Angel Syndicates vs Angel Investors
We invest in startups through an angel syndicate. A syndicate is a collection of angel investors who come together to invest in early-stage startups.
Let's say you want to raise the initial capital (seed money) for your startup. What are your options?
1. You ask your friends, family, and acquaintances for money. They are your best bet because they have known you for a long time. They trust you and will back you.
2. You need more venture capital than you can raise from your personal network. You approach a seed VC.
But it's a much tougher route. Seed VCs are rare in India, and the competition is intense because every founder is chasing them.
3. Angel investors are the third option. Most VCs have delegated early-stage investing to angel investors because VCs nowadays prefer to invest after the product-market fit.
How do you find angel investors?
Some angel investors are super popular with a big online presence. But they get thousands of proposals every month. The chances of catching their eye are low.
Platforms or syndicates like Angel List are the other alternatives. Several such platforms/syndicates exist in India.
What does it mean for startups and founders?
Startups issue shares to investors. Their capitalisation table (cap table) shows the names of all their shareholders. For example, if your startup has 20 investors, your cap table will show the names of these 20 investors and the number of shares they own.
Is that a problem? Not always.
If these investors invest through a syndicate, then the cap table will show only one name – XYZ Ventures (name of the syndicate).
Is this an advantage? It depends.
All startups are required to send monthly updates to their shareholders and take their approvals for all important decisions. So, it might become challenging if you have scores of professional investors in your cap table. It will delay the decision-making process.
In the case of syndicates, founders have to send updates and take approvals from only one entity. It's more convenient.
But syndicates have their costs. They are expensive to manage because of legal and regulatory costs. All syndicates charge a fee for investment that either the startup or the investors pay. They also take a part of the profit (known as carry) when investors sell their shares at a higher value.
Some founders come across the word syndicate and think it's a better way to raise capital than individual angel investors. It's not. It is just different.
Early-stage investments are anyways complicated. If your friends are ready to back you, my suggestion is don't complicate the process. There is no harm in having 5,6 friends at your cap table. You should not waste time convincing them to invest through a syndicate because someone told you that it's better.
Raise the money quickly and start building your product rather than adding unnecessary complications.