Why syndicates are a great way to start angel investing

WHAT IS A SYNDICATE?

A syndicate is a group of angels who pool in individual investments and collectively invest a more meaningful amount as a single entity. The Lead Investor of the Syndicate typically evaluates and finalises the investment opportunities, and individual angel investors in the syndicate have the option (but not the obligation) to participate with a small cheque, on a deal-by-deal basis.

THE BENEFITS OF INVESTING VIA ANGEL SYNDICATES

1. Get access to high-quality startups

Most individuals, when they are just getting started with angel investing, get access to an ad hoc startup pitch from a friend or a relative and often find it hard to decline it. Usually, these kinds of investments aren’t objectively driven and may not deliver great results, unless your network of friends includes active angels in the startup ecosystem.

2. Backing the best startups

Early-stage investments are based on insights into the category, tech trends and above all, intuition & judgement. Given that early-stage startups have limited or no data points, early-stage investing is more of an art than science and one learns with every new investment one makes.

3. With syndicates, you can start small

It is difficult to attract the best founders to engage with you, if your intended cheque size is small. When you invest via a syndicate, you may contribute a small cheque per deal but collectively, the investment by the syndicate is meaningful for the startups, thereby attracting good startups.

4. Syndicates have more negotiation power than individual investors

Individual investors, with a relatively small investment, have little or no negotiation power with the founders or other investors.

5. Monitoring portfolio

It’s much easier to invest but it’s much harder to track the progress of multiple small startups and secure an exit at an appropriate time.

6. Syndicates are better from a tax perspective

This section is more specific to the regulatory framework in India.

7. Easier administration

Since the participating investors are not directly holding shares of the startup, they won’t be getting all the statutory shareholder notices, or the several documents that a startup requires each shareholder to sign off on. All such administrative matters will be taken care of by the Fund.

ON THE FLIP SIDE…

While there may be many advantages of investing via syndicates as articulated above, you should be aware of the following factors that impact your potential returns on investments.

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Waveform Ventures

Waveform Ventures

Waveform Ventures is a syndicate of India’s best angels. We invest $100k to $500k in early stage startups in India. Write to us at hello@waveform.vc