While VCs continue to inject the most capital into private European companies, more and more startups are loving angels as well.
Angel groups, networks and syndicates are collections of people — who can be operators, founders or veteran investors — interested in investing in early-stage startups. There’s a common misconception that angel investing is only for the ultra rich, but that's not always the case.
“We're seeing syndicates of people from various different backgrounds who want to invest in early-stage startups because they're interested in helping founders build companies, learn about investing or technologies and connect with other like-minded individuals,” says Gabriel Shin, head of partnerships at Vauban from Carta, a platform that helps investors pool capital together in a special purpose vehicle (SPV) or with VC funds to invest in early-stage startups. “Being part of a syndicate is one way for them to get access to resources and capital in the VC ecosystem.”
Shin adds that “founders that have successfully exited, experienced operators in tech companies and veteran investors” also join angel groups.
So are angel groups and startups a match made in heaven? We find out what they can bring to the (cap)table.
Smaller investments, bigger impact
Shin believes that instead of purely investing in the public markets — where they may not have as much influence — angels like to allocate a portion of their net worth to where they can have a much bigger impact on startups. Some people want to join the journey with founders, and others do it to give back to the ecosystem, he says.
When you’re angel investing, more often than not you’re in a situation where you’re investing really early
Angel investing as a group enables investors to deploy smaller cheques to multiple companies.
“When you’re angel investing, more often than not you’re in a situation where you’re investing really early, and a small handful of the companies you invest in will generate the overall return of your portfolio,” says Shin. “By having cheques in more companies, your portfolio becomes similar to that of a VC portfolio, which follows a power law.”
In the very early stages, some startups look for strategic and financial investors, meaning angel groups can be an important resource.
There are communities of angels who are ex-operators (or have experience working at big companies such as Google, Spotify and Revolut) and have specific skill sets that they can bring to the table. Given their professional histories, they can tap into the depth of their network to help startups build their company and solve problems.
“It’s not merely capital that the startup is getting from angel groups or syndicates, but smart money that gives them access to investors and supporters with broader strategic value adds,” says Abbas Kazmi, founder of the Power of N, a syndicate made up exclusively of Newton Venture Program alumni.
Kazmi notes that the mentorship and guidance from those with sector expertise and deep operational knowledge can be invaluable — particularly for startups at the earliest stages.
Deeptech, femtech, gaming and foodtech are all examples of angel groups becoming more specialised in their investing strategy and processes
He also lists expanding networks and talent hunting among the other perks angel groups offer.
“The angels can help startups with raising funding and signalling in the market by connecting them with other investors as follow-on funding sources,” he says. “The fact that they have backed you is often a positive signal to the market, as they can help provide validation of the founding team and of the idea, particularly if they are industry insiders and have operating experience in the startup's problem domain.”
Shin adds he’s seeing angel groups “becoming much more sophisticated with sector expertise through collective knowledge and experience”.
“Deeptech, femtech, gaming and foodtech are all examples of angel groups becoming more specialised in their investing strategy and processes,” he says.
The boom in online communities allows people to follow interests, passions and topics that resonate with them — and this is no different when it comes to early-stage investing.
“The rise of online communities has helped facilitate building a community of like-minded individuals for venture investing,” says Shin.
The VC world has historically been working behind closed doors, with decision-making being concentrated at the top
Even VCs are embracing angel groups, says Andreas Munk Holm, cofounder of EUVC, a platform that forms angel groups to invest into venture funds.
“The smartest VCs recognise the power of investors isn’t necessarily connected to the size of their wallet,” he says. “For that reason, we’re partnering with them to provide access and unlock the value-add of these powerful angels, without having to require them to invest the minimum ticket of the fund, which is typically in the hundreds of thousands.”
Yoann Benhacoun, founder of angel group Upscalers, adds that most of Upscalers’ members join not just because they want to invest, but because they want to create new relationships.
“They come to be part of a group of people who value collective intelligence when it comes to investing, who are willing to build trust with each other and to act as a group to support founders beyond their respective borders,” he says.
"We believe that to have a thriving startup ecosystem, experience from past founders and VPs at the most successful scaleups needs to be accessible and transmittable to the next generation of founders,” he adds. “The VC world has historically been working behind closed doors, with decision-making being concentrated at the top… communities are a way to open up the system.”
Matthew Roberts, founder of Nodes Ventures, adds because syndicates are inherently modular, they are easily scalable.
“When it comes to deploying capital, it’s reasonably easy for a syndicate to go big or small depending on their member size and reach with adjacent syndicate networks,” he says. “Increasingly, syndicates globally are of the mindset that we’re all baking the same pie, rather than competing for a slice.”
But, what about the money?
A budding angel investor doesn’t necessarily need to have the capital to join a syndicate at first. An interested party can help with finding deal flow, conducting due diligence, helping with the operations of running the angel community and fundraising for the deal.
We find most angel groups are looking to support by giving their time, knowledge, network and capital
“The startups we interact with love getting to tap into our diversified network,” says Rumbi Makanga, cofounder of Origin Twenty, a syndicate founded by Newton Venture Program alumni. “This is for peer support — as some of our members are entrepreneurs themselves — as well as technical support and the ability to access our wide network.
“Having a group of builders and experts in their corner that they can tap into whenever they need, in an efficient and scalable way, is seen as a huge value-add,” she adds.
When it comes to joining or creating an angel group, it’s smart to begin with a core group of engaged people or close connections who share the same values and passion for the angel investor syndicate you want to grow.
It’s also important to come into a syndicate with a clear idea of how you can add value.
“We find most angel groups are looking to support by giving their time, knowledge, network and capital,” says Shin. “The community will naturally grow as you provide members value.”
Learn more about syndicates by checking out Vauban here.