FG Angels Update After 13 Investments

As of today we have made 13 investments via FG Angels – 11 have been announced and two will be closed within a week.

On 10/1/13, we announced that we were going to create a syndicate on AngelList and start doing seed investments that way. Our plan was to make 50 seed investments by the end of 2014, using the angel strategy that Brad has been using for his own angel investing since 1994.

We spent the balance of 2013 figuring out a long list of legal issues, including vexing ones like the 99 investor problem, and whether we were going to use 506(c) or 506(b) for our securities exemptions.  We opened up the FG Angels syndicate, and closed our first investment in early January 2014 in OnTheGo Platform.

Since then we’ve closed a total of 11investments. You can see them on the FG Angels tab on our Foundry Group portfolio page.  The other two will be announced and put up on the site once they close.

The FG Angels syndicate now has 193 investors who commit up to $455,000 per investment. At first we thought these were interesting numbers, but now we realize they are simply vanity metrics given the 99 investor rule.

Each of our syndicates have ranged between $125,000 and $300,000, not including the $50,000 from us. It’s been hard to figure out what drives this on a case by case basis as we are generally equally enthusiastic about each of the companies. Originally we were using a minimum of $1,000 per investor but decided to raise it to $2,000 given the 99 investor rule. That had a little impact, but less than we expected.

A month ago we felt like the issue might be syndicate fatigue, which surprised us given that we’ve been clear that we are going to do 50 investments and the best strategy for an angel would be to invest in each of them along side us. But then we had a few investments where the amount trended up, so that probably wasn’t it.

It’s been an interesting experiment so far. AngelList has continued to be awesome to work with and we are excited about the angel portfolio we have been creating.

  • Hmmmmmm

    Can you share Foundy Group’s IRR since its founding? That, after all, is really the only useful metric.

    • http://www.feld.com bfeld

      We don’t disclose it but it’s not hard to find because at least one of investors has to publicly disclose.

  • Scott Kosch

    Brad, happy to be participating in this experiment with you. A great way to diversify the portfolio at a relatively low cost, while also supporting a lot of amazing entrepreneurs.

  • carsly

    Brad,

    Appreciate the update. As a backer from the beginning, and also someone who has varied his investment amount in your deals on a case-by-case basis as well as opting out of some opportunities I can share my thinking which may or may not be useful to you.

    First, I like the deal flow you’re generating and making available through the syndicate – having quality opportunities to evaluate is helpful and the portfolio effect of high frequency, all else being equal, should help with returns. Second, like a number of other investors, I adjust my investment amounts based on what I know of the spaces the companies compete in and my own assessment of probability of being able to scale and margin the businesses. Yes, these are all early deals but some sectors may be easier to margin than others which has an impact on maximum potential valuation within the time horizon of the fund(s).

    In some cases, I know little to nothing about a space or the founders – this has lead me to opt out of a few deals. As you note in many of the disclosures, all investors are expected to do their own diligence and there is no expectation of any diligence done, nor have I ever seen any made available, on the part of FG.

    So I think the new model may certainly solve the variability problem for you but if I wanted to cede control entirely I’d find other ways to invest.

    Thanks for leading the charge here to make early stage investing more accessible, allowing us to tap into your collective expertise and deal flow, and finding creative ways to set up investment vehicles to accomplish our mutual objectives.

    • Dave

      I agree with the comments here. I’ve opted out of 3 or 4 deals. The only reason I’ve done so is because I didn’t see the investment potential that Foundry did. This (of course) doesn’t mean I’m right. I just simply didn’t have enough info to help convince me to invest. Brad, is it possible for you to provide a bit more detail on these investments (outside of the fact that you believe in the management team – which you always do.) If you can indicate your investment thesis on each deal, I (and others) may be more willing to put money into it. Just a thought.

    • hal

      I’m caught between supporting you on every deal and backing only those I believe in based on my own experience and due dilly. So I think I’d rather go for $2k and stay in control. I agree must do 10+ to have a shot at assumed returns for early stage deals, just like to flexibility to choose a bit. I’m not backing any other Angel list or other syndicate; i support you guys. I know that makes it a bit more difficult to administer, on the other hand seems you fill anyway, right?

      • http://www.feld.com bfeld

        Yup – all good.

  • DaveJ

    Just an idea: given the number of investments you’re planning on doing, it’s probably worthwhile to set up a statistical model now with as many factors as you can think of (including somewhat peripheral things like time of year, number of founders, geographic location, etc.). The idea would be to progressively increase the fraction of the variability explained by the model and also be able to predict the “turnout” for a new investment. I am not sure of the best way to exploit such a model but it seems important in that it would say something about market demand for particular types of investments and sets up (conceptually) arbitrage opportunities.

    • http://www.derekscruggs.com/ DJ

      Interesting thought. Given the sample size, though, I’m not sure you could draw anything conclusive from it. OTOH if AngelList as a whole collects this data, including sentiment info about why a given syndicate said yes or no, that might be really compelling info.

  • http://www.2020.co 2020vc

    Thanks Brad. Minimum probably still too low for those who can opt-out deal by deal. 5k minimum seems reasonable and solves 99 investor issue for most deals.

