Last week, AngelList, the hugely popular platform that connects entrepreneurs with accredited investors, introduced what many have heralded as a game-changing new twist to its business. Called its Syndicate program, AngelList now allows angel investors to syndicate investments themselves, work for which they will receive carry. (An angel who syndicates a deal will earn 15 percent of any upside, while AngelList will collect 5 percent.)
If some of these syndicates involve the same groups of investors, and those groups morph into venture funds, don’t be surprised. As some angels have said on social media since AngelList announced its new program, it might allow many of the “best” angels to strengthen their brands and, potentially, move up the investing food chain.
And there’s no reason why angels shouldn’t be able to extract more leverage from their investments, particularly if they’re willing to manage a big syndicate or serve on a company’s board.
Still, while the syndicate program seems like a well-considered start, AngelList might think about providing some public accounting of the track records of its various syndicate leaders. As the gossip site Valleywag pointed out in its inimitable way yesterday, without a structure that manages to disclose something about the investors’ IRRs, the program seems likely to degenerate into a popularity contest. Much of AngelList’s matchmaking still rests on “social proof,” which isn’t quite the same thing as cash on cash returns.
Last week, for example, author and entrepreneur Tim Ferriss raised $350,000 for a logistics startup called Shyp in 53 minutes. Ferriss’ fundraising prowess is impressive, and nobody is prejudging Shyp, but it’s hard not to be skeptical about investments that are closed in less than an hour.
Most VCs wouldn’t wish their fundraising process on their worst enemy, but it does help them demonstrate their qualifications and commitment to the investment process to both their investors and their fellow partners. Through vetting their PPMs with Cambridge Associates, undergoing lengthy and arduous roadshows with family offices and pension funds, and sacrificing a large amount of their own capital – typically 3 percent – in order to launch their funds, venture investors let it all hang out. (Yes, there are top-tier funds that are able to raise funds by picking up the phone a few times, but that’s the exception not the norm.) By the time a firm has raised a fund, they have left a trail of evidence testifying to the work they will put into an investment. Can the same be said of Ferriss?
Obviously, AngelList doesn’t need to replicate the venture business – it’s large enough as it is. But in the interests of both entrepreneurs and the syndicates themselves, it might be time for AngelList to adopt an objective ratings process, one that would provide everyone with more insight into an investor’s qualifications than just his or her Klout score. No doubt it would make an already promising initiative even better.
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