Monday, February 17, 2014
Understanding An Online Funding Platform – AngelList SyndicatesBy: Matt Dunbar, Upstate Carolina Angel Network
ACA recently hosted a Webinar with AngelList co-founder Naval Ravikant to help members learn more about the AngelList syndicates platform. During the hour-long webinar Ravikant explained how AngelList syndicates work and how they enable entrepreneurs and angel groups to attract more investors to fill out funding rounds. Here is a quick summary of some of the details
Ravikant shared during the wide-ranging Webinar:
A: Although any entrepreneur can post a deal to AngelList and try to attract investors, the syndicates platform requires a lead investor. The lead investor can be an individual angel, angel group, or seed fund that sets the terms, commits initial funding to the round, and provides an investor’s perspective on the candidate company. The syndicates platform is simply a vehicle to attract other investors to the deal.
A: The entrepreneur and lead investor can choose to raise funds publicly under the new 506(c) rules, which require a higher burden of proof that all investors are accredited (and will also include additional filing requirements when the SEC publishes its final rules on the subject). Alternatively, we have created a way for syndicates to operate under the 506(b) rules, which still allow for self-certification of accreditation status.
A: Yes - AngelList only accepts accredited investors. For companies raising funds publicly, AngelList provides an accreditation verification system for investors to verify their accreditation.
A: There are no upfront fees to set up a syndicate. AngelList receives a 5 percent carried interest on profits returned to investors participating through the platform. Lead investors can choose to take an additional carry of up to 20 percent.
A: No. The carry applies only to the funds raised through AngelList.
A: AngelList's core business model is focused on revenues from matching startups with talent. The syndicates platform has high upfront costs to AngelList, which AngelList hopes to cover through the 5 percent carried interest.
A: Liability concerns are top of mind for the company and for investors, so AngelList has worked to provide as much protection as possible. AngelList creates a separate Limited Liability Company for each investment to help clearly define and limit potential liabilities. AngelList shields deal leads from liability as much as possible by making sure that every investor is accredited and reasonably sophisticated. We help educate them. We make sure they understand they're probably going to
lose their money, that this is a very high-risk investment. They each go through an education process every time they do a deal. We encourage the leads to only accept backers who are sophisticated by giving them data on how many deals they've done.
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