Seeking angel investment can be a time-consuming and complex endeavour. As a result, more and more angel investors are banding together into groups to act in a syndicate.
The terms are often loosely thrown around interchangeably, but there are differences between the two. Let's look at the differences between an angel investor and an angel investment syndicate and why you, as a founder, may prefer one over the other.
Angel Investors vs Angel Syndicates
In a nutshell, an Angel Investor is a wealthy individual who invests his own money into early-stage companies. In contrast, an Angel Syndicate is a group of investors who may pool their capital to invest in promising early-stage companies. There are different types of Angel Investors and Angel Syndicates which we will cover in this article.
Although both terms refer to the same category of investors, there are differences in the approach, appetite and the operational process of investing their capital into early-stage startups.
What are Angel Investors?
Angel investors are wealthy individuals who invest their own money into exciting new companies. Their criteria are as diverse as they are. Some will invest early before your product launches or even before you have proof of concept. But, more often than not, they will require evidence of at least some traction or other validation (such as revenue). The requirement for proof of traction is particularly true for businesses where the barriers to entry are low, and there is considerable competition in the marketplace.
You might have heard the terms "High Net Worth Individuals" (HNWI) or "Sophisticated Investors". Most angel investors fall into one or both of these categories. While there is no minimum investment size to qualify as an angel investor (technically, anyone who invests their money into startups is an angel investor), routine and frequent angels tend to be HNWIs.
As an individual, an angel investor will typically limit the number of deals in which they invest. Therefore, they tend to be more cautious when deploying capital. Expect them to do rigorous due diligence prior to investment, and if they are an early investor, they might also require input in the strategic direction of the business.
Thanks to the EIS & SEIS scheme in the UK, angel investors who invest in EIS-qualifying startups benefit from tax relief, allowing them often to take a bit more risk on a startup. For more information on these tax relief schemes, read our article on EIS & SEIS.
How much do Angel Investors invest in startups?
£50k - £500k
What is a typical timeline for Angel Investors?
Typically, it takes 1-6 months for angel investors to complete their deals. This timeframe includes due diligence on your company and term sheet negotiation.
Where can you find information about Angel Investors?
In the UK, there are databases such as Beauhurst, where you can look up information on any HNW angel investors who have previously invested in growth companies. At Capital Pilot, we're currently building a network and database of angel investors to share our deal flow as we launch the Capital Pilot Boost Funds later this year.
What are the Pros of having Angel Investors?
Low (or no) fees compared to Venture Capital funds.
They can provide full fundraise without a marketing effort.
They often will be able to provide hands-on support and guidance.
What are the Cons of having Angel Investors?
They can be elusive or hard to find unless you have existing relationships or a broad network. In most cases it is difficult to find access them
Angel investors may require varying levels of control over the business.
UKBAA - Trade association of angels, who run good events for entrepreneurs and angels.
What are Angel Syndicates / Networks?
Angel syndicates manage deal flow, due diligence and transactions on behalf of an angel investor network. A syndicate is a membership group that brings angel investors together to present deals to its members. Individual members then decide to invest their own money in the companies on offer. Some angel syndicates also operate separate funds to invest alongside their member investors.
Angel syndicates often utilise live pitch sessions or monthly and quarterly events to connect startups with investors. Some may also have a specific sector or geographic focus.
When a syndicate presents a deal to its network, more than one investor will typically look to invest in the company, and this often means that startups can close their funding rounds quickly. In some cases, angel investors form their own so-called "Angel Funds" to pool their capital together and invest in multiple startups in a fund format. This allows them to diversify their investments and share any risks with other fellow angel investors. The benefit for the startup? Syndicates typically invest higher amounts compared to individual angel investors.
Thorough assessments are usually carried out before your business is presented to the network or syndicate to qualify the investment. This means that, in some cases, deals can be closed quicker as well.
How much do Angel Syndicates invest in startups?
£150k - £1m
What is a typical timeline for Angel Syndicates?
Like individual angel investors, it usually takes 1-6 months for angel syndicates to complete their deals. This timeframe includes due diligence on your company and term sheet negotiation.
Who are some of the key angel syndicates or networks in the UK?
What are the pros of angel syndicates?
Access to a group of HNWI members.
The syndicate will handle the transaction and due diligence process.
Help with your pitch.
What are the cons of having angel syndicates?
Fees could be high (5-10% of the fundraise size).
Connections to members may only happen on a schedule at monthly or quarterly pitching events.
There are a lot of hoops to jump through and formal diligence is required, so being presented to their member investors may take some time.
How to find Find Angel Investment for Your Startup?
Angel Investors and Angel Syndicates are thought to be one of the primary sources of funding for early stage startups. Although there is an increase in the number of seed venture capitals providing seed funding, angels are still considered by many as the preferred source of funding before they are ready for institutional money. We routinely share the businesses we rate at Capital Pilot with our network of angel investors so you are an early-stage business and considering angel investments, come and get your assessment today!
Where Can I Learn More?
Capital Pilot is here to help founders value their startup. For more information, check out all our Startup FAQs here. Or, if you are ready to get your investability assessment and rating, click here.