I like AngelList. I’m in the camp that believes that it’s one of the positive transformative forces around early stage investing. One aspect of AngelList I don’t think many really have their head around yet is Syndicates. I applaud AngelList for pushing the envelope and creating and the deploying the concept on their platform. Here are a few questions I don’t yet have a perspective on:
- Are Angels now competing with one another for Syndicate dollars? It seems Angels who run in the same network are.
- Can Syndicates act as a filtering mechanism to weed out Angels who make “poor decisions” on investing?
- Does the idea of Syndicates ultimately reduce the number of companies that get funded because the proverbial “bar” gets raised? (I.E. – it’s harder to pass the diligence process of higher quality Angels.)
- Are Angels backed by Syndicate dollars sought after as much by high quality entrepreneurs when they are responsible for putting $500k to work as opposed to $50k to work?
I’ve read lots of opinions on Syndicates and some of them cover questions like these. What I’m most interested in, however, is what happens to the traditional, institutional VC.
If an AngelList Syndicate with $500k-$1M behind it, run by a proven angel can make an “invest vs. no-invest” decision in less than a week to fund a large seed round or even a “Series A,” what happens to institutional money?
My perspective is that Syndicates attack institutional money, particularly the average or below average performing firms -- with speed. We’ve always believed that creative and operating talent, as a part of an investment platform, is a huge differentiator for a VC firm. I believe Syndicates will prove that speed is another axis of innovation that institutional VCs cannot respond to.
It's highly unlikely that an institutional VC can respond as fast as a Syndicate, they've got partners and processes. Therefore, in order to ask an entrepreneur to “wait” for them to get through their processes, an institutional VC is going to have to have a track record of providing a HUGE amount of non-monetary value and they're going to have to figure out how to lead and package this on a case by case basis to earn the right to invest. This weeds out an awful lot of institutional VC firms.
In a great complicated irony, AngelList Syndicates democratizes early stage technology investing by concentrating power in the hands of the best individual Angels out there.