Member blog: From ABC to Ph.D. in Syndicate Investing
March 07, 2023
Investing together with other investors, known as syndicating, has become popular among angel investors. In this FiBAN member article, FiBAN member Turo Numminen opens the basics of syndicate investing from the perspective of a business angel - what it means to invest in a syndicate, how to form one, and what the benefits are.
What does it mean to invest in a syndicate?
An investing syndicate is a group of individuals or organizations who come together to pool their money and expertise to invest in a particular opportunity. Each member contributes a certain amount of money, and the group collectively decides how to invest the funds. Typically, one or more members of the syndicate take a lead role in negotiating the terms and managing the investment on behalf of the group.
Investing syndicates offers several benefits, including the ability to spread risk across multiple investors and leverage the expertise and connections of other members. This also benefits the startup, giving them the opportunity to a bigger ticket.
However, they also require a high level of trust and communication among syndicate members, as well as a clear agreement on the terms of the investment and the roles and responsibilities of each member. This is where the networks of angel investors play an important role.
Opt-in or predefined? Forming a syndicate
Syndicates can be opt-in (case by case) or a predefined commitment to investing.
Usually, predefined commitment syndicates are formed around an event or accelerator program, where the best companies get an investment from the syndicate, and the lead investors decide the investment target(s). For example, Estban has been creating many syndicates over the years, and this has become a common practice at FiBAN as well. Many FiBAN syndicates start forming after the Pitch Finland showcase events.
Opt-in syndicates usually mean that the syndicate leader presents interested parties with an investment opportunity with as much relevant information as possible, and performs the due-diligence process. Investors can then evaluate the opportunity and meet the team personally. If a startup appears promising, investors submit a proposal that describes the amount of money they want to provide, as well as a signed term sheet and other documents.
In some cases, the syndicate creates an investment vehicle known as a special-purpose vehicle (SPV). An SPV is a legal entity created for a narrow or singular purpose — in this case, financing a particular startup and managed by a syndicate leader. In Finland, syndicate members can also invest directly in a company without an SPV, and this is common in smaller syndicates that don’t ruin the cap table with tens or even hundreds of investors.
Syndicates are becoming more common – case BlogTech
According to our experience, startup investment syndicates are becoming increasingly common in Finland. Most FiBAN members that we have talked to, usually prefer a syndicate due to the benefits written above. For example, we at Sofokus Ventures have made 12 investments in two years and in one case we were the only investor.
It is clear that syndicates not only help the investor but also the startup. For example, through Sofokus, we formed a syndicate when investing in Blogtec.io, and acted as the lead investor. This means we negotiated the deal terms, made the due diligence, helped the company to create investor reporting standards, and advised on cap-table restructuring before the round.
The founder wasn’t looking only for money, and we were able to help him to create a good team of angels to support the company’s growth in various fields to give more value to the investment. So in this case, the syndicate was formed based on the investor’s skills and money. The syndication also brought the entrepreneur more than just funding – the broadened networks and the expertise of multiple angel investors.
FiBAN member, angel investor, and Sofokus Ventures Co-founder
About Turo Numminen
Turo is an angel investor, FiBAN member, and co-founder of Sofokus Ventures. Turo’s mission is to support startups by providing funding, mentorship, and access to resources. He has participated in more than a dozen syndicate investments since 2020.