead a syndicate. The syndicate investors agree to invest $200K total in each of her future deals and pay her 15% carry.
When Sara makes her next investment, she offers to invest $250K in the company. She personally invests $50K and offers the remaining $200K to her syndicate.
If the investment is successful, the syndicate investors first receive their $200K, after which every dollar of the syndicate’s profit is split 80% to the syndicate investors, 15% to Sara and 5% to AngelList Advisors. AngelList Advisors is a venture capital exempt reporting advisor with the Securities and Exchange Commission, and a subsidiary of AngelList.
Investors get access to deals, leads get carry and startups get more capital with fewer meetings.
Startups don’t pay for syndicate investments. Investors pay 0-25% deal carry to the syndicate lead, and 5% deal carry to AngelList Advisors.
Investors also pay the out-of-pocket costs for each deal—currently $8K in the US and £8,300 in the UK. These costs are paid to third parties such as state regulatory agencies, payment processors and accountants—AngelList or AngelList Advisors does not profit from these fees.
The lead and AngelList Advisors do not receive carry until the syndicate investors’ investments and out-of-pocket costs are returned.
Syndicate investors don't invest directly in a company. They invest in a special purpose fund that is created specifically to invest in the company. The fund is formed as a series LLC.
The fund is managed by Assure Fund Management and advised by AngelList Advisors. The lead also serves as a contractor of AngelList Advisors.
The lead usually does not invest through the fund but is required to disclose to AngelList Advisors how she votes, or if she buys or sells shares.
If there is a lead, the fund will usually vote with the lead unless she has a conflict of interest or there are other unusual circumstances. If there is no lead, the fund will usually vote with the majority of other shareholders.
Carry is a share of the profit of an investment that is paid to the managers of the investment. It is short for ‘carried interest’.
In a VC fund, the limited partners of the fund pay carry to the general partners if the entire fund is profitable. This is called fund carry or net carry.
In syndicates, investors pay carry to the lead for any profitable investment. This is called deal carry. Syndicates use deal carry so investors can opt out of any investment or stop investing anytime.
Syndicates receive pro rata rights if the lead negotiates them with the startup. If a syndicate has pro rata rights, syndicate investors in the initial round may have the opportunity to invest their pro rata allocation in subsequent financings. Any remaining allocation may be offered to other investors or funds. The pro rata may not be offered to syndicate investors if the lead does not participate, if it is unlikely that a reasonable amount of the pro rata will be filled, or for other reasons.
The fundraising information of a syndicate deal is visible to accredited investors, while general information about the company is visible to the public.
A syndicate lead can also restrict the fundraising information to investors who have been accepted into her syndicate. In this case, she may also restrict general information about the company to these same investors. Furthermore, the company may limit the information visible to investors.
Yes, but only if they are invited by the syndicate lead. Syndicate investors generally have priority for investments that are oversubscribed.
There are three types of institutional funds that primarily invest in syndicates.
As a group, these funds are referred to as platform funds. Some of these funds may receive more information from companies, leads or AngelList affiliates and employees than other investors in syndicates.
To create a syndicate, click the ‘Syndicate’ button on your user profile. You can then enter information about how many deals you expect to syndicate each year, your typical investment size and so on.
You can then market your syndicate to investors who can agree to invest in your future deals.
To syndicate a deal, select the ‘Manage Syndicate’ button on your user profile, then select the ‘Deals’ tab and select the ‘Syndicate a Deal’ button.
Yes. Individuals and VC funds can both form syndicates.
If your fund has LPs, you should confirm that your LP agreement allows you to form a syndicate.
Any carry from a syndicate deal can be distributed to your fund’s GPs, LPs or split between them.
There are no requirements to simply start a syndicate. Your commitments begin when you syndicate your first deal. You must:
Leads are not required to syndicate every investment they make.
Any accredited investor can apply to invest in your syndicate. You can then accept or reject the application. You can also remove investors at any time. Leads should consider accepting only experienced investors whom they trust and want to work with. Experienced investors will be less likely to stop investing in a syndicate or opt out of a deal. Inexperienced investors may also have unrealistic expectations about the returns on their investments.
Generally, no. Leads usually invest directly in the company. The syndicate investors invest through a separate fund advised by AngelList Advisors. AngelList Advisors typically advises the fund to follow the lead’s votes and other decisions related to the investment (e.g., sales, pro ratas).
