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So You Want to Angel Invest…Be Prepared to Lead and Follow

This week I spent a day In San Francisco (at the amazing Bloomberg West HQ) listening to some top Venture Capitalists and Angel Investors talk about the industry and the business of investing.

The conference was held by Michael Kim, founder of Cendana Capital who has built a unique firm that deploys capital to angel funds.

Needless to say it was an optimistic crowd, but the right kind of optimistic. Everyone in the room has some winners and a pile of losers. Everyone in the room had been through a few cycles.

My friend Jon Callaghan at True Ventures really brought the optimism into perspective best by explaining how his small Venture Firm, started in 2005, could be lead investors in mobile software (The iPhone did not exist when he started his firm, hardware (Makerbot and 3D Robotics) and even a submarine company (funded with less than $1 million). The cost of starting and building a Company today, in most parts of the world,has plummeted.

Naval – founder of AngelList – took the stage and talked about AngelList Syndicates. If I did not have a fund already, I could use my ‘Klout’ to have other accredited investors follow me into a deal in which I would earn a carry. Our fund has actually invested in Sqwiggle.com through a syndicate led by Naval.

Angel investors with a good track record and a lot of trust built in their networks are loving this idea. Here is Jason Calacanis’s lovefest tribute.

I have run a fund now for 13 years and acted as a lead, a follower, a limited partner, a board member, a complainer, an agitator, a salesman, a business development arm, a shutterer, and cheerleader.

I don’t know much from all this, but I do know having a good eye in a bull market won’t cut it as a ‘Syndicate’ leader. Like picking entrepreneurs themselves, picking ‘Syndicate’ leaders will be HARD. I can’t see myself ever blindly following a ‘Syndicate’ lead, even Jason or Dave Morin. Maybe I am too much a control freak, or maybe like Fred Wilson says:


It also means that they will have to learn to lead and lead well. They will have to step up before anyone else does. They will have to negotiate price and terms. They will have to sit on boards. They will have to help get the next round done. Essentially they will have to work. That’s why they are getting carry from the syndicate, after all.

And over time we will get to see who is actually good at this and who is not. And I can tell you this. Not everyone is good at this. In fact, very few are. It’s hard to be a great lead investor and a completely different thing than being a well sought after angel investor who can get into someone else’s deals. Some will turn out to be great at this. Many won’t. And only time will tell who is and who isn’t.

Angel Investing can be extremely thrilling and rewarding, but it is not very neat and tidy. It will take time along with a lot of trial and error to get ‘Syndicates’ packaged just right. Naval is the right guy to have pushed the envellope here. It is ok to watch the market evolve for 6-12 months like you would an IPO. Let is season and mature. Chasing in any market is how you make mistakes.

  • http://www.startupmanagement.org/ William Mougayar

    Well said. This opens-up many different scenarios. These AL Syndicates could also be followers in deals that a VC is leading or another AL Syndicate is. So, they aren’t always leading.

    As for your participation, – what if it’s an AL Syndicate lead that you trust, and they are in a deal that is interesting to you, wouldn’t you consider being part of it that way, if that’s the only available way?

    • http://www.howardlindzon.com howardlindzon

      i invested in sqwiggle as part of a sundicate so yes i agree that one offs make sense for me and will be for most

  • http://www.gordonbowman.com/ Gordon Bowman

    I love what Naval and AL are doing with Syndicates. The fact that people can get involved with a stake in a startup for $1-5k vs. $25k is huge. That makes a big difference to folks just over the accredited investor limit. But I think you’re right that it’s smart to wait and see this play out like you would an IPO. That’s my plan at least.

    When do you think that accredited investor restriction will go away btw? Surely only a matter of time right?

    • http://www.howardlindzon.com howardlindzon

      lots of pressure to do that. I think Naval is going to be superbly conservative as he should be. Just because people want it, does not mean people should get it

      • http://www.gordonbowman.com/ Gordon Bowman

        is it up to him or is it a legal issue with JOBS act?

  • http://hegranes.com/ jonathan hegranes

    i’ve been amazed how many people have asked me how to angel invest after reading about angel list’s syndicates…

    the conversation goes something like…

    them: “i just read about angel investing where it only takes a few thousands bucks. how do i do it?”

    me: “why do you want to angel invest?”

    them: “to make money…”

    me: “then don’t angel invest… unless a) you love the team / vision of a particular deal or b) you’re ready to commit to angel investing in dozens of deals…”

    them: “oh…”

    with that said, i plan on getting my feet wet — at least until howard let’s me be a lp in his fund…

    • http://www.howardlindzon.com howardlindzon

      all team and domain experience and looking the management in the eye and watching them do their think . or know the angels leading so well and trsting blindly which is so hard

      • http://hegranes.com/ jonathan hegranes

        plus, I wonder if angels become like mutual funds… ie, the general public likes to invest in yesterday’s best performers, but continued outperformance is unlikely.

        we’ve certainly seen that rotation in vc… hard to believe angels are any different.

        • http://www.howardlindzon.com howardlindzon

          i think its already an asset class that just needs more institutional funding and a lot of time

  • http://www.pointsandfigures.com/ pointsnfigures

    It is terrifically difficult to angel invest. good investors do a lot of work on the front end, but more work after the cash goes into the deal. I predicted 10 things that I thought would happen from the JOBS Act, and one is starting to come true already.
    But, early stage investing is incredibly fun.

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