Startup Syndicate Investment Playbook E-Book

Gabriel Jung

• Herausgeber: WS
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 82

Veröffentlichungsjahr: 2018

Beschreibung

“A big applause to the authors for turning their comprehensive knowledge and practical experience in syndicate investing into such a well-organized, easy-to-read content. Syndicate investing in startups has been always complicated topic to me, but having finished the book, I feel pretty confident that I can lead a syndicate investment on my own. Well done!” 

- Hon Lung Chu, Harvard Business School MBA -

Leseprobe

Startup

Syndicate Investment

Playbook

Raising cross-border capital through an SPV and investing in early-stage U.S. startups

Gabriel Jung |Jed Ng | Yuki Shirato

"If syndicate investing seems daunting, this book's clear approach will turn you from beginner to being ready to lead your own syndicate!"

- Arno Alarcón, MIT MBA -

“A big applause to the authors for turning their comprehensive knowledge and practical experience in syndicate investing into such a well-organized, easy-to-read content. Syndicate investing in startups has been always complicated topic to me, but having finished the book, I feel pretty confident that I can lead a syndicate investment on my own. Well done!”

- Hon Lung Chu, Harvard Business School MBA -

“A step-by-step guide to starting up an investment syndicate from deal sourcing, pitching potential backers to opening up bank accounts. If you are planning to set up and lead an investment syndicate, this playbook will guide you through the entire process and make sure you tick all the necessary boxes!”

- Deuk Jung Kang, INSEAD MBA -

“Practical and helpful! This book guides you through syndicate investing step by step and answers all the questions that you might come across during the process. The authors did a great job in telling us that we, as individuals, can support the growth of startups through syndicate investing even when we're not VCs."

- Gia J. Yim, Berkeley Haas MBA -

“This is a must-read playbook for anyone who wants to form a syndicate for investing in startups. It provides a step-by-step guide and practical advices from deal sourcing to closing. Very easy to follow and understand with the help from useful templates provided.”

- Danny G. Moon, Wharton MBA -

“I am glad that I found this playbook! You don’t need to be an investment professional to lead a syndicate investment in an early-stage startup. Just follow what it says in this playbook. You will have become an investment professional.”

- Doo Hyun Lee, London Business School MBA -

Copyright © 2018 by Gabriel Jung, Jed Ng, and Yuki Shirato

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the author, except for the inclusion of brief quotations in a review.

If you would like permission to use material from the book (other than for review purposes), please contact [email protected].

Thank you for your support of the author’s rights.

First edition: August 2018

The authors have made every effort to ensure the accuracy of the information within this book was correct at time of publication. The authors do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from accident, negligence, or any other cause.

Table of Content

1. What is an Investment Syndicate?

2. How an Investment Syndicate Can Benefit all Parties

3. Syndicate Investment Process Summary

4. Deal Sourcing

5. Getting an Allocation for Your Syndicate

6. Term Negotiation with a Startup

Target Amount

Timeline

Investment Vehicle (Convertible Note/SAFE/Equity) & Terms

7. Due Diligence (DD)

Human resource DD

Commercial DD

Financial DD

Legal DD

8. Target Valuation

9. Terms to be Communicated to Syndicate Backers

Lead investor Commitment

Minimum Check Size

Upfront Cost

Carried Interest

Management Fee

10. Contacting Potential Syndicate Backers

Preferred People

Number of Backers

Citizenship

11. Pitching a Startup

1-Page Investment Teaser

Due Diligence Report

1:1 Session

Webinar

12. Soft “Capital Call”

13. Setting Up an Investment Entity - Special Purpose Vehicle (SPV)

Delaware

LLC vs General Corporation

Manager Managed (Recommended) LLC vs Member Managed LLC

One-Time or Continuous Investment

Entity Formation

Syndicate Formation

14. Opening a Business Checking Account

LLC WITH a U.S. Citizen Member

LLC WITHOUT a U.S. Citizen Member

15. Preparing Tax-Related Documents for Syndicate Backers

Certificate of Passport Copy

Tax ID Application for Each Foreign Investor (W-7, SS-4)

Tax Exemption Documents for Foreign Investors (W-8BEN, W-8BEN-E)

