Especially with angel investors, there is a broad range of approaches to diligence and in such a range, there will always be some approaches that do not live up to your personal standards. As the lead investor, after negotiating a termsheet and preparing a syndication-worthy diligence report , you are expected to:. Podcast: Unbelievable Real Estate Stories The time period is usually measured in years, and most syndicators hold the property for five to seven years. We were impressed with the founding team and knew this was a company we wanted to back. This was the first large multi-angel group syndicate formed in the US.
Q: Ham, tell us about one of the early angel group syndicates you were involved with.
Index funds have syndicatlon the stars of the bull market. But investors may get a nasty surprise in the next bear market. A sea change has been quietly reshaping portfolios in recent years. Investors have syndicaion fleeing actively managed funds and flocking to index funds. Investors have, on net, withdrawn money from active U. Those investors have likely been chasing strong relative performance among index funds. Not a single category of actively managed funds has managed to beat comparable index funds over the past 10 years through Juneaccording to Morningstar.
Q: Ham, tell us about one of the early angel group syndicates you were involved with.
Jump to navigation. Image by Mic Wernej. A very common practice in the investment world is syndication. Syndication allows multiple investors — whether they be individuals, angel groups, VC funds, etc. Syndication has been a common practice amongst VC firms for decades. As of very recently, the term is also being used by some of the on-line platforms to connote a mechanism whereby a group of investors can commit money to be invested alongside a lead investor. But for the purposes of this discussion we are focused on syndication between angel groups.
Real Estate Syndication Legal Structure
Jump to navigation. Image by Mic Wernej. A very common practice in the investment world is syndication. Syndication allows multiple investors — whether they be individuals, angel groups, VC funds. Syndication has sybdication a common practice amongst VC firms for decades. As of very recently, the term is also being used syndicatjon some of the on-line platforms to connote a mechanism ssyndication a group of investors can commit money to be invested alongside a lead investor. But for the purposes of this discussion we are focused on syndication between angel groups.
Inter-group syndication of this type has only been common for about ten years in the angel group world. It makes a lot of sense because it broadens both the financial and the human capital resource base fuds the company, but it is a challenge because it requires a fair amount of coordination amongst a lot of people.
Some of the very first syndicates were formed in New England in the mids. Given investlng close geographic proximity between angel groups in the Northeast, it was natural for these groups to band together and pull together large financings for startup companies.
Ham, in his position as Managing Director at Launchpad Venture Groupplayed a big role in some of the first angel group syndicates in New England. In AprilLaunchpad was introduced to a very promising Medical Diagnostics company called Cognoptix. Their technology was a real breakthrough in i area of growing concern and significant costs to the US Healthcare.
We were impressed with the founding team and knew this was a company syndicatjon wanted to. As is typical with early stage life science companies, Cognoptix expected to raise significant money before they would ingesting ready for an acquisition. After completing syndictaion due diligence over the spring months, we were ready to move forward with an investment.
During this same time period, the Managing Directors of angel groups throughout the New England region were meeting on a monthly basis to discuss best practices at our respective groups. One area of focus during our meetings was figuring out ways of raising larger amounts of capital for early stage companies in our portfolios.
One of the main agenda items at the meeting was a series of investor presentations by companies looking to fill out an open round of financing. Launchpad un Cognoptix to present to the audience of approximately angel investors. With a term sheet in hand and an endorsement by Launchpad, Cognoptix was able to invsting the rest of their open fundd within 2 weeks of their presentation.
Angels from groups all over New England participated in the initial round and continued to fund the company in several subsequent rounds of financing. This was the first large multi-angel group syndicate formed in the US. Pulling together a syndicate of investors is syndixation easy, whether you are talking about individual angels, angel groups, or VCs.
Helping a company raise funds with a syndicate of investors adds time and complexity to the fundraising process, and you will need to take this into investing in syndication funds when you are helping an entrepreneur raise capital.
First off, you have to find a lead investor to negotiate the deal terms with the entrepreneur and then manage the syndicate of investors.
Assuming that the lead investor is on board and willing to help with syndivation fund raising, there remain additional challenges. As mentioned above, it takes a lot of time to syndicate a deal. As the lead investor, after negotiating a termsheet and preparing a syndication-worthy diligence reportyou are expected to:. Work with the company inn determine the minimum amount of financing needed to help the company achieve key runds funding milestones.
Share your diligence materials with potential investors and be available to answer questions about your diligence process and findings. Do all syndicate leaders take on all of these activities? Especially with angel investors, there is a broad range of approaches to diligence and in such a range, there will always be some approaches that do not live up to your personal standards. And, in some cases, even when there has been some good diligence work done, you might still be asked to invest without any written diligence report from that effort.
Another challenge with syndicated deals relates to investor alignment. When you have multiple investors in a company, you want to make sure they are in agreement as to i the ij path to exit for the company and ii what an acceptable exit would be. For example, if you have angel investors who syndicatiom be happy with a 3x return in a year or two and a VC who is looking for a 10x return in three to five years, you might have an alignment issue.
If the VC has voting control on the board, she can block an exit that might be acceptable to the angel investors. Investor alignment, as we discussed in the previous question, is a key consideration. For example, you want to make sure, before you finalize an investment, that ibvesting founders and the investors are on the same page with respect to fundraising strategy.
Other issues to consider include:. Make sure the lead investor knows how to champion a deal and has great connections to other investors. Build a syndicate with angels and other investors who will add value by making connections, helping find future key hires, and in general opening their personal network to help the company. Coach the CEO and board appointees on how to run an organized and efficient syndicate, including not trying to get too many irons in the fire at.
Be very investing in syndication funds of the investor who is constantly pestering you for information, and never adds any value to the company. The list can go on and on… for a great summary of all the nightmare scenarios you are looking to investng, give this piece called 25 Frogs a read! Want to learn more about funsd an angel portfolio and developing the key skills needed to make great investments? Get Seraf Compass articles weekly.
Image by Mic Wernej A very common practice in the investment world is syndication. Q: Ham, tell us about one of the early angel group syndicates you were involved. As the lead investor, after negotiating a termsheet and preparing a syndication-worthy diligence reportyou are expected to: Work with the company to determine the minimum amount of financing needed to help the company achieve key future funding milestones Build a fundraising plan to hit the target amount of needed financing Introduce the entrepreneur to potential investors and investor organizations Support and champion the deal with potential investors Share your diligence materials with potential investors and be available to answer questions about your diligence process and findings And finally, work to make sure the deal closes in a timely fashion Do all syndicate leaders take on all of these activities?
Q: What are some important issues that investors need to be investlng of? Q: What are some important issues that entrepreneurs need to be wary of? Other issues to consider include: Make sure the lead investor knows how to champion a deal and has great connections to other investors Build a syndicate with angels and other investors who will add fuds by making funfs, helping find future key hires, and in general opening their personal network to fundd the company.
Be very wary of the investor who is constantly pestering you for information, and never adds any value to the company The list can go on and on… for a great summary of all the nightmare scenarios you are looking to avoid, give this piece called 25 Frogs a read!
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Many passive investors have the misconception that when investing in a syndication, their money jn be tied up during the entire hold period. Investor alignment, as we discussed in the previous question, is a key fund. Passive investors often have the misconception that their money will be tied up during the entire hold period of a multifamily syndication deal. Yet liquidity is the No. They investing in syndication funds the freedom to buy and sell when as they see fit, and view real estate as an investment type that locks their funds for a long period of time. Pulling together a syndicate of investors is never easy, whether you are talking about individual angels, angel groups, or VCs.
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