Gil Penchina is a former eBay and Wikia executive. He’s also a longtime angel investor who has enjoyed cash-on-cash returns of 6x over the last 15 years, he says.
But the latest feather in Penchina’s cap is his place within AngelList’s universe of so-called Syndicates, which are essentially pop-up funds that allow angel investors to syndicate their investments in exchange for 15 percent of any upside. (AngelList collects another 5 percent. There are no management fees.)
Since the program was rolled out by AngelList roughly a year ago, Penchina has attracted 1,300 accredited investors who’ve committed to collectively plug up to $4.6 million into each deal he wants to make. Those numbers make his the largest Syndicate on the platform. They also give him the firepower, theoretically, of a mid-size venture fund.
Penchina, who has already invested “between $5 million and $10 million” in startups through his syndicate, says he’s just getting started. We caught up yesterday. Our chat has been edited for length.
You don’t have an office. You have no institutional investors. And yet you have a stunning amount of capital at your disposal suddenly.
Yes. We only started nine months ago, and [our commitments are up] to $4.6 million per deal, which is slightly frightening when you’re used to writing $25,000 checks [from your personal bank account]. We’ve now led two A rounds, for [the sales prospecting company] Datanyze and *Contactually [a relationship marketing platform], and we’re trying to do more [lead investing].
We’ve also launched a SaaS syndicate, a bitcoin syndicate, an [Internet of Things] syndicate, and we’re launching a [financial technology] syndicate. And we’ve launched a late-stage syndicate for B and C rounds and we’re in the registration and comment period with regulatory authorities for a venture debt syndicate, which will be interesting once that’s up and running. Notionally, we want to [represent] every vertical, and every asset class – from bridge rounds to A and B and C rounds — so if investors want a more narrow thesis, they can invest in it. If they want a broader thesis, they can in invest in my main syndicate and get a more diversified pool of investments.
Wow. How much have investors committed to these vertical syndicates?
The SaaS syndicate has [commitments of] $1.8 million, the late-stage syndicate has $1.1 million, bitcoin has $700,000. All of these ideas are getting some traction. Ultimately, I’m trying to build Fidelity, with fund managers who specialize in certain sectors.
Who are all these investors?
We get a mix. When you democratize and reduce friction, everyone shows up. CEOs, dentists, young guys who are making their first investment. Six months ago, we had 200 investors. Today we have 1,300. If things continue [apace], we’ll have 10,000 investors in a year’s time.
And who’s the “we” when you refer to your syndicates?
There are two managers per syndicate. They aren’t full time but rather executives in each particular vertical. One is a chief revenue officer, another is a product executive, another is the CEO of a bitcoin company.
We also have 30 volunteers, from associates at venture firms, to executives who think these syndicates are a great way to learn about other industries, to people who want to work in venture and think [helping us] is a great training ground.
These managers and volunteers are essentially scouts? Do you promise them a percentage of your carry if they bring you something you eventually decide to fund?
It isn’t that structured. We aren’t making management fees, though, so I [will] share the carry with [everyone who helps me]. We want everyone’s interests aligned, so that if there’s a mediocre deal, we don’t do it.
By the way, we’re always looking for new recruits, if you can let your readers know.
How would you describe your pacing, and what size checks are you writing right now?
We did smaller deals at first, a couple hundred thousand dollars here and there to see how it works. Then we moved from $200,000 to $500,000 and now we’re writing checks of $1 million. Six months ago, we’d do a deal every two months and in October, we’ve already done three deals, two of which were $1 million, so the pace seems to be getting faster every month.
The public market has been been volatile. Meanwhile, unlike a traditional fund’s investors, Syndicate investors can opt out of deals or opt out entirely. You must be seeing some kind of pullback.
I’m not. The market was up last week; it was down the week before. You have to remember that AngelList is growing at a rapid rate itself, so every day, new people are joining the crowd, and a rising tide raises all boats. Even if my boat is a little leaky, I don’t notice it because I’m [moving up] and not down.
You’ve said before that the beauty of AngelList for an investor like yourself is not having to deal with attorneys and LPs. AngelList sets up the funds; it handles customer accounting. But AngelList has a lot of out-of-pocket fees as a result, something like $12,000 per fund, cofounder Naval Ravikant told me last year. Do you worry that it’s not sustainable, given that AngelList is not yet producing revenue?
No. Putting together an LLC is a bunch of legal docs. Costs are higher now because there are probably 75 different permutations of deal structures or term sheets, but at some point, they’ll have a template for every one of the damn things and it will be cheap. More and more of this will get automated – reporting, tax [considerations]. I’m really not sure why anyone would start a micro fund in 2014 when they could start a Syndicate for zero dollars instead and not spend a lot of time doing the annual accounting or figuring out the legal structure of this stuff.
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