The Alternate Liquidity Syndicate

Hunter Walk wrote the other day about potential new and different types of AngelList Syndicates and one of them was The Alternate Liquidity Syndicate:

But what if there were a group of investors who were comfortable with different types of businesses or different funding cycles. Instead of doing increasing financings every 12-18 months, what if a company took a smaller amount of money, went back to their investors infrequently and got to profitability. Maybe they’d throw off cash dividends for years to come. Or have different liquidity assumptions beyond acquire or IPO. Venture firms turn their back but Syndicates set up with this investment model might think differently. We look at AngelList today as a platform for early stage venture-style tech investing but as software eats the world, there are startups enabled by tech but not necessarily startup rocketships, in model or ambition. With seed capital requirements which fall somewhere between a bank small business loan and venture. Would Syndicates be a solution?

While his other two suggestions are good, to me this is by far the most intriguing. As many have started to see via crowdfunding campaigns and product launches, not all tech related products must be billion dollar homeruns. For VCs with different fund sizes and investors, it is important to have big wins that make up for the 40% or more of “losers”, but for smaller groups of investors, a series of safer cash flows can be invaluable.

I’ve seen this at the fund level, investors who are willing to take a fixed return (acting like a bond issued from the fund) because a “guaranteed” x% return is more important than a highly volatile or unsure (x*5)% return.

One of the best use-cases for this type of syndicate would be hardware and connected devices. Although a few VCs have emerged to fund hardware startups due to the recent success of companies like Nest, Fitbit, and Jawbone, often these types of startups turn to crowdfunding in order to retain equity, receive financing, and push out pre-sold product based on a prototype, at a future date. This model worked great for companies like Pebble and my favorite, Narrative, but if there were private funding and investors to help iron out details, create better prototypes, and advise these young companies, maybe we would see less issues with delays, financial struggles, and general mismanagement.

It’s an interesting thought and the entire piece by Hunter is great. Like him and many others, I’m excited to see the way syndicates can develop, and hope that AngelList becomes one of those networks that is molded and expanded by their users over time.