Syndicates, AngelList and the Changing Landscape of Startup Financing

Last week’s S-1 filing by Twitter may have distracted everyone, but up until Thursday afternoon the subject du jour had been the launch of AngelList’s Syndicates. Plenty has been written so I’ll leave you to absorb the whats and whys elsewhere. (May I suggest a quick read of Pando’s coverage and a few VC takes on the subject – Wilson, DixonSuster, Feld and Walk).

What I would like to discuss is what this means for a first time founder who is trying to navigate these rapidly changing waters. Now a quick disclaimer – I’ve never had to raise VC capital (bootstrapped my first company, did a spin-in for the second) so I definitely consider myself a noob on raising outside capital. But this lack of VC knowledge (and SV insider status) probably makes me fairly qualified to ponder this question.

Like any other source of capital, Syndicates should be evaluated based on the benefits they will provide to your business. Not all capital is the same. They should be looked at alongside the other options available to an entrepreneur such as traditional angels / super angels, micro VCs and VCs with seed stage funds. Choosing the right source of capital will be just as important as how much capital you end up raising.

Here are a few questions to get you thinking…

What role do you want your investor to serve?

This is probably the most important question to ask yourself. Are you simply looking for quiet capital (i.e. someone to write a check and disappear)? Or do you need leadership and mentorship, perhaps via a board seat? Like any investor, you have to understand the role the syndicator is willing to play.

Jason Calacanis, the 3rd most backed syndicator as of this writing, had this to say about Syndicates:

Previously I was < 10% of any given investment round. In fact, I was typically 3% of a round. Now I’m going to be between 33% to 100% of any round. That’s a huge difference for the founder. I can now get founders fully funded and off to the races and I don’t need to ask anyone for help. I don’t have to ask anyone for permission.

As the entrepreneur in that equation, you now have someone who was going to be < 5% of your round, potentially doing 100%. And while Jason can move much faster than your typical VC in approving your deal (no partners to convince), as Fred point’s out, there’s a huge difference between leading and following.

If a VC is doing 100% of your round, guaranteed they’re taking a board seat. Is your syndicator going to do the same? If the syndicator has a full-time position such as Dave Morin (CEO of Path), will they provide the same level of support that you would expect from a professional, full-time investor?

Of course 100% is probably at the very extreme end of what a Syndicate will typically invest, and they very well may provide better support than a low-tier VC, but regardless, you better make sure that you and your syndicator are on the same page when it comes to this.

How do you build a network of angels?

If you’re a Valley outsider like myself or not graduating from the next YC class, it’s often hard for first-time founders to get their network going. It takes a lot of hustle and persistence, not to mention being located in the right city, to network to the right folks. And let’s not forget you’re trying to write code and build a business at the same time.

AngelList removes some of this pressure by making it much easier to get visibility for your deal. Put up your profile, get a few big names talking about or investing in your company and the herd often follows. Syndicates now make this even easier as you simply need the backing of a single syndicator. You no longer need to worry about getting the herd as they come with the syndicator by default.

But skipping over this valuable relationship building comes at a price. I’m a huge believer in having a strong network and giving before getting. It builds the type of long-term relationships that will be invaluable as you build your business and are forced to overcome the many speed bumps along the way. Don’t let the syndicate process circumvent this incredibly valuable exercise.

How many investors do you want in your round?

While not everyone will be fortunate enough to have a choice in this, there are more than a couple things to think about before doing a party round. Bigger syndicates offer the scale of a party round without actually dealing with the mess that comes along with it. This provides you, the entrepreneur, with the ability to raise money from a huge group of angels without actually dealing with a huge group of angels. The time savings should be enormous.

Syndicates also provide the other investors in your round with a single point of contact who is, hopefully, a known and trusted individual that is seasoned enough to ensure the round is priced correctly and will be there when events like a tough financing or acquisition occur (assuming you’ve done your due diligence on question #1).

What about signaling?

Since Syndicates are simply groups of angel investors, it’s highly probable that the typical signaling that can occur when taking seed financing from a large VC is not applicable. Of course, having one syndicator over another will potentially provide a signal to future investors but it’s too early to tell just what effect that will have on later stage fund raising.

How about exit options?

Much like dedicated seed funds, Syndicates should provide the entrepreneur with greater flexibility in exit options as they can provide significant returns to backers at lower exits.

Will Syndicates fund your ‘non-traditional’ startup?

As Hunter points out, Syndicates may end up being a new way for non-traditional startups (foreign, niche markets, taboo, etc.) to raise capital. If you’re a founder in one of these areas, you may have much greater success compared with chasing early stage US-based VCs.

What don’t we know about Syndicates?

Of course there are always unintended consequences when something new is introduced and Syndicates are barely a week old. A handful of startups are in the process of being funded by them now. We have a long ways to go until we see patterns from further financings, acquisitions and exits. We simply don’t know enough yet (which is why opinions on Syndicates range from they’re going to change everything to nothing will change at all).


Ultimately raising money from Syndicates is much like raising money from any other group of investors. You need to understand their priorities, motivations, value add, etc., and how those will play out in the context of your business. Should Syndicates be used over another form of financing? Perhaps. An argument can definitely be made to choose a syndicate over an angel party round. Do Syndicates fundamentally change the way a founder goes about raising money? No way. It’s just another option in your playbook. You still need to do your homework and raise smart capital.

Good luck out there.