Unpacking Four Seed Investments Via AngelList Syndicates

As you may guess, I am a huge AngelList fan. While I was excited about the platform opening last year (in 2013) and the creation of Syndicates, I knew I wanted to experiment with the platform and Syndicates specifically, but also I wasn’t sure how things would shake out — both with AngelList itself, but also with how I’d be investing. As a result, I didn’t invest any time into building a large Syndicate, recruiting backers, and so forth; I was fortunate, however, that the overall interest in Syndicates won me a few backers, and I worked with Naval and the team to syndicate my deals with no carry in order to show good faith and get people acclimated to the platform.

Now, in December 2014, about 16+ months have passed, and I’ve run a small handful of Syndicates from Haystack through AngelList, and I wanted to share a bit about those basic stats and what I’ve learned. For context, I allowed the minimum amount for any backer to be $1,000 (the minimum on AngelList), and I didn’t charge a carry (Naval agreed to waive their charge for me to experiment with the platform — that won’t always be the case.) Finally, I want to stress that people should not draw hard and fast conclusions from my experience, as it will differ across the platform based on a range of factors, and to note that AngelList is constantly evolving and refining all edges of the process. They don’t stop polishing this machine.

Here are some basic stats:

Number of Backers In My Syndicate: 74
Range of Backer commitment: $1,000 – $10,000
Total Syndicate Size: $156,000
Carry: 5% (to cover AngelList fees, I take 0%)**
** Note that some new rules will go into place on the platform in the future, such as: **
– Zero carry on new Backers that you bring to the platform
– Zero carry from us if you’re charging zero carry
– 5% carry on syndicated deals on dollars that the platform brings to you
– 10% carry on self-syndicated deals on dollars that the platform brings to you

Number of Deals Syndicated: 4
Addy: $135k (38 backers)
Navdy: $293k (83)
Gyroscope: $86k (28)
Chariot: $87 (24)

The Syndicate FAQs:

How long does it take to close?
Once I initiate a close, it can take about three weeks to close. Some founders may expect the wire right away, but it takes some time for the payments to clear and then be organized so the entity can invest cleanly in the company as a single line-item on the cap table.

What kind of promotion can you do within general solicitation guidelines?
I have just used the messaging tools provided inside AngelList. My impression is that while it’s legal to solicit generally about deals on AngelList, I haven’t yet and won’t until I’m comfortable and confident in doing so.

Is there adverse selection in these syndicated deals?
That was the early conventional wisdom, but only time will tell. Uber was featured by AngelList back in the day. Who is to say the next Uber isn’t sitting there right now?

Do you plan to recruit more Backers? If so, how?
Yes. Now I feel confident about the platform, as well as my ability to syndicate deals I’m excited about. I’ll have to figure out how to do this, but I will.

Why do some syndicated deals fail to close?
A few factors: (1) Not all backers sign up for every deal, so only a percentage of them do; (2) some of these were bunched up toward the end of the year, so seasonality may have played a role; and (3) I personally don’t have a large Syndicate to begin with, and there needs to be at least $80k or so to make it economically worthwhile to do run it through the platform.

Will you continue to use AngelList?
Most definitely. I just need more backers, but intuitively I believe more and more founders will want to leverage people and methods that reduce the overall time it takes to fundraise, especially in the very early-stages of company formation. AngelList is also speeding this up with “pre-funding,” but that’s going to take a little bit of time to roll out fully.

How did the founders like it?
I asked some of them to share their perspective, see below for an excerpt from three different founders:

From a founder’s perspective, AngelList Syndicates is a useful way for a startup to accomplish a couple of goals quickly: 1) provide an advocate (like Semil) the ability to lead a part of your fundraising; 2) expose your fundraising to a wide network of credible angels; 3) advertise to potential customers and partners that you’re on the map. Syndicating through Angellist can have its limitations as well. If the startup doesn’t reach its goal, it could backfire on its other efforts to fundraise. Further, conversion to closing (i.e. actual dollars) and timing are still up in the air, so these factors need to be weighed when committing to a Syndicate. -Ali, founder of Chariot

AngelList Syndicates are incredibly powerful, and allowed us to speed up the fundraising process so we could get back to building the business (and we also used AngelList for that – our first two sales hires came through AL). We were connected with some of our largest investors and some of our most helpful angel investors through AngelList, either as part of the syndicate or as a result of getting featured. Getting featured even led to inbounds from potential customers and partners. While very powerful, there’s still a lot of work required to raise successfully on AngelList and it’s certainly not a one-stop shop (not yet, at least). -Khaled, founder of Addy

All the interactions with the site and staff [at AngelList] were extremely pleasant. I ran into one of their guys at a design conference and he ended up helping me with some stuff. The syndicate process was not very time consuming, but just slow. Compared to dealing with people directly and being able to close a deal and get a wire transfer within a couple days, the multiple weeks for each step felt like a bit of a drag. But, for each step there wasn’t much I had to actually do besides waiting. One of the downsides was going from the reservations to closing. We had about $160k in reservations, which was close to the amount we needed, but only about half of them actually paid. Many of them were super enthusiastic, and some people contacted us to try to put in more money or add their friends. But many others were just MIA and never responded. I had seen the disclaimers saying that people would drop off and to try to raise more than needed, but didn’t realize how much that would be. -Anand, founder of Gyroscope