We’ve been experimenting with ways to organize a network of people who can support our founders. We work with the Urban.Us network to advise and share resources with our founders. Members of the network continue to reach out about how they can help more in the form of advice, connections and co-investment. The Urban.Us syndicate is one way we can provide access for network members and other accredited investors to invest with us.
Benefits for Founders
People who’ve joined Urban.Us have taken on valuable roles working with founders for a limited time on specific challenges ranging from selling to government or selling on Amazon.com to selecting a contract manufacturer or advertising agency. We think syndicates are an additional way for founders to discover and meet more people who might be helpful, particularly because small ownership stakes offer another incentive to spend time making introductions or offering advice.
More for Investors
To date, we’ve focused on introducing an average of one startup candidate per week. This is part of our diligence process and, while we make investor introductions, there is a critical difference between asking for feedback on a potential deal versus committing to a deal. So syndicates offer an opportunity for investors to understand when we’ve made a decision—in some cases this might help angels.co reach a decision to invest.
Fund vs syndicate?
From our conversations, we think there are some critical differences between the objectives of Angels looking to participate in syndicates versus LPs looking to work closely with fund managers. These differences are reflected in a few key areas: portfolio compositions and later-stage deal access. And ultimately this impacts fee structures.
Subset of the Urban.Us portfolio. We will make an effort to syndicate all deals, but we can only do this when (a) founders wish to use syndicates and [or?] (b) founders give us sufficient allocations, as our first commitment is to ensure we can allocate our fund capital. Additionally, syndicate backers have the option to opt out of specific deals, skewing further away from our portfolio.
The end result is that syndicate backers and Urban.Us fund investors will end up with different portfolios. Since we don’t know which of our deals will perform best, this puts syndicate backers at a disadvantage, but they are able to adjust for this risk by participating in other syndicates or investing directly, which should work out fine for active seed-stage investors with multiple sources of dealflow.
Access to later stage rounds. Many of our LPs are interested in the ability to allocate more capital when companies have escaped the seed stage or valley of death. While syndicate backers will have pro-rata rights, additional later-stage allocations will be offered first to our fund LPs.
For more active investors, the syndicate may still make more sense. We’ll always be happy to connect founders with syndicate investors directly, particularly when there is a strategic fit such as industry expertise (like real estate, government, insurance, etc.) or functional expertise (like enterprise sales, hardware development, etc.). But this requires a much more active investor versus an LP that will look to us to actively connect it to the teams that might best fit its strategies.
No management fees but higher carry. Angel.co takes on core administrative costs and asks for 5% or the carry per deal. Once we add our own carry, the carry is higher than our fund at 25%. However, since we’re not taking management fees, the net returns should be a bit higher, as shown in Angel.co’s model. But this does come with two important costs: (a) this model only gets access to a subset of the Urban.Us portfolio, and (b) there is no access to later-stage rounds beyond pro-rata follow-on rights.
In short, we think there is room to serve both types of investors, while expanding seed stage capital available to seed stage #urbantech firms.
Learn more about Urban.Us
- Our investment thesis
- Our investment process—Startup Intros and FAQ
- Our bi-weekly updates to Urban.Us members
A complete list of backers, current deals and terms are visible on angel.co. Take a look.