Yes. Select the ‘Only my backers’ option when you syndicate a deal. In this case, only investors who have been accepted into your syndicate will see the company’s fundraising information. Learn more about invite only investments here (link- https://angel.co/syndicates/privacy )
The minimum investment for a lead who is investing her own money is generally 2.5% of the amount that the syndicate raises from individual investors. The minimum investment for a lead who is investing out of a fund raised from limited partners is generally 20% of the amount that the syndicate raises from individual investors.
This minimum only applies to capital raised from individuals. Syndicates can raise an unlimited amount of capital from institutional investors such as platform funds.
For example, if a lead puts $5K of her own money in a startup, she can raise an additional $195K from individual investors in her syndicate. She can also raise an unlimited amount of capital from a platform fund like CSC Upshot.
The minimum investment may be reduced if a notable investor is making a significant investment in the round. It may also be reduced in pro ratas and other special situations. Investors in the syndicate will be notified if the minimum is reduced.
Investors can also view the lead's investment amount in any deal and opt out of the deal, for any reason.
Learn more about the economics of syndicates.
Each investor’s commitment will be reduced pro rata if your allocation is smaller than the total commitments from syndicate investors.
Here's an example. Sara has a syndicate with 10 accepted investors. Each investor has committed $10K to the syndicate, for a total of $100K. Sara personally invests $20K in the deal and asks for an additional $100K for her syndicate. However, the startup is only able to allocate $50K to the syndicate. So each of her syndicate investors will invest $5K instead of the $10K they requested.
If an investor‘s reduced amount is less than the minimum investment for a deal, the investor will invest the minimum investment. In this case, if the reduced amounts still exceed the syndicate's allocation, the lead will use her judgment to reduce investors’ amounts for that deal. The lead will likely favor backers who have expertise in the company‘s markets or have large investment amounts.
In some deals, a maximum may be placed on aggregate commitments by the platform funds.
Yes. Pro rata rights are important for AngelList and syndicate leads to invest additional capital in winning investments and generate larger returns. For syndicate leads this is especially valuable, since they can still earn carry in follow-on rounds. Leads should negotiate for pro rata rights on all deals.
The lead's carry in a pro rata is the same as the initial round, as long as her investment is greater than or equal to either her pro rata allocation or her investment in the initial round, whichever is smaller.
The lead's carry in a pro rata will be reduced by 5% if her investment is less than either her pro rata allocation or her investment in the initial round, whichever is smaller. AngelList will receive this 5% carry, in addition to its usual 5% carry, in return for added work and risk, since AngelList can no longer rely on the lead’s decision when advising the syndicate fund.
In both cases, if the lead does not provide access to the pro rata and provide relevant information, she will not earn any carry and AngelList will receive a total of 10% carry.
Most leads use their full name for their syndicate because they expect investors to join the syndicate on the basis of their personal reputation.
If you are investing on behalf of a firm or if you focus on a specific type of investment, you may wish to choose a different name for your syndicate.
Investors should be able to clearly tell who is running the syndicate from the syndicate's name. The name should also not be generic or contain the word ‘syndicate’.
“FG Angels” is a good name for a syndicate. “Angel” is not.
“Hardware Investments by Vinod Khosla” is a good name for a syndicate. “The Hardware Syndicate” is not.
By default your deals are not public and must be compliant with 506(b) of Regulation D. These deals may not be marketed publicly.
You may market syndicated deals subject to section 506(c), commonly referred to as general solicitation. You must notify AngelList prior to launching your syndicate if you are operating under 506(c) so that AngelList can comply with all relevant regulation.
You are committing to invest in the syndicate’s deals, on the same terms as the lead. You also agree to pay the lead and AngelList carry on those deals as well as the out-of-pocket costs of each deal.
This is not a legally-binding agreement and you can opt out of any agreement or stop investing at any time. All of your existing investments remain intact if you stop investing.
When the next deal is syndicated by the lead, you will be notified and given the opportunity to invest or opt out of investing, depending on the terms of your commitment. The lead will also provide her investment rationale and disclose conflicts of interest.
Syndicate investors receive less information than direct investors. An AngelList entity or the lead will distribute the following documents to investors when they invest in a syndicate deal:
You will generally receive returns, if any, when the company is acquired or has an IPO. There may also be other opportunities for the syndicate to sell its shares.
When there is an exit opportunity, AngelList Advisors, in consultation with the lead, will advise the syndicate fund regarding the best time to sell the syndicates’ shares. The decision to sell the shares is then made by Assure Fund Management. This will generally happen soon after the shares become liquid. If there are any profits, they are distributed to the syndicate investors.
