September 29, 2013

Angellist Syndicates could boost Swedish seed investing

Angellist recently launched Syndicates. Syndicates allows active seed-stage lead investors to expand their capital base by allowing other angel investors to co-invest in startups. In exchange for access to good startups, the other investors pay carry, i.e. a share of any profits, to the lead investor. Basically it is a very lightweight fund structure.

As a structure, Syndicates could be helpful for the Swedish startup environment. Given that individual Swedish seed stage Internet investments are small (around 100 000 SEK being a common), ways to simplify pooling capital to a 1-2 million SEK seed round would be helpful to Swedish startups. Some of the advantages with the Syndicate fund structure seems to be:

  • The company gets to deal with one fund headed by one active investor instead of a party round of 10-20, mostly passive, individuals. Having one investor to deal with instead of 20 makes the day-to-day work of running a company easier.
  • An active investor gets additional upside from taking the lead investor role, which generally includes negotiating initial terms and board/advisory board work. The clear lead role also creates one angel investor that has the incentive to make sure that the company and new venture capital investors don't steamroll the rights of seed stage investors.
  • For individual seed stage investors it is difficult to get portfolio diversification without investing about 1 million SEK. With Syndicates, where the investment can start at between 6000 and 15 000 SEK, it is possible to get diversification at 100 000 SEK. This should make it more interesting to invest some savings in early-stage companies.
The structure would be helpful both for traditional private rounds and equity crowdfunding rounds (like Angellist and FundedByMe).

If there were a few Swedish Syndicates, my guess is that another 10-15 million SEK in annual qualified private seed stage capital would open up. With that direct private capital, another 10-20 million SEK would likely be available from venture investors and public funds as matching capital. It doesn't sound like much, but it would be a significant addition to the available Swedish Internet/mobile startup funding.

1 comment:

Unknown said...

Agree. Frustrating that Syndicates are only applicable to Delaware based startups. My question is how long will it take for Angelist to move into the Nordics with Syndicates - or will someone copy the model first?