Syndication and co-investment
Investing as part of a Syndicate
Syndication is a proven model of Angel investing. By investing alongside others in a syndicate you will be spreading your monetary risk, enhancing your investment capacity by pooling funds with others and bringing together different individual areas of business experience and industry knowledge, bringing added value to enable an early stage business to succeed. A syndicate normally comprises of at least three investors who are investing together.
Another key benefit of syndication is your capacity to support further funding rounds, by mobilising the investment capacity of your fellow investors and also bringing in other co-investors alongside the existing group. This can also offer further negotiation strengths when identifying the next phase of funding e.g. VC or VCT finance.
Approaches to syndication
Syndication on a deal-by-deal basis:
On an ad hoc basis, you could form a syndicate around an opportunity. Or you might join a bigger angel network which can include a significant number of angel investors and which enable groups of angels to come together on a deal by deal basis, according to their interest in a particular opportunity. There are many of these operating around the UK and will provide you with an opportunity to see an ongoing supply of selected investment propositions where you can meet other business angels with whom you could co-invest. This allows you to pool resources and also your time and effort in doing the due diligence and to pool your skills and contacts to support the ongoing growth of the business.
Creating a Formal Syndicate:
If you are investing regularly alongside other investors and are looking at investing together in different deals you might consider setting up a more formal syndicate structure i.e. a constituted group of investors usually represented by a gatekeeper. Syndicates typically invest on a fairly structured basis using standard investment documentation.
If you are also wanting to set up a more structured vehicle for investing as a syndicate, there are rules under the Financial Promotions Order relating to structuring and making investments as syndicates and it is advisable to gain legal advice.
Investors who invest together regularly as a syndicate will also be eligible to apply to the Angel Co-Fund or other relevant Co Investment Funds to leverage additional investment alongside their deal
The role of the Lead Angel
Normally, a syndicate would identify a Lead Angel who acts as the interface with the entrepreneur/management team in co-ordinating the due diligence and agreeing the final negotiations and would then generally act for the syndicate in following the deal. However you would normally will each sign the term sheet and other legal documents and subscribe to the shares as an individual investor, responsible for your own investment decision.
The Lead Angel performs a vital function on behalf of the syndicate both pre investment in helping to draw together all the relevant Due Diligence and liaising with the entrepreneurs, the lawyers and other key players in the deal. The lead Angel is also the key role in supporting the business going forward including mobilising the collective experience of the syndicate to support the business, ensuring fellow investors are kept informed of progress in terms of growth, financial reporting and identifying any challenges, including attending Board meetings, helping to mobilise the next round of finance including negotiating with external investors.