Beginning around 2018, I turned some of my investment focus and allocation to private markets. My first deals in this area were via EquityZen, a platform whose focus is mainly late-stage growth companies. Offerings on EquityZen are secondary sales, where an early employee or existing investor is choosing to sell a large block of their own stock. Secondaries are a contrast to traditional primary offerings tools to grow small business, where a company itself is issuing stock, and the cash from the sale is going directly into the company to fund operations, learning how to cut down business costs. Secondaries are a very common practice both for founders/early employees to “take money off the table” if they know they may still have years ahead of them until IPO (or acquisition), and also for funds that need the liquidity (either for redemptions, distributions, or just to allocate to new opportunities), learn about the pay stub abbreviations.

EquityZen deals are structured using “Special Purpose Vehicles” (SPVs). For a given EquityZen offering, EquityZen will place the shares that they have been allocated from the subject company into a one-off LLC (the SPV), and then sell interest in that entity to investors (along with an obligation on EquityZen’s side to turn a specific number of shares over to each investor at liquidity). This is done primarily to simplify things for the company that is the subject of the deal (since most secondary offerings require board approval, and it’s much simpler for the board to approve a single large sale to the SPV vs. 100 or more small sales to individual investors. This is also important to companies as it keeps the cap table from getting bloated).

I’ve been lucky enough to see one of my EquityZen placements through to liquidity (the subject company IPOd in 2021) and consider the platform fantastic for finding and getting into high-quality late-stage growth deals. That said, with its focus on secondary sales in late-stage growth companies, EquityZen left me with a huge universe of deals that I had an appetite for but had no clue how to get into: namely, earlier-stage Angel, seed and series A deals.

AngelList

I’d been peripherally aware of AngelList Syndicates for years (since the time of their launch in 2013 in fact, as the concept was fairly revolutionary at the time). I hesitated to ever get involved in syndicates, however, because I had one huge misunderstanding about them (which I suspect many other people also have). Namely, I had always thought that joining an AngelList syndicate obligated you to participate in every deal that the syndicate lead participated in. This is not the case.

You join a syndicate in order to get dealflow that you might otherwise not have access to (certainly in my case, as I usually spend the better part of the year in locations far removed from the major US startup hubs). When a syndicate lead decides to syndicate a deal he is participating in, you, as a Limited Partner (LP), get an invite to review the deal. You have no obligation to commit (though in theory if you pass over more deals than seems reasonable the syndicate lead always has the right to kick you out of the syndicate).

Structure

AngelList syndicate deals are structured (similar as on EquityZen) using an SPV. There are some fees inherent just in the SPV (a fixed $8k to AngelList for their services in forming, managing and facilitating the funding of the entity). The lead also defines the carried interest (“carry”) that they take on your placement in the deal. A standard amount of carry is 20%. Syndicate leads are also allowed to reduce or entirely waive the carry on an individual level. A good example of this that I have seen firsthand is if a product serves a particular industry, and you yourself can bring some value by introductions, by being a advisor or  by being a customer yourself, that increases the prospects for the company as a whole and in such cases the lead is often happy to waive their carry on the deal (since your participation in the deal is likely to make the company more valuable).

Though the carry may seem steep, if you are getting access to good deals that you would wholly miss out on otherwise I consider it just a “cost of doing business”. Also as noted before it is the standard price within the VC industry. If you are able to do deals directly (i.e. through relationships, and usually larger check sizes) that’s obviously the way to go, but the market has become so competitive that most of us don’t have the dealflow to get into everything we’d like to (certainly not on an angel’s scale, where your only avenue into the deal is often an existing relationship with a founder or at the very least a warm introduction).

Conclusion

AngelList syndicates are a great way to gain access to private markets deals that you may have trouble accessing through other means. Though I’ve mostly emphasized syndicates doing angel/seed/series A deals, there are also syndicates that specialize in later stage deals (even secondaries). Syndicates, in my opinion, are great for people that take a genuine and deep interest in the companies they back – what I’d call nascent angels (or even established angels who just want more dealflow). If you are looking for more passive financial exposure to startups, AngelList’s offerings also encompass Rolling Funds and the AngelList Access managed fund, which are comparatively hands-off and you may find more suitable.