16. Contract with Syndicate Backers

17. Capital Collection

18. Investing as a Syndicate

19. Follow-Up

Monthly or Quarterly Update

Tax Return Prep

Share Transfer

Exit

20. Templates / Application Forms

21. Contract Draft (Lawyer-Prepared LLC Agreement)

22. Syndicate Leads & Backers Network

23. Advisory

24. About the Authors

1. What Is an Investment Syndicate?

An investment syndicate is a privately-run, single-deal venture investment fund that allows individual investors (each a “backer”, and collectively the “backers” or the “syndicate backers”) to co-invest with an experienced lead investor (“lead” or “syndicate lead”) in a high-potential startup. This structure allows each backer to contribute a relatively small amount of capital—which may be below the minimum amount required for direct investment—thus giving the backers access to a deal they otherwise wouldn’t have had the opportunity to invest in. A syndicate lead organizes a special purpose vehicle which governs the parties’ rights and responsibilities for such an investment as described below:

Syndicate Lead

A syndicate lead is an organizer of the syndicate who later becomes the syndicate’s “manager”. The manager sources an investment opportunity, fundraises from a number of individuals or entities that are not necessarily investment professionals, and makes a lump-sum investment in a target startup. The lead is responsible for forming a legal entity (e.g. LLC or General Corporation) and establishing a legally-binding investment vehicle that protects each backer’s rights for the life of the syndicate.

Syndicate Backers

Backers are individuals or entities who join the syndicate as members by contributing small amounts of capital. Based on the strong trust they have for the syndicate lead, backers rely on the lead’s due diligence, negotiation, documentation, follow-ups, and exit strategy in regard to their investment. They own shares of the syndicate that is formed as a legal entity, and they are entitled to the distributed profits, dividends, and exit-related capital gains that the startup generates. Each backer is entitled to distributed profits and/or capital gains in proportion to his or her shares in the investment.

2. How an Investment Syndicate Can Benefit all Parties

The investment syndicate is a vehicle that makes a market by channeling capital to startups, and it can be organized and operated in a way that benefits all stakeholders.

Syndicate lead can expect the following benefits:

-Entitlement to carried interest that typically ranges from 12 - 30% (this is a percentage of the increase in a startup’s valuation that is paid upon an exit event such as an IPO or a straight sale).

-Ability to invest in deals larger than what the syndicate lead would ordinarily be able to come up with individually.

-Leverage and diversification: By grouping a larger pool of capital, the syndicate lead can invest in a larger number of deals and deploy larger sums of capital across portfolio startups, thus diversifying the risk associated with individual investments.

-Negotiating strength: The syndicate lead is able to negotiate more favorable investor rights and terms due to the larger investment amount.

Syndicate Backers enjoy the following benefits:

-Access to deal flow that they would not otherwise have due to network limitations, geography, or other reasons.

-Affordability: Access to deals with a higher risk threshold and minimum investment amounts than they could otherwise not have access to individually.

-Borrowed expertise: Due diligence and investment processes are executed and managed by a trusted and experienced syndicate lead.

-Reduced administration and paperwork.

For a Startup, the investment from a syndicate means:

-Access to a larger pool of capital and a more diversified group of investors.

-The single investor entity—as compared to a large number of small individual investors— makes it easier for a startup to manage, and it allows the startup to maintain a clean cap table.

-A large number of syndicate backers can become advocates/consultants for the startup, offering advice, customer introductions, social marketing, and other benefits.

3. Syndicate Investment Process Summary

For those who want to review the larger perspective for making a syndicate investment in a startup, here is a summary of the entire process. It is intended to give you a general idea about the steps that have to be taken from the initiation to the closure of a deal.

As figure 1 shows, you start from looking for and securing an excellent investment opportunity in the industry that you are interested in. You then conduct a thorough due diligence on the startup that enables you to pitch the business in detail to other people on behalf of the startup’s CEO. This is followed by pitching the startup to all the potential backers you’ve prelisted (call sessions, webinars, etc.) Next is the soft “capital call” in which you collect commitments from individuals seeking to join your syndicate for investing in the startup. Once you have sufficient backer commitments, you set up a legal entity (with the possible help of a lawyer or agent) and open a business bank account for the entity. Then, you typically use the services of a CPA to help you prepare all the legal and tax-related documents that are necessary for syndicate members. Once backers sign on to those documents, you collect the committed funds from each investor. Lastly, and with the capital in hand that you’ve promised the startup owners, you sign on the contract with the startup and transfer to them the lump-sum that was agreed upon in the investment contract.

[Figure 1: Syndicate Investment Process Summary]

[Figure 2: Usual Timeline]

4. Deal Sourcing

Now that you’ve determined that you want to become a syndicate lead: