Gonçalo and his team have just launched Syndicate Room – where business angels (not entrepreneurs) lead the pitch for additional funds for their investments.
In doing this, Gonçalo is turning equity crowdfunding upside down and seems to solve some of the key issues about crowdfunding that have worried more sophisticated business angels – namely, board level oversight of the investment.
So, we took this chance for an extensive interview with Gonçalo to find out what drives him and what Syndicate Room does…
Are you, Gonçalo, an entrepreneur or investor?
I’m an entrepreneur and forever will be. All my life I have been very hands-on when building stuff from Legos to companies and even road bridges!
Have you exited or sold a business?
What is your biggest business failure todate?
I built a business before called Topeng. It was a boutique recruitment consultancy based in the United Kingdom and operating throughout Europe. As business was booming, large consultancies struggled to find highly qualified chartered engineers so I provided these consultancies with the resources they needed. Unfortunately Topeng ceased trading in 2008 soon after Lehman Brother’s changed the economic outlook for the world. One of the toughest decisions I ever did but in the end it was the right one. The business would have gone bust in just a few months and the economy wasn’t going anywhere any time soon so I pulled the plug while I was still ahead.
What did you learn from that?
Chase your dream relentlessly but learn to recognise when you cannot win the battle and move on to the next one as quickly as possible. It is tough to leave your ‘baby’ behind when you can just give it one more chance but it is important to be able to do so.
What is Syndicate Room?
Syndicate Room is a new online equity crowdfunding platform with a huge difference – every deal has at least one seasoned Business Angel investing their own capital. We based our model on the Syndicate Funding 2.0 concept and lowered the barrier to entry for investors to real angel investments down to £1,000.
How is it different from a Business Angel Network?
We do not organise pitching sessions to Business Angels.
When we come across ambitious entrepreneurs with great ideas we recommend them to our network partners. We then help the network to complete the funding round quickly by bringing a new source of capital – busy successful professionals that have no time or interest to become active Business Angels but like the excitement, potential financial rewards and the tax breaks of investing in real angel investments at a click of a button.
We work with most of the main networks in the UK and help them to become more competitive in the marketplace by leveraging the capital from their members and increasing their exposure as a great source of capital for entrepreneurs.
How is it different from a crowdfunding site?
Equity crowdfunding websites focus on adding value to entrepreneurs by allowing entrepreneurs to pitch their deals and ask for funding.
We turn crowdfunding upside down and bring the focus back on investors, as the pitch is always led by a business angel who is seeking to syndicate investment.
We use an innovative concept called Syndicate Funding 2.0 which provides syndicate investors (the crowd) with real angel investment opportunities alongside real Business Angels. The nature of our model means fewer deals being posted but far higher relevance to investors. This means they will come back to carry on building their portfolio of investments.
How is it different from Angels List (US)
Angels List is a social network for entrepreneurs and Business Angels that allow fund raising related introductions to take place. We are a platform for a wider range of investors, namely busy successful professionals, to invest in angel deals.
Is Syndicate Room restricted to UK?
Yes. Due to financial regulations currently we are only authorised to operate in theUKso we can only accept people with UK bank accounts.
What value of deals have you completed in the last 12 months?
We have launched our beta website less than 3 weeks ago so we haven’t completed any deal yet. However in just 3 weeks we have seen an impressive level of activity on our website.
What type of deals do you currently have on your platform?
They are very different deals from what people might expect from a crowdfunding platform. At the moment all companies posted on our platform have market traction, revenue and are looking for capital to grow.
One of the deals is in the hot sector of bioinformatics and it has just hit the 80% funding mark out of a total of just over £500k. Its lead investors include members of the highly respected Cambridge Capital Group, Cambridge Angels and even early stage venture fund Midven.
Another deal is a £400k luxury goods company that has just passed the 50% mark with equally impressive lead investors.
Why are some of the deals restricted to specific network members only?
