Syndicate Lead Profile #2: Phil Nadel

The following is the second in a series of profiles of syndicate leads. I first got interested in syndicate investing by listening to his podcast interview with Meb Faber in 2018 and he was the first syndicate lead that I backed.

Hopefully this series helps you become a better investor and discover syndicate leads that you may want to back. (The first profile was Ashley Flucas.)

Please contact me if there is a particular syndicate lead that you would like profiled.

Phil Nadel

Forefront Venture Partners

AngelList Syndicate:

Please briefly give us your background and how you got into the venture world?

I have been an entrepreneur my whole life.  I have founded and sold several companies.  After selling a company early on in my career, friends and family members began asking me for advice and investment for their startups.  I did that for a few years and then started expanding my startup investments beyond family and friends.  Eventually, it became my full-time occupation.

How did you decide to start syndicating deals?  How did you decide to create your firm entirely around syndicating deals? 

When AngelList introduced the syndicate feature about 6 or 7 years ago, I thought it was a great idea.  At the time, I had already built a strong organization to support my venture investments.  I had great deal flow and was doing extensive due diligence.  And I had no interest in raising a fund.  The syndicate concept—the idea of sharing the deals I was investing in with like-minded investors—made sense to me.  And when I started the Forefront Venture Partners syndicate, I decided to really focus on what investors like me wanted.  We want in-depth deal vetting and due diligence.  We want leverage to negotiate the best possible terms.  We want opportunities to add value to the companies we invest in, which often includes introducing them to potential customers, referring talent to hire or providing strategic guidance.  We want regular updates from the companies we invest in. So these are the elements we bring together for members of the Forefront Venture Partners syndicate community.  And I use the word “community” intentionally because the other important benefit we provide is opportunities for the members of our syndicate to meet with and learn from each other, to share ideas and deals, and to meet the founders of the companies we invest in.  We do this through the live events we host (although this has becoming more challenging during Covid times).

Please describe the types of deals that you syndicate? (sector, stage, etc.)

We are industry agnostic and invest in Seed and Series A rounds, as well as bridge and extension rounds.  We only invest in post-revenue companies that are demonstrating consistent revenue growth.  We only invest in companies with great teams, bringing deep domain expertise, an innate understanding of the problem they are trying to solve, and the potential to credibly scale the business.  We have a strong preference for companies that are demonstrating early evidence of having identified efficient, scalable, paid customer acquisition channels, a low ratio of customer acquisition cost to lifetime value and a quick time to recoup customer acquisition cost.  We only invest in companies that are capital efficient and can scale quickly without a lot of additional capital.  And we look to invest in companies where the Forefront community can add significant value beyond capital.

What was the first deal that you syndicated?  How did you source that deal?  How has the investment turned out?

The first deal we syndicated was a company called Paintzen.  The company was acquired a few years ago by a Fortune 500 company.  It was a very nice exit for us and our syndicate members.

What is the approximate frequency of syndicated deals that you do?

We share every deal we invest in with our syndicate investors and we invest in about 8-10 deals per year.  We are very selective and do a lot of due diligence, so that sort of cadence works well for us.

How important is getting information rights and pro rata rights in the deals you syndicate?  Do your portfolio companies share regular updates with syndicate members?

We require every company we invest in to sign an agreement before we invest committing, among other things, to give us pro-rata rights and to provide monthly, detailed investor updates.  We place a very high priority on both of these rights and would not invest without them.

What do you look for in syndicate members?

Forefront is a community and we look for members who can help our portfolio companies or refer promising startups to us.  Although it’s certainly not a requirement, the assistance we provide to our portfolio companies is how we strengthen our value as an investor—by adding more than just capital.  That is what has made us a sought-after investor.  So we always look to add more investors to the community who are willing and able to help our portfolio companies in any way they can.

What websites, podcasts, blogs, etc. do you follow to keep current on the angel/venture capital world?

Well, of course, I listen to every episode of The Pitch podcast on Spotify.  And I read many blogs including Strictly VC, Pro Rata by Dan Primack, Data Sheet by Adam Lashinsky, PitchBook News, Crunchbase Daily and Stratechery by Ben Thompson.

