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Small investors, big impact: The power of syndicates in early-stage fundraising
- Small investors, often called business angels, can be a game-changer in fundraising, however, they need to diversify their portfolios to mitigate the high risks associated with startup investing.
- Syndicates allow small investors to pool their resources and appear as a single name on your cap table, making it easier for them to join your journey.
- Different syndication platforms offer various templates and options for legal structure of syndicate such as agreement between investors, trustee or fiduciary and special purpose vehicle (SPV).
- A syndicate typically involves four key roles - the platform or vehicle, syndicate manager, investor representative and syndicate members.
- Establishing the syndicate is only the first step, managing it throughout the lifecycle of the investment is also essential.
- Syndicates come with ongoing costs, from legal fees to compensation for the time of the syndicate manager. Aligning expectations around these costs with the investors upfront is important and can prevent surprises later.
- Syndicates can be a win-win for both entrepreneurs and investors.
- While setting up and managing a syndicate requires attention and has costs, the benefits outweigh the complexities.
- Success hinges on choosing the right type of syndicate, having clear roles, well-documented and simple processes and goodwill from all parties involved.
- Syndicates can help entrepreneurs raise more capital, build stronger relationships, and keep their businesses poised for growth.
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