Some of the networks we work with are an informal group of highly sophisticated investors that know each other and like to invest together as active investors. As a result they are keeping the deal confidential for the first 4 weeks to give time for individual members to join as active investors and only after this period the deal opens to all Syndicate Room members.
What future do you see for crowdfunding?
Crowdfunding it’s still in its infancy and I believe it will grow exponentially in the next few years with the potential to disturb incumbents in the industry such as high-street banks and investment banks.
However the existing platforms have to create trust amongst the general public, especially equity crowdfunding platforms as trust will be of paramount importance when the market consolidates. Those platforms that have a robust model and provide trust to its members will thrive. We worked hard for 18 months to develop a very robust model that provides investors the trust they need which will help us retaining our customers for a very long time.
What kinds of investors use Syndicate Room?
We have just launched so it still is very early days to draw any meaningful results but so far we are seeing a highly sophisticated ‘crowd’ investing through Syndicate Room. Most of our members are normal people that are very successful professionals investing between £1,000 and £5,000 per deal.
We have been getting a huge amount of interest from partners of law firms, accountancy firms and city workers enjoy the speed, ease and quality of deals on the platform.
Interestingly we have been taken by surprise by the interest from wealthy property investors that are taking their money out of the property market and are looking for options to invest their capital other than a 0.5% savings account with a high-street bank. They have been larger ticket investors with amounts averaging £10,000 per deal.
Finally about one third of our members are active Business Angels that use Syndicate Room to make smaller investments to build a nicely balanced portfolio of angel investments without having to get actively involved with every single investment. They are our largest investors.
Why would Business Angels bring deals to Syndicate Room?
Business Angels bring deals they are investing in as lead investors to Syndicate Room for a variety of reasons.
Firstly it allows them to invest whatever amount they are comfortable with for any single deal. The gap between what they are interested in investing and the full amount required is completed by Syndicate Room members. Secondly it allows Business Angels to choose who they want to work with rather than having to take other active investors that they may not be interested in working with.
Finally it allows lead investors to invest on their terms rather than having to compromise to take other active investors. Everybody else invests on a ‘take it or leave it’ basis, therefore avoiding re-negotiations of the investment terms.
What is the difference in practical terms for Syndicate Room investors when compared to normal crowdfunding platforms?
Just like any other crowdfunding platform, Syndicate Room investors have the benefit of being able to choose what they want to invest in and the excitement of following how their investments do in the long-run. However that is where similarities end. The involvement of lead investors on each deal results in many benefits for syndicate investors:
1. Valuation – valuations are negotiated between lead investors and entrepreneurs rather than simply set by entrepreneurs.
2. Due diligence – whilst no investor can legally rely on any other investor’s due diligence, lead investors are investing their own capital into the business after their own due diligence.
3. Post-investment monitoring – what happens after cash hits the company’s bank account? Is the entrepreneur savvy enough to manage it properly and appreciate the importance of remaining solvent? Involvement at board level by larger investors is critical to ensure money is spent wisely.
4. Guidance, contacts and experience of Business Angels – Business Angels are usually very well connected, have built their own businesses in the past and have a vested interest in helping the company becoming successful. This is a powerful ally that a crowd is unlikely to bring. ‘Siding with the angels’ report also shows that investments where investors have no board involvement have a much lower rate of return.
What are the benefits for entrepreneurs to raise finance through Syndicate Room?
They get the best of both worlds: guidance, contacts and experience from Business Angels and quicker access to capital from a sophisticated crowd including some great initial apostles of the brand.
How / what does Syndicate Room charge?
We charge a 5% success fee of the capital invested by our investors only to the companies if the funding round is successful (i.e. we don’t charge anything on the lead capital)
What future do you see for Syndicate Room?
We expect a great uptake from a sophisticated level of investors that understand the benefits of investing alongside experienced Business Angels rather than investing as part of a crowd where nobody is looking after the investment.
At the same time entrepreneurs will recognise the benefits of having the right amount of Business Angels involved, removing the need to have 5 or even 10 active investors down to those that really matter and then get syndicate investors to fill-in the funding gap.
Click here to check out Syndicate Room.