Angel investment syndicates offer hands-on approach to funding start-ups

Angel investment syndicates are growing across the nation, enabling like-minded individuals with money to get a slice of the investment pie.

Founder of Aussie Angels and CMACK Ventures, Cheryl Mack.

Angel investment syndicates are growing across the nation, enabling like-minded individuals with money to get a slice of the investment pie without having to stump up the cost of house deposit to gain entry.

New groups are forming in parallel to venture capital firms by investors who aren’t interested in having their money managed by a fund and would rather make their investments on a deal-by-deal basis in a more “democratised” approach.

These syndicates aren’t just rising in opposition to venture capital firms but often in partnership, with the owners of certain funds building syndicate networks alongside their initial funds to broaden their investor base.

Spin-off programs are also being used to bring new deals to the table, with funds and syndicates establishing scout-like programs in which “mavericks” seek out new deals and share a slice of the management fee.

Once such program exists at TEN13. The venture capital firm, founded in 2019, has established a mavericks program in which the group allows promising angel investors, and sometimes investment syndicates, to seek out deals.

TEN13 partner Stew Glynn.

Brendan Hill, angel investor and maverick at TEN13.

Managing partner Stew Glynn said mavericks would serve as scouts who have access to TEN13’s network of investors, which includes about 500 people from Australia and New Zealand. TEN13 has invested more than $70m in 32 companies.

“We don’t proclaim that TEN13 is a deal team with just six of us, (and) we don’t see every deal in Australia, so we think this program is a great way to widen that funnel and get diversity of deal flow in front of our investors,” he said.

Mr Glynn said TEN13 saw the syndicate model and maverick program as a way to build an engaged network.

“(This way) you don’t have to have coffee with a few different investors to get to get that number of investors to support you,” he said. “We see ourselves as a blend of a venture fund and an angel group. We’ve tried to take the best of the two things to make the best experience for founders.”

One of TEN13’s first mavericks is Brendan Hill, an entrepreneur and angel investor, who believes syndicates will soon takeover from venture capital funds.

“The next Blackbird is going to be a syndicate, not a fund,” he said. “We have over 500 deal scouts, so all investors can become deal scouts … and we get fantastic deal flow all across Australia. I see my future long-term with TEN13 from a maverick standpoint and an investor standpoint.”

Cheryl Mack, the founder of CMACK Ventures and investor platform Aussie Angels, is another who has gone down the syndicate path.

“When I started angel investing about four years ago my cheque sizes were small – it was small and it still is small. It took a lot to convince founders to bring me on board,” she said. “A lot of the time people would say, ‘I don‘t know, your cheque size is small, you don’t add as much value as me’.”

As she matured as an investor, Ms Mack said she found herself repeating what was said to her, which inspired her to develop Aussie Angels.

She said although syndicates took about the same amount of effort to set up, the commitment wasn’t as long as a venture capital fund. “If you’re a venture capital fund manager, you’re looking at a lifespan of at least 10 years,” she said. “Most funds started in the last three to five years haven’t gotten a return on their fund yet. It’s a huge commitment and there’s not a lot of flexibility.

“With CMACK Ventures, I could stop investing tomorrow and there’s no harm done. There’s a lot of flexibility as to whether I want to continue this or not.”

Amanda Goodman, Daniel Madhavan and Jeremy Burke, of The Climate Angel Network.

The Climate Angel Network launched this year with a $300,000 grant from a LaunchVic, a government agency formed in 2016 to boost Victoria’s start-up ecosystem.

Amanda Goodman said she and her co-founders, Daniel Madhavan and Jeremy Burke, would use the grant to build a platform for emerging syndicates.

“Venture capital is largely a more passive form of exposure to early stage ventures. What we’re attracted to about the angel syndicate model is the proximity that investors have to the founders and that they’re able to get involved at a much earlier stage and get involved directly.”

Another syndicate to have received funding under LaunchVic’s program is The Playbook Angel Network, a relatively new group which began operating privately about three month ago.

Rohit Bhargava, who runs The Startup Playbook Podcast, is behind the operation and the three deals its near three dozen investors have made.

Mr Bhargava received $280,000 from the program to launch a syndicate in which he’ll co-invest in each deal brought to the group.

“We’ve been operating in private for the past three months, we’ve completed three deals and there are about 31 angel investors who have now signed up,” he said.

On syndicates, Mr Bhargava said, “logistically it’s a lot easier to get up and running”.

“We’re not necessarily tied to specific mandates or approaches that VC funds need to operate in so we can be a lot more open to different deals. There’s also something really powerful in our investors choosing to invest in different deals.”