What books would you recommend to someone interested in the angel/venture capital world?

I always recommend starting with Venture Deals by Brad Feld and Jason Mendelson.

What’s your favorite book of any kind (fiction or nonfiction)?

I am an avid reader and asking me to pick just one book is like asking me to pick a favorite child.  Recent books I’ve enjoyed include: A Gentleman in Moscow by Amor Towles, At Large and At Small by Anne Fadiman and The Obstacle is the Way by Ryan Holiday.

How can people reach you?

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Managing your expectations as an Angel Investor via Syndicates

The following is a guest post from Kashish Sharma, Venture Growth @ AngelList India and Partner @ Cloud Capital, an early-stage venture capital firm.

The views and opinions expressed are solely those of the author and do not necessarily represent those of The Syndicate Investor.

Congratulations on making your first angel investment through a Syndicate! You had studied the opportunity, joined a webinar with the founders, or maybe just piggy-backed on the Syndicate lead’s conviction to write a check — kudos on taking that leap.

Historically, angel investing is one of those rare asset classes that can give you outsized returns, ~5000x had you invested in Uber’s seed round, but of course not every investment is going to be a grand slam. Irrespective of the outcome, this asset class demands you to be locked in until a suitable liquidation event presents itself, taking 4–5 years or even longer for that to happen.

Given the translucent nature of the private market, first-time angel investors can grow wary over time due to the lack of proactive business updates or delayed exit opportunities. After speaking with hundreds of angel investors, I thought I’d pen down few takeaways that have helped shape my expectations as an investor in Syndicates:

1) Invest what you’re ready to lose: The best investment is the one that lets you sleep peacefully. This advice isn’t applicable to just Syndicate investors but everyone for that matter. Angel investing is highly risky and illiquid and yet you have chosen to ride the roller-coaster. There’s no perfect investment strategy but one that I generally urge investors to practice is to start small and diversify. You can write small checks as low as $1,000 in Syndicate deals and work towards building a quality angel portfolio.

Research done by AngelList suggests that “investors would increase their expected return by broadly indexing into every credible deal” (Venture Returns, AngelList) — supporting my aforementioned point that even if you index smaller checks across multiple high-quality deals, you’re off to a good start!

2) Respect the access: Syndicate leads have entrusted you with their proprietary deal flow and thus invited you to invest alongside them. The leads enjoy a stronger rapport with the founders and have therefore secured access to invest in their companies. Leads will also end up playing an important role in the future by securing pro-rata allocations or keeping a look-out for viable exit opportunities. It’s in your best interest to not attempt circumventing the Syndicate as chances are that the founders will communicate such behavior to the leads, thus tainting your relationship with them and jeopardizing your platform access.

3) Disclosing investments: As an investor, you’d like to wear your portfolio as a badge of honor — add it to your AngelList page or mention them on LinkedIn / Twitter handles. It’s always worth checking with the Syndicate lead whether the startup has announced their fundraise. There are times when startups want to keep the fundraising news under the radar for strategic purposes and as an investor, it becomes your responsibility to ensure that you’re respecting that decision.

4) Business updates are erratic: There could be deals where the founders diligently share business updates with the Syndicate lead who further passes them to you. There could also be deals where the founders simply haven’t been able to keep on track with their updates and are lagging behind. The nature of running a startup is as such, especially in the early days, where updates worth reporting can truly take time. It could take 4–5 months to hire a meaningful engineering lead in a company or 6–8 months to close an enterprise customer. As an angel investor, you should be cognizant of such variances and give the founders and the leads their space.

There could be certain Syndicates leads who explicitly instruct you not to expect on-going updates. As an investor, you might have to make a conscious trade-off between the lead’s deal access and the amount of transparency you expect. If a lead is providing you with competitive deals then maybe the uncertainty of receiving qualitative business updates might be acceptable to you, knowing that any mark-ups or write-offs should anyway be reported.

