I recently completed my first raise using the AngelList syndicate platform, with $42k more demand than my allocation in less than 3 business days. A huge thank you to the investors who backed this deal for Greg and the Kaleidoscope team!
I have been working with Kaleidoscope as a mentor for several months. They are an exciting company bringing the marketplace model to private scholarships and applicants. I knew I wanted to be involved and when the time came to close the seed round, I asked Greg if I could have an allocation to raise using the AngelList syndicate platform.
AngelList is a platform for raising funds from a syndicate, or group of private investors. A syndicate lead can bring a deal to his investors, who can choose to fund on a per deal basis using an SPV (special purpose vehicle) for each deal. This is different from public crowdfunding platforms like kickstarter where the average investments are generally smaller and are open to everyone, and also different from traditional investment funds including venture capital, private equity, and hedge funds, where LPs (limited partners) invest larger sums for many years under the direction of a fund managers over multiple deals.
I chose to raise using AngelList because I wanted to experience the platform as a syndicate lead, having participated as an angel investor in several deals. As an investor, I found it easy to back syndicates, and be invited to invest in the deals I found interesting, and I believe the syndicate model will emerge as beneficial for matching companies and investors directly. Companies who are looking for funds are able to tap into the capital pool of direct investors, and investors are able to get access to direct deals. A benefit to both sides is the removal of the duration and returns focus of a traditional managed fund that may not be aligned with either the company or investor.
I started the process about six weeks prior to the timing of the close by gathering materials and putting together a short deck and an introductory investment thesis. Because I operate as a trusted mentor/advisor with operational experience, I tend to have several months of inside access to the operations of a company, including engineering, product, communications, finances, and business, which allows me to conduct extensive due diligence while simultaneously helping the company with advice.
Syndicates like AngelList often invest alongside the lead of a seed round, which means that the term sheet negotiations and/or selection of the lead investor when there is more than one bid, must be completed before the syndicate can start, and often leads to a small window as the close date has been decided. For Kaleidoscope, the seed round lead was finalized during the holidays with a target close date of Jan 15th. After a final review and approval with Greg, I submitted the deal to AngelList on Jan 5th which would give me 10 days… and then waited…
For a first time syndicate lead, submitting a deal does not mean it will be immediately approved, and fundraising can only begin after the deal is published. AngelList needs to have some assurances that the deal can actually be funded, as there are $8k in setup costs, with presumably some portion of that being an upfront expense to setup the SPV, and some portion being a yearly cost for tax filings and administration. In a bit of a chicken and egg, the guidance is that one should have $300k in backers (which is unlikely for first timers since you have no submitted deals to back) in order to achieve the $80k minimum raise. At this point I had only 2 backers having just created the syndicate.
After contacting friends and colleagues to gauge support, and discussing with the folks at AngelList, the deal was finally reviewed, approved, and released in the afternoon of Jan 10th, which coincided with my arrival at CES with a full meeting schedule. I started by connecting with my first degree contacts on AngelList in spare moments, wrote introductory emails, and texted my network that the deal was live, and then grew my second degree contacts. Early supporters here really came through and I was amazed at the level of immediate support with no questions asked.
A delayed flight on Sat brought me back to NY with a realization that Monday was a holiday. Sunday is a quiet day, and while I was building out my network and new backers for the syndicate, most were still undecided about backing the Kaleidoscope deal. Fortunately, Greg was having good success with some of his original pre-seed investors who wanted to participate again in this round, although this this squeezed my allocation down from the original amount.
Monday morning started with a bang, and throughout that day and into the evening, commitments got signed both from my network and new investors. I quickly went from being under, to needing to reduce what people were asking for because I was running out of allocation. It was helpful to have solid company fundamentals, sales figures and projected pipeline, and pro-forma statements for projecting cash, revenues, and headcount in the coming year. Greg had shared the detailed product roadmap in JIRA with me so I was able to answer questions and clearly explain the company’s value proposition. Being fully informed and having access to detailed operational data allows you to cover a wide range of questions from many potential investors over a short period of time.
I finally closed the deal early on the 16th, and ended with $118k raised with $42k of extra demand I had to turn down and/or refund.
Some takeaways for next time: