Investment in private companies is becoming easier and more accessible as regulation continues to develop across the globe. Equitise has been at the forefront of these changes, providing individuals the chance to access investment opportunities previously reserved for institutional investors via equity crowdfunding. Now Equitise is doing the same thing with syndicated investment.
In our previous two posts on Syndicated Investment, we’ve taken you through the evolution of this economic framework, and the importance of carried interest. Today we want to step you through the key benefits of having sophisticated lead investors allocating their funds in tandem with less experienced backers.
How does it benefit investors?
The phenomenon of syndicated investment has garnered a reputation for benefitting companies and investors in equal measure. Syndicates have, to an extent, codified the sort of investment angels already conduct – it’s just that they can do so under syndicates formed on Equitise’s platform.
By aligning themselves with experienced Angels as their investment leaders, backers acquire improved deal flow – investments that might not have been accessible become so. The other key benefit is the decreased risk and paperwork – Angels’ expertise eliminates the traditional risks and discern the most viable startups and deals. Following the Angels’ lead makes sense – their investment credentials and background allow you to hijack this experience for your own portfolio’s benefit, with a common interest.
The investor leading the syndicate, the ‘lead’, is allocated a larger share of profits. This is in recognition of their expertise and experience, and provides incentives for individuals to create syndicates. See our earlier post on carried interest for more information.
What are the benefits for companies?
Syndicated investment platforms collate groups of investors who wish to pool resources to back a business – a key advantage of this process is that these syndicates develop quickly. Not only does the startup have access to higher sums of capital, but the packaging of syndicated investment means it can be obtained at a faster rate than pitching to individual investors. This saves key resources as syndicated investment alleviates the requirement to dealing with multiple different investors.
In all, the company taps into the syndicate’s connections, but does not vest them each a direct interest in the company, instead the startup acquires the syndicate as a single item. Moreover, business angels don’t just furnish capital – they provide the aforementioned network, as well as their financial guidance and experience. It’s also down to the leaders to navigate the relationship with the backers, simplifying the investment dynamic further for the recipient company.
How does equity crowdfunding fit in?
Equity crowdfunding is a tremendous boon for businesses and investors alike. Where it succeeds is its ability to harness the crowd, allowing everyday investors to discover, research and select investments based on their investment knowledge and appetite.
Where syndicated investment triumphs is that it allows investors who lack knowledge of certain industries or investments to tap into the expertise and business acumen of experienced investors, ‘leads’. It solves the problem of the knowledge gap that retail investors can have when pursuing opportunities in unfamiliar industries. It also removes inefficiencies by having only one trusted party carry out the necessary due diligence.
The disruption caused by syndicated investment has attracted attention across the financial sector. By accelerating the capital raising process through platforms that tap into the ‘crowd’ mentality, syndicate investment not only achieves the aims of early-stage companies, but their leaders and backers alike.