There’s a lot to know about angel investing, but the one thing most people miss is how to syndicate a deal. Almost every angel investment deal in an entrepreneur’s company is a syndication and there’s a lot more to it than just getting a bunch of investors together.
A syndicate is basically a group of investors who invest in a deal all with the same terms. Since most angel deals have two or more investors, it’s important to understand the dynamics of having multiple people in on the deal regardless of whether they’re individuals, angel investing groups, VCs, family offices, funds or trusts.
Here are ten principles that will help you achieve syndication success!
Principle #1: Speed is important
Getting all the investors to agree to write checks at the same time and at the same terms is hard. It’s even harder if you take months and months to do it, so that by the time you think you’re done, the first investors have lost interest and gone off chasing something else shiny that distracts them from your deal.
Principle #2: Have your ducks in a row
The way to get speed in a deal is to anticipate every step and have everything ready so that you don’t need to spend weeks working with your attorney to get your documents done, or spend even more time chasing after documents that investors want for due diligence. This means that:
- You’ve got all your deal documents done. Not just your term sheet, but the full subscription agreement and associated documents. Yes, it’s a little more work changing all those documents, but it’s a lot faster than using the term sheet. If you’re doing a “vanilla” deal with little out of the ordinary and if you’ve got a reasonable valuation, then you may not need to make any adjustments at all.
- You’ve got your due diligence documents collected and available via an electronic data room. This will allow you to share information with interested investors (faster than getting them paper, or finding documents one by one) and you’ll look super-professional and organized if you can anticipate what investors will ask. (This isn’t hard – we provide a list to anyone that asks.)
Principle #3: Make signing the paperwork easy.
You use DocuSign or similar e-signature platform so that you don’t have to chase investors all over town for paperwork and you can more easily syndicate out of town investors. If your investors all sign with DocuSign and wire funds, you can get the deal closed in half the time.
Principle #5 Use your existing investors to find new investors
Most investors know other investors and they’re often happy to make introductions if they think you have a great deal. Don’t be shy to ask those who sign up for your deal for referrals to others who may be interested.
Principle #6: Get due diligence done
If you can get due diligence done by someone who is willing to share with other syndicate partners, you’ve got a tool that you can use to build confidence. Note: not all investors prepare formal diligence analysis and even fewer are willing to share, but if you can get it, then use it!
Principle #7: Get the right Lead Investor
The lead investor is your key to getting a deal done. The lead is often the first investor and sometimes the largest investor in the deal. They often have sector expertise and have the ability to really understand your deal and to describe it to others. Some lead investors continue to help make introductions and get other investors into the deal, well after they’ve invested themselves. It’s in their self-interest to get the deal funded if they want their own investment to get to work as quickly as possible.
Principle #8 Get the right Angel Group to lead your deal
When you’re syndicating multiple angel investing groups together in your deal, your local angel group will typically serve as the lead group. They will do the due diligence and have significant traction among their own group. They will connect you with other angel groups who have a trust-relationship with your local group, and share their information in order to help the other angel groups get interested in the deal. In some cases you can bypass many of the steps in the following angel groups’ process if the lead has done a good job in packaging the deal.
Principle #9: Relationships are Important
Companies that begin building relationships with angel groups and individual investors six to twelve months BEFORE they need to raise capital will do better than those who wait until the last minute. Remember, investing is a relationship game and isn’t just all finance. Get known by the key decision makers and let them know your plans well in advance. That way, once you finally make the pitch, they can see how you’ve executed on the plans you shared with them and will know more about how you operate.
Principle #10: Go with the flow
It can be frustrating – dealing with so many investors and all of their demands. If you respect the process and work with the angels, you’re most likely to be successful. If you become frustrated by pitching over and over and flying to different cities to put together a syndicate, then your likelihood of success will be diminished.
If you would like to learn more about angel/VC investment syndication, consider attending the Rockies Venture Club’s Angel Capital Summit. The theme for this years’ conference is syndication and there will be lots of great perspectives coming from angels, entrepreneurs, VCs and syndicate leads on on-line platforms such as AngelList. There will be about 300 investors, entrepreneurs and community members in attendance with plenty of events for networking and making the connections you need to make regardless of whether you’re looking for great deals or getting a syndicate put together to invest in your company. The event will be held at the University of Denver campus, Sturm Hall, Davis Auditorium, March 14-15. For registration and more information, visit www.angelcapitalsummit.org