My friend asked me to explain to him what AngelList syndicates are. He invests in commercial real estate. The principles of investing in real estate and startups are almost polar opposites. I am proud of him for wanting to learn.
Instead of emailing the answer, I figured I’d share my answer here. If anything below is incorrect, please tweet at me.
Imagine there was an online platform for commercial real estate deals. All the info about the deal would be listed on this platform – payouts, maturity, description of the property, the syndicator of the deal and his/her history.
Further, LPs will have the opportunity to buy into whichever deal the syndicator is pushing. The investor (LP) assess each deal as it comes in and takes into account many factors, including the reputation of the person syndicating the deal.
Well… same exact principles with AngelList. But instead of land, it’s startups. And instead of LPs investing $50k+, it’s accredited individuals investing as little as $1000.
With real estate investing, you examine the projected payouts, land quality, etc. With startups, you examine the founding team, the size of the market opportunity, and the quality of their product.
On AngelList, each startup has a profile and each investor has a profile. When the startup wants to raise money, they syndicate their deal to up to 99 people (by law). The startup has the choice to syndicate the deal themselves or use a broker — called Syndicate Leads, like Maven Ventures for consumer startup investing. And just like with real estate, it’s about the access to good deals and trusting the person you are investing in.
I should note two important differences. The investment philosophy is a bit different. With startups, you want to swing for the fences or strike out. The payout could be $0 or it could be 216x your original investment. Also, the fees are different. AngelList takes 5% carry on each deal and the syndicator can charge an additional fee of up to 20% more. The key here is that AL and the syndicator only get paid if there is a liquidity event — otherwise they also lose on the deal.
Hope that’s clarifying. Happy to take questions in the comments.