What do we mean by Angel Syndicate?
For each initial investment it makes the CoFund requires a partner syndicate of business angels (a Syndicate) to be investing on the same, or substantially the same, terms and to be willing to work closely with the CoFund both pre and post investment.
Syndicates do not need to be formally constituted and may form around a transaction where the members have agreed to invest, however, the Syndicate members should be actively engaged with each other prior to the investment and work together in terms of sharing due diligence and negotiating terms.
To qualify as a partner each Syndicate must comprise three, or more, private individual investors working in concert to invest, at their own discretion, a meaningful amount of cash (as a proportion of their investible wealth) into a business.
Angels within the Syndicate should be independent of the business at the time of investment, but may take on a non-executive role subsequent to it. They must be investing in the business for the first time and cannot be existing investors (any investment which an angel has already made in to a business, regardless of when it occurred, will be sufficient to make them an existing investor). However other investors in the round, outside of the syndicate, may be made up of a mix new and existing investors.
There is no requirement for a syndicate to have a particular legal form, but it must have the capacity to be counterparty to legal documentation, including a formal Syndicate Agreement, governing the co-investment relationship between the Angel CoFund and the Syndicate.
The Angel CoFund will accept proposals from syndicates that are supported by institutions, such as regional Business Angel Networks or Venture Capital / Corporate Finance houses, where those organisations can demonstrate alignment of interest with the CoFund and other investors and any potential conflicts of interest have been clearly managed. Those solely or largely incentivised by a fee contingent on completion of the investment will not be accepted as representing syndicates, and cannot partner with the CoFund, but will be welcomed more generally to support non-partner investors.
Where the proposal originates from an institution there remains a requirement for a “lead angel” to lead the proposition on behalf of the syndicate. This individual, as well as at least two private individuals in the Syndicate, should be investing a meaningful amount in the business at their own discretion. In instances where an institution forms the counterparty to the Syndicate Agreement they will need to be in a position, either directly or through constituent investors, to meet the obligations to report on the portfolio company and monitor its performance.
The Angel CoFund may decline to invest alongside any Syndicate where it believes its interests are not aligned with those of the Syndicate or it believes the Syndicate is unable to meet its requirements of a partner.
How does the relationship with the Syndicate work?
The Angel CoFund invites investment proposals from syndicates where the members of a Syndicate have made the decision to invest but are unable to provide the entire equity funding requirement of the investee business.
At a transactional level the Syndicate will be responsible for sourcing investments, negotiating terms, undertaking (or commissioning) due diligence and monitoring / reporting thereafter, on behalf of both its investors and the CoFund.
At least one member of the syndicate should act as a “lead angel”, prepared to lead the process and be the principal contact with the Angel CoFund on behalf of the Syndicate. The lead angel is specific to the CoFund’s co-investment and may differ from the individual leading the overall investment round.
The lead angel will be expected to co-ordinate the preparation of Investment Papers for the Investment Committee of the CoFund and to present those papers. It is expected the lead angel should be able to draw on the support of other members of the Syndicate when preparing those papers.
In addition to presenting the investment proposal to the CoFund initially the Syndicate will agree to provide the Angel CoFund with monitoring information relating to the co-investments, although in most case this information will be provided directly by the investee company. This Syndicate will also be obliged to inform the Angel CoFund in relation to future investment or exit activity and share rationale for accepting any such offers.
Once partnered with the CoFund, syndicates are obliged to share future investment opportunities with the CoFund where they invest together as a Syndicate and those opportunities would qualify for CoFund investment. This obligation does not extend through the syndicate to individual members investing in a private capacity without other members of the Syndicate.
Syndicate Fees and Carried Interest
Where the Angel CoFund chooses to invest, a one off fee of 2.5% of the amount the CoFund invests will be payable to the Syndicate. This is considered reasonable as a payment for the investment monitoring and reporting activities that the syndicate is required to carry out on behalf of the CoFund. Additional fund raising or similar fees relating directly to the Angel CoFund portion of the funding round, on top of the 2.5% monitoring fee, are not in the spirit of the Angel CoFund and are as such prohibited.
In addition to the above the Syndicate may collect modest arrangement fees from the investee company on the CoFund contribution, where these relate directly to third party costs (e.g. legal fees). All fees will have to be transparent in the investment paper and the Investment Committee will reject a proposal if they feel that fees and charges are too high. The CoFund will have the discretion to share in any monitoring or other fees charged to the investee company on the same basis as other Syndicate members, if it is felt they are not proportionate to work undertaken by the Syndicates members.
Where a syndicate manager normally charges a carried interest or a similar performance payment on successful investments to other investors the Angel CoFund will consider supporting this and, so long as it reasonable and proportionate, allow it to be payable in relation to its investment.
The one off fee will be kept under review and some partners may want to accept a reduced fee to allow, for example, a larger share of carried interest (a success related payment).
Monitoring and Reporting
Following investment the Angel CoFund will, where possible, remain a passive investor following the syndicate on decisions relating to the investee company. In the majority of situations it will not expect to appoint a Director or attend Board meetings as an Observer (although it will always reserve the right to appoint an Observer and, under certain circumstances, may also request the right appoint a non-executive Director). The Angel CoFund will require the company to provide regular board papers, management & statutory accounts and other necessary documents in order to enable it to monitor the investment.