This article was first published by Forbes and was written by Marianne Hudson who is the Executive Director of the Angel Capital Association (ACA).
If you’re an angel investor and aren’t yet well-versed in syndication, now is the time to take notice. The changing math required to fund promising companies explains why: the median deal size for angel groups in 2014 was $800,000 (according to the Halo Report) and the average angel group invested $250,000 (per the Angel Capital Association). Finding ways to plug this $550,000 funding gap explains why a new Halo Report also reported that about 70 percent of angel group deals in the last five quarters were syndicated between multiple angel groups and other investors such as individual angels, venture capitalists, family offices and private equity. These facts represent a shift in angel investing. Syndication is the solution funding high growth companies.
Cognition Therapeutics (CogRx), is an excellent example. CogRx is a Pittsburgh based company focused on discovering and developing disease-modifying therapies for Alzheimer’s and related neurodegenerative diseases. The complex company was seeking a Series B round and in the end, the syndicated deal was bigger than the company originally sought: $12 million, a very large round for angels. The deal was led by Golden Seeds(New York and many cities), which brought in some of the top angel groups in the field from literally throughout the country, including five other ACA members, including Tech Coast Angels(Southern California), Cowtown Angels(Fort Worth), Maine Angels, Pittsburgh Life Science Greenhouse Accelerator Fund, and Ariel Southeast Angel Partners(Savannah), as well as a number of other life sciences investors.
Syndication on this scale doesn’t come without challenges. Sometimes it’s the seemingly incidental things such as figuring out how to work with parties spread across a wide geographic area. Or it’s the details around how to corral and organize a disperse group of investors so that company leaders can meet with them in person, in an orderly manner.
Ken Gatz, CEO and Founder of ProSeeder Technologies, walked me through this deal and what was needed to make large syndicated deals (like CogRx) successful. ProSeeder is a web-based software company that investing organizations (including Golden Seeds, Cowtown Angels and Tech Coast Angels, in the CogRx syndication), use to manage deals and organizational operations.
Gatz clarifies that there are three stages to syndication process:
If you’re ready to try syndication, start with the fundamentals that have created success elsewhere: Branch out and meet new angels so you can build a network of fellow investors that you know and trust, keep your eyes open for angels with the right skills to be strong leaders, and learn about syndication technology and tools so you can find what works for everyone involved.
This article was first published by Forbes and was written by Marianne Hudson.
"I am an angel investor and Executive Director of the Angel Capital Association (ACA), the world’s leading professional association for angel investors. ACA is focused on fuelling the success of accredited angel investors who support high-growth, early-stage ventures, and has more than 12,000 member angels across North America.
I know one thing for sure: there is a method to the madness. In shaping ACA professional development programs and public policy advocacy, I have the opportunity to hear firsthand from experienced angels and the ecosystem at large—what works, what doesn’t work, and strategies to consider for everything from getting started as an investor, to finding great deals, to supporting the companies you invest in to growth and exit. I know about trends and impacts of angels and innovative startups too.
Earlier in my career I ran the angel initiative at the Kauffman Foundation, which led to ACA and the Angel Resource Institute, and where I also oversaw entrepreneurial education and mentoring progra designed to ensure that more entrepreneurs develop sustainable, innovative businesses. I love entrepreneurship and have worked in supporting fields for more years than I will admit. I am a member of two angel groups in Kansas City and also connect with several accredited platforms."
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