I have long been a fan of AngelList, an innovative online platform for startup funding and recruiting. I have watched the rise of the platform with great interest and enjoyed playing with it around the edges.
Over the last few years, individual angels and even some firms have used AngelList to create investment clubs to invest in individual startups in what are known as syndicates. More recently, funds have used AngelList to create special purposes vehicles (SPVs) for follow-on investments in portfolio companies.
My Flybridge partners and I decided we would try a new twist on the model by creating a small fund on AngelList as a platform to make seed investments centered around a particular community and theme. To that end, a few months ago, we created something we call The Graduate Syndicate fund, a $2.4 million seed fund. BostInno wrote a bit about it here.
The Graduate Syndicate will invest $100,000 in compelling startups founded by recent Harvard graduates, particularly out of Harvard Business School (HBS). As a faculty member in the Entrepreneurship Department over the last six years, I have had the opportunity to teach hundreds of brilliant, enterprising students. Flybridge has invested in a few of them, but many of the recent graduates (and only graduates, in compliance with Harvard’s conflict of interest policy) are at such an early stage — pre-seed or seed — that they are pre-institutional at the time that I am advising them. As with our other investments, our goal is to back outstanding entrepreneurs who are pursuing large, disruptive opportunities that we think can generate outstanding returns. But by operating more like an angel — we don’t price the deals or take board seats, we don’t require partner meetings but instead make decisions after a few meetings given we already know these entrepreneurs well — we can be more flexible with regard to process, stage, sector and geography.
The other thing we decided to do in creating the fund is to invite some of our friends to invest alongside us who are from the Harvard community. So, in addition to Flybridge IV (our fourth fund, which we are currently investing out of), the LPs in The Graduate Syndicate are a handful of HBS professors and alumni who are excited to support the young entrepreneurs, many of whom they had in their classes or have been advising as Entrepreneurs in Residence (EIRs). We also assembled a group of recent alumni entrepreneurs as advisors to be available to coach the founders through the ups and downs, particularly in the early years before they have more formal advisors or boards.
The benefits of The Graduate Syndicate to entrepreneurs are compelling: pre-seed money from a trusted advisor, a network of amazing LPs and experienced entrepreneurs available to them, and inclusion in the broader Flybridge network of nearly 100 portfolio companies. Since creating The Graduate Syndicate a few months ago, we have made eight investments: Amartha, Baroo, Camino Financial, Digital Outposts, Fitzroy Toys, Funding Societies, Getaway and Robin Health. The website lists them all, but the plan is to run the experiment for the next year or two and then assess the results.
Having created this new model on AngelList, I thought I would share a few observations as a venture capitalist working with the platform:
- Smooth Back Office. Although we have our own, crack finance team, when you are investing on AngelList, you are benefiting from a very experienced back office team, with existing contracts and processes. Collecting and tracking numerous small dollar investors has an overhead attached to it. The AngelList team has been absolutely first rate to work with.
- Brand/Reputation. Like many leading platforms, there is a brand and reputation benefit to working with AngelList. LPs who knew it (although many did not) were immediately comfortable with jumping on the platform and investing through it. Similarly, the startups we have invested in are all listed on AngelList and were comfortable with the flow of agreements and money. Over time, I would expect more investors to jump on the platform, making it even easier to work with.
- Capital. In theory, AngelList also brings capital. We haven’t utilized this feature for The Graduate Syndicate because we are a closed fund (that is, for the first fund, we only allowed LPs who we knew well and trusted to participate). But for our startups, we expect to see funds like CSC (who committed $400m to AngelList companies last year) and others become sources of available capital.
- Work in Process. We were breaking new ground with AngelList and the team has been outstanding in working through the issues, but there are still some rough edges. For example, although we don’t charge any fees for The Graduate Syndicate, there needs to be a fee mechanism in place before other funds will jump on to the platform. AngelList is working on adding this feature and many others.
All in all, creating a fund on AngelList has been a very positive experience. If anyone would like to learn more from our experience, let me know!