Managing your expectations as an Angel Investor via Syndicates

Congratulations on making your first angel investment through a Syndicate! You had studied the opportunity, joined a webinar with the founders, or maybe just piggy-backed on the Syndicate lead’s conviction to write a cheque — kudos on taking that leap.

Historically, angel investing is one of those rare asset classes that can give you outsized returns, ~5000x had you invested in Uber’s seed round, but of course not every investment is going to be a grand slam. Irrespective of the outcome, this asset class demands you to be locked in until a suitable liquidation event presents itself, taking 4–5 years or even longer for that to happen.

Given the translucent nature of the private market, first-time angel investors can grow wary over time due to the lack of proactive business updates or delayed exit opportunities. After speaking with hundreds of angel investors, I thought I’d pen down few takeaways that have helped shape my expectations as an investor in Syndicates:

1) Invest what you’re ready to lose: The best investment is the one that lets you sleep peacefully. This advice isn’t applicable to just Syndicate investors but everyone for that matter. Angel investing is highly risky and illiquid and yet you have chosen to ride the roller-coaster. There’s no perfect investment strategy but one that I generally urge investors to practice is to start small and diversify. You can write small cheques as low as $1000 in Syndicate deals and work towards building a quality angel portfolio.

Research done by AngelList suggests that “investors would increase their expected return by broadly indexing into every credible deal” (Venture Returns, AngelList) — supporting my aforementioned point that even if you index smaller cheques across multiple high-quality deals, you’re off to a good start!

2) Respect the access: Syndicate leads have entrusted you with their proprietary deal flow and thus invited you to invest alongside them. The leads enjoy a stronger rapport with the founders and have therefore secured access to invest in their companies. Leads will also end up playing an important role in the future by securing pro-rata allocations or keeping a look-out for viable exit opportunities. It’s in your best interest to not attempt circumventing the Syndicate as chances are that the founders will communicate such behavior to the leads, thus tainting your relationship with them and jeopardizing your platform access.

3) Disclosing investments: As an investor, you’d like to wear your portfolio as a badge of honor — add it to your AngelList page or mention them on LinkedIn / Twitter handles. It’s always worth checking with the Syndicate lead whether the startup has announced their fundraise. There are times when startups want to keep the fundraising news under the radar for strategic purposes and as an investor, it becomes your responsibility to ensure that you’re respecting that decision.

4) Business updates are erratic: There could be deals where the founders diligently share business updates with the Syndicate lead who further passes them to you. There could also be deals where the founders simply haven’t been able to keep on track with their updates and are lagging behind. The nature of running a startup is as such, especially in the early days, where updates worth reporting can truly take time. It could take 4–5 months to hire a meaningful engineering lead in a company or 6–8 months to close an enterprise customer. As an angel investor, you should be cognizant of such variances and give the founders and the leads their space.

There could be certain Syndicates leads who explicitly instruct you not to expect on-going updates. As an investor, you might have to make a conscious trade-off between the lead’s deal access and the amount of transparency you expect. If a lead is providing you with competitive deals then maybe the uncertainty of receiving qualitative business updates might be acceptable to you, knowing that any mark-ups or write-offs should anyway be reported.

5) “I don’t want to just invest but also mentor, can I?”: Now that you have written a cheque, there’s an urge to wanting to play the role of a close advisor: catching up with the founders once a quarter and sharing your experiences. These are all great intentions but sometimes could be uncalled for. Founders usually end up building an advisory board during their fundraise or in their initial days. These could be the partners at VC firms who have invested in the round or few hand-picked operator angels. Most probably, the Syndicate lead is one of them already. It’s impractical for the founders to speak and interact with all the investors within the Syndicate.

Syndicates are a great way for you to act as a passive investor and invest in competitive deals to diversify your portfolio and experience this asset class. In case you’d like to build a relationship with the founders because you believe that you can add value to their venture, then approach it appropriately. Request the lead to get an opt-in from the founder. The leads aren’t obliged but they can inquire on your behalf.

Participating in Syndicates is a great way to build your angel portfolio and by keeping the above pointers in mind, I am positive you’ll end up leveraging such investment vehicles in the most optimized manner.

Get in touch with me @kashisharma_ on Twitter to connect!

Disclaimer: Any views or opinions represented in this post are personal and belong solely to the post writer and do not represent those of people, institutions, or organizations that the writer may or may not be associated within the professional or personal capacity.