: R.A.B.B.I.T. Report – Syndicate Room – Angel Led Crowdfunding Deals

Jay OwenCrowdfunding

The R.A.B.B.I.T. Report
by Crowd Capital Ventures and Crowdfund Capital Advisors

Private capital market transactions are inefficient and bespoke with high transaction costs. Information is asynchronous and the process is offline and slow. Technology players like Syndicate Room aim to speed things up via combining experienced business angel investors with retail investors.


Company: Syndicate Room (www.SyndicateRoom.com)
Sector: Platforms & Secondary Markets
Location: London, United Kingdom

1. What problem is Syndicate Room solving?
Syndicate Room believes there have been massive inefficiencies in the capital raising industry until now. This includes the bureaucratic hurdles of working with anyone investing less than £25k per deal and the lopsidedness of the markets to favor larger investors with better terms over smaller ones. Syndicate Room aims to address these issues head on by using technology to drive efficiencies and leveling the playing field by putting all investors on the same terms.

2. Why is this Syndicate Room necessary?
In the UK, there has been a massive movement towards self-managed investing coupled with a huge growth in “robo advisory” services. “Robo advisors” are starting in the largest and most liquid areas of the markets but will not likely move towards early stage investing for some time. Knowing the market will need this solution, Syndicate Room created Fund Twenty8 which automatically builds a multi-sector and large portfolio through an index/tracker style fund.

3. How does it work?
Says CIO James Sore, “We are the only “Investor Led” platform meaning all of our deals are built for the investor.” He contrasts this to other online platforms that are “company led,” which he believes may translate into higher valuations and less favorable terms for investors. Syndicate Room requires everyone receive the same share class and price as the lead investors ensuring what Sore believes is equal investor protections. Allowing the crowd to co-invest on these deals also allows lead investors to invest into more deals rather than tying up all their capital in a few. Syndicate Room requires at least 25% of the round committed before a deal goes live (sort of a testing the waters to see if there is enough initial/anchoring interest). For follow on rounds, “we like over 25% committed,” says Sore. Like most platforms they are success based and charge a percent of funds raised as a performance related payment.

4. Who are the founders?
Syndicate Room was founded by Gonçalo de Vasconcelos and Tom Britton, two MBA students from Cambridge, England. Britton is an American living in the UK and comes from an IT product development background while Vasconcelos is a serial entrepreneur and won an award for his dissertation. During their MBA they were granted access to one of Europe’s most successful Angel groups, Cambridge Angels. The various barriers to co-investing in these deals seemed worth solving and so the idea of co-investing retail money in to Angel deals was born.

5. What can you tell us about early traction and the user experience?
Of its users, Sore says, “We have attracted a very large member base and they come from diverse investment theses. Some like to make individual deal decisions and remain single sector focused, while others take more of a portfolio approach and distribute their capital over many investments and sectors.” In just under 3 years they have funded 72 companies with more than 84 investment rounds and co-invested over £55M to date. They have had two clients go on to raise their series A rounds disproving the theory of ‘messy cap tables thwart follow on investor interest.’  They close over 75% of the deals they take live and have had only one company taken under receivership (aka administration).

6. What are the risks facing the company?
Syndicate Room believes, “The largest risk is being too attached or associated with those in the industry who do not have the investor’s interests at the forefront of their decision making.” If fraud emerges it may drag the whole industry down, not just the offending platforms. And acting on their own, they made the decision to leave the Crowdfunding Association in the UK because they felt it was not serving the interests of the investors. As Sore says, “unless we make this work for investors then it will eventually implode as retail money will continue to lose out to professional money when it needn’t be the case.”

7. What is CCV’s Perspective?
Technology is technology. How people apply unique business models and skills to it, defines what they will achieve. It is interesting to see what can happen naturally on other platforms, be a core part of the business model at Syndicate Room. Those who have the gold, the largest checks, make the rules. In the traditional private capital markets, this usually means that smaller investors may be put into much more unfavorable positions. Part of this asymmetry in deal terms was driven by information asymmetry as well. With the availability of much more symmetrical information access, more investors can make similar decisions. The inclusion of a wider range of investors (whether accredited or retail) can help to scale the number of deals that can be funded, the speed of that funding and may also create more investors that are engaged in supporting that brand/company since they are investors in the brand/company. By only launching deals that have secured 25% commitment of the round, they formalize the best practice within all of crowdfunding — having at least 25% of your raise committed prior to public launch. This general model may have particular value in developing economies.  However one must be careful to not depend on “sophisticated investors” who may be accustomed to investing in real estate, agriculture and minerals to have an appetite for early-stage technology or traditional SME investing.  Further modification of this model may be required in these less experienced markets.

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