The syndicate fund, like all investors, is bound by agreements with the company and can only sell shares in certain situations.
No. You can opt out of any deal. Many leads indicate whether they expect investors to participate in every deal.
Investors can increase or decrease their investment in a particular deal. Any change is subject to approval by the lead. Investors can also opt out of any deal.
The lead may also reduce an investor’s investment in a deal, particularly if it is oversubscribed.
Investors that regularly lower their investment amounts or frequently opt out of deals may be removed by the lead.
Syndicates are intended to complement, not replace VC funds. Differences include:
Raising the minimum investment would cause some leads to stop syndicating their investments. Instead, they would start or join venture capital funds, which typically have no minimums.
The partners of a VC fund typically provide 1-5% of the fund's capital, but also take out 15-25% in management fees. In effect, they don't make a contribution to the fund.
The minimum for leads investing their own money in a syndicate is 2.5%. And the minimum for leads investing out of a fund is 20%. Leads also receive no management fees from the syndicate.
So, for leads, syndicates are already more expensive than venture capital funds. Raising the minimum would cause some leads to stop syndicating their investments. They would instead invest through a venture capital fund.
Raising the minimum would also cause some leads who are new to investing to stop altogether, because it is already a significant portion of their net worth. This would lead to less diversity of investment opportunities from new leads.
Investors who are unhappy with a lead's contribution can always opt out of an investment. They can also invest in AngelList Funds, which make investment decisions on behalf of investors, for no additional cost or carry.
Learn more about the economics of syndicates.
You sign documents to invest in a special-purpose fund that invests in the company. This signature is provided by simply checking a box.You do not sign the company’s financing documents. The company's financing documents are signed by Assure Fund Management for the special-purpose fund.
For each syndicate deal, investors become members of a special-purpose fund formed to make the investment. That fund will purchase preferred shares, convertible debt or other instruments issued by the company. Certain taxable events may result in income or losses flowing through the special-purpose fund to its investors. Investors with taxable income or loss will receive K-1s.
In the case of equity held by the fund, there is a taxable event in the rare case of a dividend. In addition, there will be a taxable event on exits such as acquisitions and bankruptcies.
If the fund purchases convertible debt, prior to conversion into equity, there may be a tax consequence for your portion of the interest on the debt or in connection with the cancellation of debt such as in a bankruptcy.
Be sure to consult your tax advisor.
For each syndicate deal, investors become members in a special-purpose vehicle, structured as a US series LLC. Each syndicate will typically send out IRS Forms K-1 to all its members, both foreign and domestic, in any year in which it has taxable income or deductible expenses.
We understand from informal consultation with tax counsel that, generally, income and distributions from AngelList syndicated deals to non-US investors without substantial US business involvement are exempt from US tax and withholding requirements, provided that such investors have submitted the appropriate FATCA Related Forms.
AngelList is not qualified to provide tax advice and the above should not be read as tax advice. There are many important exceptions to the generalization stated above, so please be sure to consult your tax advisor and relevant international tax treaties before making an investment.
Syndicate investors don't invest directly in a company. They invest in a special-purpose fund that is created specifically for each investment. This fund then invests in the company. The corporate form of the fund is a series of an LLC.The fund is managed by Assure Fund Management and advised by AngelList Advisors, a subsidiary of AngelList. The lead serves as a contractor of AngelList Advisors, providing certain information related to the investment. AngelList Advisors and the lead each receive carry from the special-purpose fund
First, you must have a syndicate lead.
You must also be a U.S. C corporation, S corporation or LLC (only if the LLC is issuing debt in the financing). U.K. corporations also qualify.
Other types of entities may also be syndicated—please contact email@example.com to discuss an exception.
The syndicate will generally invest on the same terms as the syndicate lead.
You can post an update by selecting the ‘For Investors’ tab on your startup profile.
You are not required to share any information or communicate with your syndicate. But many companies choose to post monthly updates and ask investors for help. Syndicate investors are often experts in your market and can provide advice and introductions.
Although investors are under NDA and forbidden from forwarding confidential information, you should only share information at your own risk.
Syndicate deals can accept investments for 30 days after launch. Most deals close within 3 weeks of launching.
If you are provided with access to a syndicate deal, review information provided by the company and the deal lead carefully. AngelList and its affiliates as well as their agents take no responsibility for and do not endorse any information concerning companies or deal terms. Should you decide to invest after performing your own diligence (including reviewing the relevant private placement memorandum, subscription agreement and operating agreement), you will provide various information in the subscription process and execute a copy of the subscription agreement and the operating agreement online.