What is a syndicate?
In the world of angel investing, there are top syndicates in India; a syndicate is a term used to describe the non-permanent alliance of businesses that typically join forces, working together to manage a significant transaction that would be difficult if not fully impossible, to manage on their own. In other words, it’s a venture capital fund created for the singular purpose of making a single investment and is typically led by experienced investors, financed by sophisticated angels to ensure that the job gets done properly.
The Syndicates platform allows investors to invest in promising tech startups alongside experienced Venture Capitalists (VCs) and angel investors. Syndicates aid experienced technology investors to create a single investment fund that raises money from institutions and other angel investors. In a nutshell, a syndicate acts like a fund created to make a single investment.
Essentially, the syndicate lead will put their own money in what works like a mini-fund, and then approved backers of that syndicate will pump their money into the fund, which AngelList will utilize for various startups. At the time of exits, the lead angel of the syndicate gets a slice of profits from that fund.
Entering into this type of agreement makes it easier for companies to not only pool their resources but also share risks equally as well. Syndicates were originally launched in 2013 by AngelList, in an effort to further the company’s goal of democratizing the investment process as much as possible.
Syndicates ease investments by allowing an angel investor to co-invest with relevant and reputable leaders in some of the best startups and investment firms in India operating anywhere in the world today. Typically, this is done with multiple companies operating in the same industry. Syndicate leaders are those angel investors that have significant experience in not only selecting ideal investment opportunities but also with regards to the types of technology sectors and deal flow that most standard investors simply don’t have access to. These leaders are usually successful startup founders or angels who have been part of a particular industry for many years, thus giving them access to insight and experience that would be difficult to find anywhere else.
Advantages of syndicates
- Diversify your portfolio of investments: Syndication allows you to create a diversified portfolio of investments. If you invest individually, the money would be invested in only a few startups because a minimum investment amount would be required. If you syndicate, you can easily invest a lot of startups, which is a sufficiently diversified portfolio to spread your risk and have a better chance that you will not lose money.
- Simplifies financing process: The syndicate simplifies the financing process, so you can spend less time on admin tasks.
- Mitigating risks: Being a part of a syndicate as a small investor, you don’t have to worry about your investments at all because the syndicate leaders have proven results and are accredited in exactly this type of process. This helps to invest as easily as possible.
- Working with experienced investors: The syndicate is a great opportunity to establish contacts with other successful investors who have a passion for investing, and you can learn from their experience. You will see a lot of business deals, and you will start learning what a great opportunity looks like as compared to a riskier one, what a complete team should look like, etc. Syndicates are often in touch with all the startups they have invested in, even at an early stage and thus with insight one can review why some startups have been successful and some haven’t.
- Higher costs In order to create a syndicate, a large amount of funds is required. One should be ready for the costs of processing, establishment, legal services, administration, transaction documentation, and administration for a couple of years. Of course, the more investors in the syndicate, the lower the cost per person. Syndicates not only enable more angels to participate in funding by getting access to top deals but work in a similar way as a VC fund. Syndicates provide experienced investors the opportunity to earn interest on what they invest and the ability to write bigger cheques by joining capital from a lot of backers in the ecosystem. Thus, it’s a win-win for both experienced and inexperienced angel investors. It gives the experienced early-stage investors more spending potential while allowing those with less experience to join them in investing. A larger angel capital pool, obviously increases the opportunity for startups in the ecosystem to easily raise seed money.
Angel investors vs Angel syndicates
Angel investors are wealthy individuals who invest their own money into exciting new companies. They are very diverse and some will invest early before a product launches or even before there is solid proof of concept. But they will most likely check for revenue generation evidence.
Angel syndicates manage deal flow, due diligence, and transactions on behalf of an angel investor network. A syndicate is a membership group that brings angel investors together to present deals to its members. Individual members then decide to invest their own money in the companies on offer.
Angel syndicates often connect startups with investors on a monthly or quarterly basis. Some may also have a specific sector or geographic focus.
When a syndicate presents a deal to its network, more than one investor will typically look to invest in the company, and this often means that startups can close their funding rounds quickly. In some cases, angel investors form their own so-called “Angel Funds” to pool their capital together and invest in multiple startups in a fund format. This allows them to diversify their investments and share any risks with other fellow angel investors. Syndicates typically invest higher amounts compared to individual angel investors.
Angel Investors and Syndicates are thought to be some of the primary sources of funding for early-stage startups. A lot of startups still prefer angels and syndicates for funding over traditional sources like banks.
What makes a good syndicate?
A syndicate should have access to capital. It should also be formed of business angels that already have a good track record with respect to acquisitions and investments, or successful startup founders that have access to the capital necessary to invest in more startups moving forward. Let’s read more about top syndicates in India.
Deal flow which is the rate at which investors receive their business proposals or larger investment offers should be exclusive to the investor so that the chances of identifying and capitalizing on quality deals increase exponentially.
Lastly, a syndicate should be composed of leaders that have good judgment. They need to have both the knowledge and finely tuned market experience necessary to make the right investments at exactly the right time.
Investing in startups of any kind always brings with it its fair share of risk, though co-investing through this type of syndicate structure can help decrease and mitigate it as much as possible.
Top Syndicates in India
- Venture Capital: VC is an early-stage venture syndicate, looking to invest & nurture companies that can become category leaders. The managing team comprises of Entrepreneurs who come with deep experience of having built companies in Technology, Financial Services, and Real Estate. The team has a successful Angel investing track record and has generated above industry returns on their personal investments. Approach:
- They look to invest in Early teams and be the First Institutional Syndicate to invest in the company. They typically invest in categories like Consumer, Fintech, and Enterprise tech opportunities and look at both Indian & Global focused Opportunities.
- The objective of the investment will be to help early teams to reach Product & Revenue stability and become ready for Venture investments.
- Work with later-stage investors to generate higher returns.
- RiverRock Ventures: RiverRock Ventures (RRV) creates significant financial and social value by investing and building brands in select domains of healthcare delivery, wellness, and consumer-facing business. They have a deep and significant understanding, along with the required entrepreneurial expertise in the relevant spaces. The team is acknowledged leaders in private healthcare delivery, women’s health and wellness, and organized retail and are focused on investing in these spaces.
- 8i Ventures: They back challenger brands and their enablers within Fintech & Consumer sectors in India. They invest between $500K to $2MM per deal and reserve some allocation for their Angellist syndicate.
- Kae capital: Kae Capital is a sector-agnostic fund that invests in companies that bring about innovative solutions for the existing gaps in the markets. Past investments include HealthKart, Fynd, Hello English, 1mg, Truly Madly, and more. In the end, syndicates really do create a perfect combination in the best possible way. Not only do leaders, backers, and the startups themselves benefit enormously, but this also dilutes the process down to its real essential form and makes things easier than ever before. All of this is simply to allow people to invest in the next generation of startups, paving the way for the innovation we need right now.