5) “I don’t want to just invest but also mentor, can I?”: Now that you have written a check, there’s an urge to wanting to play the role of a close advisor: catching up with the founders once a quarter and sharing your experiences. These are all great intentions but sometimes could be uncalled for. Founders usually end up building an advisory board during their fundraise or in their initial days. These could be the partners at VC firms who have invested in the round or few hand-picked operator angels. Most probably, the Syndicate lead is one of them already. It’s impractical for the founders to speak and interact with all the investors within the Syndicate.

Syndicates are a great way for you to act as a passive investor and invest in competitive deals to diversify your portfolio and experience this asset class. In case you’d like to build a relationship with the founders because you believe that you can add value to their venture, then approach it appropriately. Request the lead to get an opt-in from the founder. The leads aren’t obliged but they can inquire on your behalf.

Participating in Syndicates is a great way to build your angel portfolio and by keeping the above pointers in mind, I am positive you’ll end up leveraging such investment vehicles in the most optimized manner.

Get in touch with me @kashisharma_ on Twitter to connect!

Disclaimer: Any views or opinions represented in this post are personal and belong solely to the post writer and do not represent those of people, institutions, or organizations that the writer may or may not be associated within the professional or personal capacity.

Originally published on Medium on September 20, 2020.

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AngelList Conference Wrap-up

Earlier this month, AngelList held its 5th annual AngelList Confidential conference. This is a yearly private event that they hold to bring together investors and startup founders to discuss the state of the venture capital industry. As with most conferences since the pandemic, it was held virtually this year. With this new format, it allowed them to invite a much larger audience since no travel was involved. In order to keep some of the intimacy of previous events, in addition to open general sessions, they held some exclusive closed sessions and virtual networking events for the most active AngelList investors. I’m not a big enough investor on the AngelList platform so I wasn’t invited to any of the closed sessions. (Based on feedback they received, they plan to hold some virtual sessions in future years even when the conference is back in-person.).

The big focus of the conference (at least in the general sessions) was their new Rolling Funds product rather than syndicates. As AngelList is by far they largest platform for syndicates, even though there wasn’t too much information about syndicates, it’s good to learn about how AngelList is doing and what their future plans are.

Major Announcements

  • AngelList Venture is now an independent company from AngelList Holdings. AngelList does many things in addition to running a syndicate platform. They operate a job board for startups. They run a sort of social network for the startup ecosystem where investors, founders, and startup companies can have online profiles on their platform and message each other. In order to give focus to each of its businesses, they separated AngelList Venture into its own entity.
  • In connection with creating AngelList Venture, they gave it its own website: The original AngelList site is, not a .com address.
  • Rolling Funds – The big focus of this year’s conference was the recent launch of Rolling Funds. (As I said earlier, there wasn’t much talk about syndicates.) This is a big innovation in the venture capital world where GPs can now have funds that operate like a subscription. In a traditional venture fund, a GP would spend a lot of time raising a fund collecting investment commitments and then when all the money is raised, they would invest the money that was collected. A few years later, once all that money was invested, they would repeat the cycle by raising money for a new fund and investing for the new fund.
    With Rolling Funds, a new fund is created every quarter. Every LP who commits before the start of the quarter gets into that quarter’s fund. If an LP commits too late, they get put into next quarter’s fund. Since there is a series of quarterly funds, the venture capitalist can set lower minimums for each quarterly fund because they have some visibility into new money coming in the next quarter and better plan what deals they can invest in. From a LP’s perspective, they can invest on a regular quarterly basis and get diversification over time rather than commit a large amount at one time. They also get the flexibility to raise and lower their investment amount over time as circumstances change.
  • AngelList launched a new tool called Transfers for companies to provide liquidity for their shareholders. They’ve done it already for a few companies and now they’ve formally announced it as a new product. You can find out more in their blog post.