  • Carrie

    As the CEO of one of the FG Angels funded companies (#9 U Grok It), I have a few comments…
    First, I did a write up of our experience from the startup’s side and Seth posted it on his blog at http://www.sethlevine.com/wp/2014/05/syndicate-funding-on-angellist-a-companys-perspective Some of you may be interested in a detailed, inside look.
    Second, in response to Carsly, Hal and Dave below, the syndicate process puts the startup in an interesting position. We need/want to sell ourselves to the syndicate members so that you want to invest, just like we did to Foundry for them to make the decision to invest in us. At the same time, we cannot spend the same amount of time with each of the 193 investors as we did with our partner at Foundry to help bring you on board to the opportunity. And you don’t want the CEO of a company you are going to be investing in to be focusing on courting 193 investors when we need to be finishing the round and keeping our company moving forward. Yet, each investor is important not only to the total raised, but to the network that they build around the startup. You can read the details in the write up in Seth’s blog, but the main point is that in both the pre-investment phase and the investor relations phase, we are all figuring out this new world of syndicates and what the appropriate balance is in terms of how much time the company spends on fundraising and investor relations with 100+ investors vs. how much time that takes away from focusing on the work that the company needs to do to be successful. I would appreciate your insight from the syndicate investor’s point of view as to what you think is appropriate. Do you expect me to spend as much time selling you on the U Grok It investment as I did selling Foundry? An amount of time proportionate to the investment? Something in between?
    For investor relations, we have decided to update the FG Angels investors through AngelList once a quarter with a less detailed update than I provide to our direct investors every 4-6 weeks. However, my Foundry contact (Seth) does receive our more detailed investor update in his role both monitoring Foundry’s investment and monitoring the FG Angels Syndicate investment.
    Third, Brad – one other thing to consider with the fluctuation in investment is just the sheer rapidness at which any single FG Angles investment happens. It is open for usually about 1 week, with FG Angels investors given an additional week or two to close the investment and transfer the funds. While keeping the investment open longer would not have brought in significantly more funds, there were a set of investors who we never saw/heard anything from (didn’t opt in, didn’t opt out, didn’t follow or contact us in anyway and never transferred their funds, so were not included in the FG Angles investment). Made me wonder if these investors were on vacation or otherwise too busy during the one week the investment was open and just didn’t have the chance to review. The FG Angels investors get no heads up that a new investment is opening for a short window. Again, I would enjoy hearing from some of the FG Angels investors if they have skipped an FG Angels investment because they couldn’t do the diligence right then or even never saw the investment open?
    Fourth, I would hate to see the minimum investment go up too high. I value the $1k investors. It helps us think about our spending (we ask ourselves if the expenditure is worth killing another small investor) and some of them have already provided network support that is disproportional to their investment. I hope as you changed it to the pre-paid fund for under $2K, that the startup still has visibility into who these investors are in AL and that the investor’s AL profile can still list the startup as one of their investments.

    • Ted Graham

      Is there now a pre-paid way to invest in Foundry Group syndicate deals? I’m not up for filling out paperwork and wiring money every week.

      • Carrie

        I believe that there is a new FG Angels Backers Fund https://angel.co/fg-angels-backers-fund where you commit and pre pay.

      • http://www.feld.com bfeld

        If you are already a member of FG angels, then yes

  • Saul_Lieberman

    Why does the entire backers fund count as only one of the 99 slots?

    • http://www.feld.com bfeld

      Different economic configuration. Since the investors precommit to 10 deals, it’s viewed as a separate type of entity.

  • http://www.derekscruggs.com/ DJ

    Thanks for sharing this. I’m not sure I’ll ever participate in a syndicate, but it’s great to see how seriously you guys take it and that you give such detailed feedback on the process.

  • Mark

    Brad, are you aware if steps have been taken to change the 99 investor rule? As was done with the 499 to 2000 shareholder cap. Or what steps need to be taken to address this? 499 would be a logical number. This just seems archaic with the rise of online syndication. And I’m sure prevents people joining managed syndicates like FG Angels when there’s a real possibility of not making the top 99 investors.

    • http://www.feld.com bfeld

      We are figuring out modest approaches but it’s still super vexing.

  • Agus, SE

    Dear Sir/Madam,

    I Agus, SE from Jakarta – Indonesia.

    Our company is a company start-ups.

    I am currently planning to build Palm Plantation

    Covering an area of 20 thousand hectares with a budget cost

    of USD 164,000,000.00 (One hundred and sixty-four million)

    and the Palm Oil Mill Building to produce palm oil (CPO)

    But in this case my focus looking for a partner JV (investor)

    Whose Interested to invest in the business of Agro Industry.

    We offer ownership shares to investors at

    49% of our stock for this project

    Do you have a potential angel investor relations?

    Regards,

    Agus, SE

    Owner / President Director

    PT. Alifzar Berjaya Indonesia

    The City Tower, 12th Floor Unit 1-N

    Jl. MH. Thamrin No.81, Central Jakarta – Indonesia

    Postal code : 10310

    Tel. +6221 29 222 999 Fax: +6221 29 222 990

    Email : pt.alifzarberjaya.indonesia@gmail.com