I read a great post yesterday by millionaire VC and blogger Jason Calacanis praising AngelList’s new Syndicates program, which allows any retail investor to team up with prominent VCs over the internet to back new startups.
In Jason’s words, here’s how it works:
1. A “power angel” with a solid track record, who provides massive value, invites other angels to piggyback on his or her deals.
2. AngelList manages that process and takes a 5% ‘carry’ for doing so.
3. The “power angel” then gets a 15% carry.
[Note: a carry is a percentage of the upside. So, if you invested $10k as a syndicate and it turned into $100k, there would be a $90k gain. So, 5% of that gain ($4.5k) would go to AngelList and 15% of that gain ($13.5k) to the super angel. This is fairly standard, with the top firms / fund managers getting 30-35% carry after years of proving themselves.]
AngelList Syndicates will reinvent how startups are funded, Jason believes, and not all traditional VCs are happy about it.
Especially the ones taking 12 weeks vacation while collecting 3% management fees and showing up late for board meetings.
Calacanis, the founder of Weblogs, Inc., and countless other startups, shared his views on how to succeed as a venture investor.
You can only succeed as an angel investor, I believe, if you are a massive gambler. You have to bet, bet, bet with ice in your veins: knowing that after dozens of failures, you’ll hit a winning bet of epic proportions.
He also uses the post to promote his own syndicate.
All I do is create, interview and invest in startups all day. I have a massive, unfair advantage due to my deal flow and knowledge of the space.
Although AngelList’s Syndicates program is promising, scams may be easier than ever to perpetrate. A founder and “Power angel” in cahoots could no doubt take advantage of Syndicates, and likely get away with it…
Regardless, venture investing has always been a “At your own risk” business. As Fred Wilson says:
“Buyer beware. Do your diligence. Diversify your risk. Prepare to lose money. That’s the rules of startup investing but not everyone knows that.”
Read: The Great Venture Capital Rotation | Jason Calacanis
Related: Let The Games Begin | A VC