General Sessions

About half the sessions were general sessions that were open to anyone. If you missed them, they are now available online. (Just click on each session title below)

Here’s a summary:

  • Keynote address – This was given by Avlok Kohli, CEO of AngelList Venture and Naval Ravikant, co-founder of AngelList. Avlok gave a general state of AngelList address with a few interesting stats. He also made most of the major announcements that I summarized above. Naval gave an overview of the new AngelList Venture website.
    • Avlok started by talking about AngelList’s mission to Serve the Founder.
      • The founder was three main problems: Recruit, Raise, and Grow.
      • They have AngelList Talent to address the Recruit problem
      • They have AngelList Venture to address the Raise problem
      • They have Product Hunt to address the Grow problem.
    • $1.2 billion dollars has been raised by syndicates on the AngelList platform
    • In 2019, 1 in 3 top U.S. venture capital deals had an investment from a venture fund on the AngelList platform.
    • Overall, AngelList has $2.2 billion under management, investments in 47 unicorns are on the platform and over 100K individual investments have been made on the platform.
  • Adapting to the New Early-Stage Venture Market – A panel discussion featuring Amy Saper of Accel, Mark Goldberg of Index Ventures and Sarah Smith of Bain Capital Ventures. It was moderated by Sunil Pai.
  • AngelList Access Fund – A discussion with the AngelList Investment Committee. This is a venture capital fund created by AngelList Venture which basically invests in a curated set of syndicated deals on the AngelList platform.
  • Investing on AngelList – An overview all the different products and ways of investing on the AngelList platform. They also did a Q&A with participants. Seif Salama and Sarah Goomar gave this presentation.
    • Since inception, about $1.7 billion has been deployed to 5000+ startups.
    • There are over 4,300 syndicated and funds on the platform.
    • In 2019, 36% of top U.S. venture capital deals had investment from a venture fund on the AngelList platform.
  • The Future of Early-Stage Venture – A panel discussion featuring Bobby Goodlatte of Form Capital, Brianne Kimmel of worklife Ventures, and Nikhil Basu Trivedi. It was moderated by Helen Min
  • How Power Laws Explain (Almost All of) Venture Capital – A presentation from the AngelList Head of Data Science Abe Othman. You can read his blog post here. You can also read his related paper Startup Growth and Venture Returns.
  • AngelList Rolling Funds – A panel discussion featuring some of the early Rolling Fund leads discussing their early impressions of how they plan to operate their fund and how things are going so far. The panelists were Immad Akhund, Jason Jacobs, Jake Seid and Jeff Schox. It was moderated by Rachael Chung.

If you attended the conference, please share your comments below.

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Syndicate Lead Profile #1: Ashley Flucas

The following is the first in a series of profiles of syndicate leads. Hopefully this helps you become a better investor and discover syndicate leads that you may want to back.

Please contact me if there is a particular syndicate lead that you would like profiled.

Ashley Flucas

Flucas Ventures

AngelList Syndicate:

Please briefly give us your background and how you got into the venture world?

I started my career as a capital markets lawyer, and I practiced in London to get exposure to cross-border work (and because I was still figuring out what I wanted to do in the investment world and thought working on these types of deals was a good start). I am now the General Counsel and a Partner at real estate finance fund with ~$3B AUM. A couple of years ago, I decided I wanted to explore venture, but was unsure how to start being located in south Florida, which does not have a robust VC ecosystem. I did my homework and found platforms like AngelList and just dove right in. I then joined various angel groups, started to network and look for deals directly and eventually felt I had enough of a handle on things to start a syndicate.

How did you decide to become a syndicate lead?  How does being a syndicate lead fit into your “day” job?

It was in the back of my mind for a long time, but I knew I needed to figure out both dealflow and building a network. It all came together in 2020. When the world went virtual in March, I had my “aha moment” realizing I could cover a lot of ground quickly and was now on an even playing field because all business would have to be conducted virtually and I just had more bandwidth as a result of staying home more. I decided to form my syndicate and start building it out before I had my first deal and decided I would launch once I had a really good one – my mantra is always if you stay ready, you don’t have to get ready. And once the right deal came along, I successfully launched and the networking done over  the past few years really paid off as I received some great mentorship along the way (and now try to pay that forward).

I think I bring some of those same skills in leading a syndicate – as  a lawyer, I am used to due diligence, writing and understanding, interpreting and communicating complexities into plain English. I wake up earlier these days to do VC tasks before my workday starts and then work on weekends as needed. But I’m finding the more I do it, the more efficient I am becoming. Now that some of the heavy lifting has been done (building out LP base, etc), it’s possible to balance both without sacrifice to the other.

