What is a syndicate?
Syndicates are two or more private investors working together to share the risks and rewards of investing in private companies. Syndicates differ from individual business angel investors, as syndicates are typically comprised of a ‘fixed’ group of people who regularly invest together over a period of time, building trust and leveraging experience.
Business angel syndicates are groups of like-minded investors that invest in a specific region or sector that is of interest to them. They are high net worth individuals who provide smaller amounts of finance (typically in the range €25/£40k to €250/£200k) at an earlier stage than many venture capital funds are able to invest. In Ireland and Northern Ireland business angel syndicates are growing in number and capacity to invest. Syndicates will typically co-invest with seed venture capital funds, government agencies like Enterprise Ireland and other private investors.
The benefits of syndication are:
- Diversified portfolio: portfolio investing (i.e. investing in more than one company) is a lower risk approach to investment compared to the higher risk ‘all eggs in one basket’ approach of investing in just one or two companies
- Pooling of economic resources: pooling of funds provides the opportunity to invest in several companies and/or in larger deals
- Pooling of skills, contacts and experience: syndicate members will benefit from each other’s skills, networks of contacts and experience which enhances the possible success and returns of investing
- Due diligence: ability to undertake a greater level of due diligence
- Recognition: a formal syndicate can leverage its recognition in the investment community to attract deal flow to a greater extent than an individual can
- Common Purpose: a syndicate tailored towards preferred industries means that Angels with common interests can share common goals and foster a sense of camaraderie
How HBAN Syndicates Operate
HBAN’s Investment Syndicates operate on similar principles to a club. They are primarily member-driven, and members are expected to play an active role in the operations of the syndicate and to become involved in the coordination and delivery of investment activity. The syndicates do not operate as a fund. For any one investment opportunity presented to the group, only those who find that opportunity worthy of followback and investment are required to become active in evaluating and completing that investment. There are 2 key documents members are required to sign:
On joining the syndicate group individuals sign a syndicate charter which addresses the following:
- standard of conduct of members, informing syndicate reputation in the marketplace;
- confidentiality and conflicts of interest;
- participation and on-going responsibilities of members including actively participating in pre-investment due diligence and post-investment monitoring and support; and
- modus operandi including minimum amount that individual investors are expected to invest in any given deal in which a member participates.
Each investment an investor is then required to sign a separate syndicate agreement which will include the following:
- Appointment and duties of syndicate representatives as co-shareholders in relation to a particular investment;
A power of attorney to permit the syndicate lead to represent them in the investment;
- Provision for majority voting; and
- Outlines how new members are facilitated.
Syndicate Nominee Vehicle
HBAN Syndicates employ a syndicate nominee vehicle as defined below for the purposes of syndicated investment:
The Syndicate Nominee Limited (the “Company”) is a private company limited by shares. This is a trust company owned/managed by the Company’s solicitors Flynn O’Driscoll. Each time an investment is made by members of the Syndicate, a new syndicate agreement is constructed solely for the investors in that specific investment and that syndicate agreement gives a power of attorney to the Company to enter into the investment documentation and hold the shares in the investee company on behalf of those investors, each of whom is a ‘Beneficial owner’ of the investment shares. Each investor receives a copy of the investment documentation and a sealed declaration of trust signed by the directors confirming the beneficial ownership remains with the investor and that the Company is holding the legal interest in the shares on their behalf.
Syndicates have the discretion to charge fees to it members. These fees can be in the form of membership (which may offset the costs of the syndicate operation) and deal specific Arrangement Fees. The arrangement fees are intended to offset costs incurred by the syndicate in evaluating, making, managing or realising any one investment, and which are not possible to pass on to the investee company
It is for each syndicate to decide on the level of membership fees charged. Currently for those syndicates that charge fees, the annual membership fee ranges from €250/£350 to €3,000/£2,500 excluding VAT. Deal Arrangement fees have a €200 base charge plus 1% to 2% of investment sum, which are added to the overall investment sum.
If you are interested in joining HBAN as a syndicate member, please register with HBAN here.