Angel Syndicates aka Cartels: How Do They Evolve and What Will They Become?

The third syndication boom and its three trends
Barbara Krassner
🇬🇪 Uniborn Team
3 min read

You've heard us talk about syndicates — a dynamic union of angels pooling resources to invest together. Unlike more rigid VC funds, syndicates maintain a high degree of autonomy: even non-lead investors are in control and personally evaluate each opportunity on its own merits. This is what we like to call cartels.

We've already explored the nuances of solo versus team investing, delved into the intricacies of SPVs and compared them to micro funds. Now, let's take a historical journey, peering into the past to forecast the future — will syndication's popularity soar to new heights?

Angel syndication is more than a century old

Ancient venture capitalists may have funded the construction of lightning-fast chariots in Rome or revolutionary pyramids in Egypt. But it was the drama of Broadway in the early 1900s that first hinted at joint venture activity in modern history. Producers spurned by banks sought the patronage of wealthy theater enthusiasts. In return for their support, these patrons received a stake in the success of the productions, while some savvy investors pooled their resources to cushion against potential losses.

But only in 1978, William Wetzel as the visionary founder of the Center for Venture Research coined the term "angel investor" for those providing seed capital to startups. While angel alliances were still far from being commonplace, especially the official ones. Yet, by 1992, Scotsmen Barry Sealey and Mike Rutterford broke the mold by founding Archangels — today recognized as one of the world's oldest and largest angel syndicates.

Over the past 32 years, Archangels has poured more than $380 million into approximately 90 companies. Starting with the pioneering ophthalmology firm Optos, which was acquired by Nikon in 2015 for an impressive $400 million.

Barry Sealey and Mike Rutterford with The Optos founder Douglas Anderson. (Image: Edinburgh Inquirer)
Barry Sealey and Mike Rutterford with The Optos founder Douglas Anderson. (Image: Edinburgh Inquirer)

Let's fast forward to the late 1990s, the era of the dot-com boom when entrepreneurs and investors alike went gold rush crazy. While this era spawned tech titans like Google and Amazon, it also saw the bubble burst. And with it, many lost interest in venture capital in general, let alone co-investment, for a long time.

Following the 2000s, the Special Purpose Vehicle model known as SPV, became popular — a legal structure that allows investors to pool their money without unnecessary obligations, just for the concrete investment, with a single check. This mechanism facilitated investments in today's tech giants like Meta and Х during their early stages — when they used to be good old Facebook and Twitter.

This is how SPV works. (Image: VC Stack)
This is how SPV works. (Image: VC Stack)

Over time, the syndicate industry evolved, giving rise to prominent alliances and syndication platforms such as the Angel Capital Association in 2004, AngelList in 2010, and others.

A new window of opportunity opened up with the revolutionary Jumpstart Our Business Startups Act (JOBS Act) in the US. This act broke down barriers and democratized venture capital by paving the way for crowdfunding. Angel activity surged, and since the law went into effect in 2016, it has spurred the creation of more than 100,000 jobs and more than $1 billion in funding for small businesses — and that's just in the United States. Europe and Asia quickly followed suit.

Not perfectly clear sky, but the clouds are on the move

Although angel investing is already a solid, familiar format, syndicates are not all about roses. Their history also has its problems.

For example, the next boom in syndicated deals occurred during the Covid-19 IT boom in 2020 and 2021. And where there is a boom, there is fraud. In addition, these years, the market saw a proliferation of so-called "tourist investors" who enthusiastically raised millions of dollars but quickly lost their passion and were never able to lead their co-investors to significant exits. By the way, here are some questions to ask to screen the lead investor.

Starting in 2022, syndicate activity took a nosedive. But it's not the challenges of syndication per se. It's a high base effect, coupled with ongoing global crises, instability, and inflation, which have significantly dampened risk appetite in the investment world.

In the US, for example, 2Q23 showed the lowest rate of early-stage dealmaking in a decade. (Image: AngelList)
In the US, for example, 2Q23 showed the lowest rate of early-stage dealmaking in a decade. (Image: AngelList)

Fortunately, we're now seeing a positive shift. Many niches in the venture market are opening up, and even top-tier founders are lowering the bar for investment rounds. And, in the face of continued instability, syndication remains the preferred choice for investors to mitigate risk. This is due to the collective and meticulous due diligence, where weaknesses in the team, idea, or business model are thoroughly vetted by multiple investors, leaving no room for oversight.

The other reasons for the popularity of syndicates remain the same:

  • Diversification. Syndication allows a business angel to invest in dozens of companies in smaller checks instead of making a single large check investment in multiple companies. Startups get a whole network of angels — and are not dependent on one investor.
  • Scaling. It is extremely rare for a single business angel to meet the needs of an up-and-coming startup. Startups rarely have enough expertise from one investor.
  • Speed. The collective expertise of the syndicate helps the startup grow faster, bringing the exit closer. Startups do not have to search for investors and pitch them individually constantly — their rounds close without unnecessary fuss and delays.

In other words, for today and the near future, this is the best format for most early-stage investments — for both investors and founders.

Okay, it looks like we're gearing up for a new syndicate boom in the coming years. What's in store?

The current wave of angel syndicate popularity brings several key trends.

  • The first, of course, is more technology. This means more effective and less routine work.

Yes, technology makes everything easier. Taxes, commissions, and even the opening of legal entities can be automated. As well as inviting co-investors, raising funds, and paying carry. On the Uniborn platform, for example, an SPV can be created in less than a day, and a deal can be closed in less than an hour. And over time, as InvestTech combines the benefits of blockchain and AI, it will be possible to automate even some parts of the due diligence.

  • The second is the rigor of deal screening. This means that the requirements for lead investors will increase.

Many investors say they plan to evaluate deals more carefully and take a more cautious approach to their financial allocations, especially for noisy assets like AI projects. Some also report that they have decided to focus on fewer verticals or industries. And they are demanding deeper and narrower expertise from lead investors.

Of course, being selective doesn't mean slowing down; investors are more likely to learn from past booms. For example, 70% of Central and Eastern European investors plan to be more active this year. (Image: The Recursive)
Of course, being selective doesn't mean slowing down; investors are more likely to learn from past booms. For example, 70% of Central and Eastern European investors plan to be more active this year. (Image: The Recursive)
  • The third trend is expanding beyond early rounds.

Although syndicates typically favor Pre-Seed to Series A stages, their reach is expanding. As Alex Pattis, GP at Riverside Venture, aptly noted, "Founders seem more enthusiastic about taking capital from Syndicates — unsure if it's the market or the value they can get via SPVs, but it’s clear that founders are welcoming syndicates at a later stage, and is increasingly becoming the norm."

Since mid-December, here at Uniborn, we've witnessed a surge in investor activity and appetite. Case in point: one of our recent deals closed in under 24 hours with 11 LPs on board. Let's hope history has taught us something to encourage healthier, bubble-free growth this time around
Dmitry Samoilovskikh, founder and CEO of Uniborn

Cover image: Unsplash

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