Please describe the types of deals that you syndicate? (sector, stage, etc.)

I am sector, stage and geography agnostic (though I’ve never done a blockchain or crypto deal). I am not a technologist by background and I think this makes me highly curious and gives me an open mind to explore a lot of companies. My portfolio spans the gamut, but in reality the companies tend to share a lot of things in common that I look for (despite the product or service variance). Of course, I am really interested in companies that address our new reality (and was lucky to bet on some that have now really taken off ahead of schedule).

What was the first deal that you syndicated?  How did you source that deal?  How has the investment turned out?

Foodology (LATAM Cloud Kitchens). This was a time it was better to be lucky than good. It was sent to me by a contact who’s well connected within LATAM. It went better than I could’ve hoped for. I co-syndicated it with a great lead (Peter Livingston of Unpopular Ventures) and we raised enough to be considered a major investor.

What is the approximate frequency of syndicated deals that you do?

I expect there will be ebbs and flows, but based on the current pace (between deals I lead and co-lead), it looks like I’ll do 3-5 per month.

How important is getting information rights and pro rata rights in the deals you syndicate?  Do your portfolio companies share regular updates with syndicate members?

It would obviously be great, but you really have to punch above your weight class sometimes to do it because most of the time your allocation is not going to be enough to be considered a major investor. However, my other mantra is “a closed mouth does not get fed”, so I always ask and am usually able to secure pro rata rights; information rights are harder but so far I’m finding most companies have good sharing practices anyway. I just launched the syndicate in June, so it’s a bit early to forecast re: updates. I think my practice will be to share news that is material, but I don’t want to flood everyone’s inbox either.

What do you look for in syndicate members?

My favorite thing about the syndicate is how helpful the backers are. In fact, it’s one of my main selling points to founders. They have been willing to help with diligence, hires and even connecting potential customers and channel partners. One of my missions is to democratize access to great deals which is why my investment minimum is low and I am open to all different types of backers. And I want my backers to be as diverse of a group as possible – with respect to geography, race, gender, sexuality, education, profession, etc. In my view, that separates us and leads to some really interesting viewpoints and capabilities.

What websites, podcasts, blogs, etc. do you follow to keep current on the angel/venture capital world?

I try to not to have an information overload, but I do like newsletters: Fortune’s Term Sheet, Morning Brew, Strictly VC, the Synthesis, Box of Amazing and Not Boring are the ones I read.

What books would you recommend to someone interested in the angel/venture capital world?

The Monk and the Riddle (my favorite book of all time and what inspired me to try VC)

Play Bigger (really helped me frame my thesis and evaluate deals)

What’s your favorite book of any kind (fiction or nonfiction)?

See above. But also, I love the Kingkiller Chronicle by Patrick Rothfuss (I’m a bit of a fantasy genre nerd).

How can people reach you?

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What’s next for the ‘Angels’ of India?

Find out why syndication could be a popular pick in the future!

The following is a guest post from Deepanshu Sidhanti. He is an Investment Associate at Artha India Ventures, a Mumbai based venture capital firm that invests in seed and early stage start-ups. The views and opinions expressed are solely those of the author and do not necessarily represent those of The Syndicate Investor.

‘Angels’ is a term we use in the start-up community to refer to those Investors who are high-net-worth individuals (HNWI) who invest a portion of their income.
They are known for investing and backing entrepreneurs they see potential in, and they also provide capital to start-ups who are in their preliminary/ growth phases. In addition, they also back small businesses that could be in dire need of capital. As someone who evaluates early-stage deals weekly, I’ve noticed that these ‘angels’ sometimes turn out to be family and friends of the entrepreneur/ founder of the start-ups.

Recently a new trend has started — Angel Investors are now diversifying their personal portfolios! They’re doing this in 2 ways:

1. By funding multiple business owners directly

2. By investing in different sectors

I find this noteworthy because traditionally, Angel Investors were known to do ‘Strategic Investments,’ which means they would only invest in sectors that were their area of expertise. Most successful angel investors look to join Angel networks and invest in multiple sectors and geographies through them.

Even though it’s a positive attribute — this had led to some adverse effects. The sector has become rather unorganized — the Angels choose popular networks to join and may only go for deals that come through them. If you are an Angel, this negatively affects you, too. To put it simply — you aren’t seeing everything that’s out there before making your picks.

I believe Syndication and syndicate platforms, Angel List and LetsVenture, are the clear-cut solution. With everything going digital, there’s a need for transparency & an unbiased platform with a multitude of options.

Many, including Artha India Ventures, have turned to using these platforms to invest and lead investments. Obviously, when money is involved, we all want to choose wisely!

I’ve been handling Artha India Venture’s profile on AngelList for 4 months! I am proud to say I was the one who researched the idea of leading a syndicate and successfully introduced the idea to the team.

I’ve learned that the platforms can be used not just to access to deals, but there are a lot more benefits of running online syndicates. Here are my observations about some of the advantages:

  1. They are legal!
    Platforms like AngelList are legally approved to host syndicates and onboard angel investors. They form a trust structure to invest in every deal. They also take an undertaking from angel investors that the investor has accreditation based on the Indian government’s rules.
    Hence, investments done via syndicates are entirely hassle-free.
  2. Any accredited investor can lead a deal.
    These platforms allow all investors to apply to both listing & lead a deal. Some internal checks are done for every deal before it listed on the platform. There is no sector or geographic restriction on listing the deals if the operation of the business is legal. The process is smooth, and every start-up gets a chance of pitching to a broad audience of angel investors.
  3. Less number of investors on the cap table
    This is one of the most significant things that I like about online syndicates. The cap table of the start-up remains clean and adds only one investor to the cap table, i.e., the new trust created under the Government of India’s guidelines. Single investor on the cap table makes it easier for the start-up to approach VC’s in the future round as a secondary deal is easy to crack. Also, this reduces the operational effort of co-ordination with a bunch of investors for any regulatory documentation.
  4. There’s an incentive for the lead investor!
    As the lead investor does most of the hard work in getting a deal to the table, i.e., by regularly interacting with the founders, performing due diligence, incentives are necessary. As a feature of leading an online syndicate, the lead has an option to charge carry from the rest of the investors. Carry simply means that the lead investor will get a part of the profit that the exit (0–20%) generates. This is a fantastic upside for the lead investor and ensures active participation of the lead with the start-up, which increases the chances of success.
  5. Alas, they are free for all to join! 😊
    All the existing platforms are free to join for investors and gives them access to evaluate deals that feature on the platform. Hence the problem of the unorganized sector, i.e., the substantial membership fees of an angel network, gets solved.
    Also, imagine reaching out to a group of 10,000 angel investors for one start-up deal. I know it sounds challenging, but I did just that! I was able to get in touch with many angel investors with a click of a button and quickly raised funds for the start-up.

In conclusion, I firmly believe that the future of angel investing lies in investing and raising funds via online syndicates! I have now shifted my focus to enhancing our profiles on these platforms to attract more co-investors. If you want tips on that, reach out to me.

Remember, it takes taking that one step to result in a brighter (and wealthier) future!

Keep up with the Artha India Ventures Team via social media:
LinkedIn | InstagramFacebook Twitter

Originally published on on August 27, 2020.

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Investing via Alumni Syndicates

One key factor in becoming a successful venture capital investor is access to high quality deal flow. The beauty of syndicate investing is that the casual investor can get access to a lot of deal flow without spending a lot of time to source them. Syndicate leads do the work of sourcing all the deals, doing some due diligence, and presenting what they feel are high quality deals. It’s then up to the investor to do further due diligence and only invest in those deals that are appropriate for them. An investor has the option to invest on a deal by deal basis and has no obligation to invest in every deal presented to them.

