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Sunday, May 22, 2022

12 deals in the first year – Learnings from setting up an angel syndicate

Besides running Elite Game Developers, I’ve been operating an angel syndicate for a year now, focusing on gaming startups. Here’s how it all got started and what has happened in the first year of operations.

 


It was the fall of 2020. I had been doing angel investing for one and a half years. These were 5,000 or 10,000 euro investments in pre-seed stage game studios. But I wanted to learn how to invest other people’s money.

Why other people’s money? I had been thinking about getting into Venture Capital for many years, and I felt that a great way to collect that experience would be to start angel investing with other people’s funds.

I picked ideas from Jason Calacanis, who operates an angel syndicate of over 2,900 members. The idea: Jason presents deals to the syndicate, then the syndicate pools investments together to invest as one line on the startup’s cap table.

I wanted to build an angel syndicate, specifically for gaming. Why not invest just my own funds? As a syndicate, a group of angel investors invest in a company, and the syndicate lead gets a share of the profits if an exit happens.

To get started, in Nov 2020, I talked to a few legal experts on how to set up an SPV in Finland. Once I had the Finnish SPV ready, I started contacting friends in the games industry to join the syndicate.

The initial syndicate was about 70 people, all recruited from my network in a few weeks. In early 2022, the syndicate has grown to 125 members, and more are constantly joining.

As a member, it’s free to join, and there’s no obligation to participate in any of the deals, but if anything interesting comes up, the member would DM me and say they’re in and with how much. The minimum is $2,500.

Over 90% of the syndicate investors are from gaming—they are working or have previously worked in gaming or are working in gaming-related businesses. There is also a minority of tech investors who are already investors in gaming.

To operate the syndicate, I took inspiration from the MDM Syndicate (no longer operating) Slack channel, which was led by @eric_seufert. I present deals to the syndicate on the Slack channel, and individuals DM me how much they want to invest.

For presenting a deal, I put together a package of material: the target company’s deck, my investment memo where I point out why the company makes for a good investment, and an interview video with the founders.

All the syndicate members will have access to the material. To raise from my syndicate, founders need to be willing to share all the information openly, and if there is information in the deck that is not wanted to be shared openly, it should be removed before sharing.

I’ve done twelve syndicate deals so far, ranging from pre-seed to Series A. The allocation size has gone from $50,000 to $200,000. In almost all cases, a leading VC firm has been setting the terms of the round.

Portfolio Joakim Syndicate
Some of the Joakim Syndicate portfolio companies

Regarding the terms for the syndicate investors: I get a 20% carry, meaning that if there were an exit, I’d get 20% of everyone’s profit after returning the initially invested amount. The carry is a very similar model to how VCs profit from exits.

Will I be involved post-investment? Yes, very much so.

As I’ve previously discussed in my newsletter, I focus heavily on becoming a great value-add investor for gaming founders. I put a lot of emphasis on developing how I help founders by mentoring and coaching, giving product feedback, and allowing them to utilize my gaming network.

Regarding investor updates, the founders can share updates with the syndicate investors and ask for help, but it’s always an “opt-in” kind of relationship for both parties.

As a long-term goal, I plan to create a gaming founder community around Elite Game Developers. From my experience as a founder, you can learn the most by studying what others have done and how they’ve succeeded or failed.

Improvements

It’s not all been smooth sailing.

Some founders have declined an investment from my syndicate in the last moments. There has been worry about sharing their deck with hundreds of people, mainly when some founders are still employed and don’t want to leak the deck to their employers.

I have alleviated these privacy concerns by watermarking the decks before sharing them with the syndicate. I’m looking into using Docsend to share the decks in the future to have more security over the material.

Another improvement I’m working on is to minimize the work on closing deals and wiring the funds to the company. First, I’ve recently moved over to the UK-based SPVs with a service provider since the Finnish SPV was too rigid for setting up more than a few deals a year.

But, there’s still work to be done on making things smoother for investors. The logistics include many steps after I get an investor to commit, going into a KYC process, including pictures of passports, selfies, personal details, proof of funds, and signatures.

Then with the wire transfers, as most of us know, international banking between different countries and currencies is not always easy. Wires getting sent back, banking fees cutting into the wired amount.

All this will become easier as more deals are done, and the syndicate members and I get used to the process and all the related steps.

For founders and investors, if you have any questions regarding the syndicate, please hit me up on LinkedIn or Twitter. I’m happy to share more details.

Joakim Achrén is a gaming entrepreneur from Helsinki, Finland. He started his first video games company in 2005, ran it for six years before it failed. Then he went to work at Supercell, before founding his second company, Next Games in 2013. In 2019 he left Next Games to start Elite Game Developer, with the mission of helping gaming founders build successful gaming companies.

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