Syndicate leads come from a variety of backgrounds. Some work at venture capital firms and syndicate deals which they have large allocations that they can’t fully participate within their fund or existing LPs. Sometimes they will syndicate deals that don’t fit their fund’s thesis. This could be based on the industry of the portfolio company or maybe the fundraising stage doesn’t fit their fund. Other syndicate leads are independent VCs that may do this part time and they use syndicates to allow them to write larger checks.

Another category of syndicates are those that are led by former employees of startups that have grown into large companies. Many early employees of companies like Google and Uber have gotten wealthy through stock compensation and have built a network of fellow entrepreneurs. This has allowed them to become angel investors. Their network of colleagues and friends has given them access to the startup ecosystem and the wealth they’ve accumulated has allowed them to make investments as angel investors. Some of these alumni angels have joined together to consolidate their deal flow and make it available via syndicates they operate.

There are several of these Alumni Syndicates available on AngelList. While these syndicates are led and organized by former employees, they’ll usually accept and share deal flow with non-alumni. It’s another source of deal flow for syndicate investors. AngelList has a dedicated page here.

Please share in the comments if you know of other alumni syndicates.

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SEC expands the definition of an “accredited investor”

Access to private investments such as venture capital and syndicates is currently limited to “accredited investors”. While the general public is allowed to invest in the stock market, ETFs, and mutual funds, regulations limit access to private investments to only wealthy individuals. Since these types of investments are less regulated and more risky, the theory is that the general public should be protected from these type of risky investments and only wealthy investors who can theoretically afford the losses to invest should be allowed to invest. Generally the SEC defines an “accredited investor” as someone who has earned more than $200,000 annually for the past two years or more than $300,000 combined with their spouse or alternatively people who had an individual or combined net worth of more than $1 million, excluding the value of their home. This clearly excludes a vast majority of the public from having access to investing in private capital markets. These rules have been largely unchanged for over 35 years.

The new rules announced last week expand who is called an “accredited investor.” The SEC has now added several new categories of accredited investors based on financial sophistication rather than simply wealth. Individuals can now “qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution.” Initially, this means brokers with a Series 7, Series 65 or Series 82 licenses. Another category is “knowledgeable employees” of a private investment fund. The SEC says this new expansion is meant to expand “investment opportunities while maintaining appropriate investor protections and promoting capital formation. “

Critics of the “accredited investor” rule point out there is legalized gambling in many parts of the country where people can bet on sports, horses and go to the casino without any income verification, but when it comes to access to potentially high returning investments, only the rich can invest. These new rules are a step in the right direction in opening up private investments to more people.

Overall these changes should be beneficial to the venture capital ecosystem as it brings in more capital to founders, syndicates and venture capital firms.

Highlights from the SEC’s press release:

The amendments to the accredited investor definition in Rule 501(a):

  • add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order.  In conjunction with the adoption of the amendments, the Commission designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons.  This approach provides the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future.  Members of the public may wish to propose for the Commission’s consideration additional certifications, designations or credentials that satisfy the attributes set out in the new rule;
  • include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
  • clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) to the list of entities that may qualify;
  • add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered;
  • add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
  • add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

The amendments expand the definition of “qualified institutional buyer” in Rule 144A to include limited liability companies and RBICs if they meet the $100 million in securities owned and invested threshold in the definition.  The amendments also add to the list any institutional investors included in the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer,” provided they satisfy the $100 million threshold.

These new rules will take effect 60 days after publication in the Federal Register. You can read the SEC Press release here. SEC Chairman Jay Clayton issued a statement about his thinking behind the new rules here.

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Welcome to The Syndicate Investor!

Hello world.

I have a lot of experience investing public stocks personally and professionally on behalf of institutions, but I am relatively new the venture capital/angel investing world. I discovered syndicate investing in 2018 by listening to Phil Nadel of Forefront Ventures on Meb Faber’s podcast, and I made my first syndicate investment a few months later. Since that first investment, I’ve made 30+ venture/angel investments via syndicates.

As I’ve started on this journey, I’ve learned a lot and realize I have a lot more to learn. I created this site as a resource to other investors who want to learn about venture capital and anget investing via syndicates. Along the way, I’ll share information I learn and the ups and downs of my journey.

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— Giri Cherukuri, CFA (@giric)

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