Ending Our FG Angels Experiment

After two years of a dedicated experiment, we’ve decided to stop making new investments via our FG Angels Syndicate. We’ve learned a lot, achieved some of our goals, but ultimately have decided that the effort required to maintain our investment pace on AngelList is too great for us, at least for now. More on that in a bit, but let’s start with some history.

The Monday after AngelList announced their Syndicate product in September 2013 we decided to to jump in with both feet and start FG Angels. As a result, we were one of the very first syndicates and the first VC firm to create a syndicate.

We had several high level goals:

  1. Understand how AngelList and Syndicates worked by actively participating;
  2. Be able to experiment with seed investments outside of our themes;
  3. Extend our network of entrepreneurs and angel investors; and
  4. Generate additional economic returns for our funds.

It took a few months for AngelList to gear up Syndicates so that they actually worked. As a result our first investment wasn’t made until early January when we invested in OnTheGo Platforms, which was just acquired by Atheer.

Our plan was to make 50 investments, directly committing $2.5m from our funds ($50k from us for each investment) through 2014. When we did a retrospective on our first year of FG Angels, we had invested in 42 companies. Seth did a nice job of summarizing what the deals and the syndicate activity for the first year looked like.

  • Total number of investments: 42
  • Average syndicate investment amount per deal: $316k
  • Largest syndicate investment in any single deal: $785k
  • Total number syndicate investors (syndicate members who invested in at least one FG Angels deal): 116
  • Total number of investors (all investors who have joined FG Angels in at least one deal): 410
  • # of investors who have participated in at least half of FG Angels deals: 30
  • Most active syndicate member investment total: $905k across 41 of our 42 FG Angels deals
  • % of investments with a female co-founder: > 20%

Our plan was not to generate investment deal flow for us to follow on with our main funds. Instead, we took a one time seed investor approach patterned after an angel strategy that I’ve used for almost 20 years that has now generated a realized return over 10x invested capital and still has about half the money at play.

We’ve ended up investing in three companies through our main funds that we had invested in first with FG Angels (Mattermark, Revolar, and Havenly). However, both Revolar and Havenly went through accelerator programs that we are involved with (Techstars and MergeLane, respectively), which allowed us even more perspective into working with them.

We decided to continue making FG Angels investments through 2015 at about the same pace. By the end of 2015, we had made a total of 65 FG Angels investments. We have 49 funded Backers, a 236 unfunded Backers, a total syndicate backing of $976,653, and an estimated 30 day raise of $171,058.

At the end of 2015, we revisited the goals I mentioned at the beginning of this post. Let’s see how we did and what we learned.

Goal 1: Understand how AngelList and Syndicates worked by actively participating: In addition to understanding in depth how AngelList and Syndicates worked, I’d like to think we helped Naval and his awesome team at AngelList on figuring out the legal, workflow, and UX dynamics around AngelList. We’re fans of both AngelList and Syndicates and it was important to us to give back to the platform and help them work through the dynamics involved in creating and rolling out their Syndicates product.

Goal 2: Be able to experiment with seed investments outside our themes: While we did a lot of investments outside our themes, we generated very little incremental learning on our part. While we could be very helpful in a generic early investor way, the time to value ratio was way off in both directions. While we regularly did short, quick hit help via email, whenever someone wanted to spend an hour or more with one of us, we eventually realized that our investment and ownership in the company was dramatically underweighted. And, this took time away (we each have a finite number of hours each week) from companies we had much larger investments in. We also realized that we were getting the experimentation value and learning at a greater rate from our deep engagement in Techstars.

Goal 3: Extend our network of entrepreneurs and angel investors: As we expected, our network of entrepreneurs was expanded (by about 150 people across the 65 companies.) These founders are active members of our portfolio and our goal is to be helpful to them any way we can, given time constraints. However, we have been disappointed in how we have – or haven’t – been effective at building a broader network of angel investors. We’ve made some new friends and built strong connections with a few angels in the syndicate, but we’ve struggled to build any kind of extended community. The tools for this on AngelList just aren’t there yet and we haven’t committed the resources to do this separately. And, ultimately, some face to face time is likely needed which we haven’t been willing to do.

Goal 4: Generate additional economic returns for our funds: We’ve invested about $3.2 million in FG Angels and are excited about the portfolio. However, it’s a very early stage portfolio that will take a very long time to mature. Even when you include the carry we are getting on FG Angels (15%), this total amount represents less than one fund investment on our part (our typical investment size is $5m to $15m, with this growing to as much as $40m when you include our late stage fund.) Even if we generate a huge multiple on our overall FG Angels investment (say 10x), the impact on our fund return is limited given the size of the investments we were making.

Ultimately, we’ve decided that the effort that we are putting into FG Angels is too great for us to continue on in the way that we’ve have been for the past two years. However, by running the experiment, we’ve better understood the leverage points at the angel / seed level that AngelList and Syndicates create, which for some investors, and many entrepreneurs, is very powerful. Finally, we’d like to believe that we’ve contributed to the evolution and dynamic of angel / seed investing through this effort.

While we are no longer going to be actively making FG Angels investments, every now and then we might do something out of FG Angels. We continue to believe that AngelList Syndicates is an effective platform for companies and investors. We simply felt that we needed to better balance the time and effort we were spending on FG Angels relative to the weight it has in our overall portfolio.

It’s important to all of us at Foundry Group to experiment around the edges of our industry and to push the boundaries of the venture model to find new and innovative ways to create value for our investors while supporting as broad a set of entrepreneurs as possible. We’ll continue to look for ways to do that.

  • vpandya

    This is an Awesome Article. – Hanuman Chalisa

  • Kudos to you and Foundry Group for doing this and sharing your learning. Can you put this into the context of venture investing doesn’t scale? Sounds like you’re saying it was more work than benefit versus focusing on your larger investments and getting many of the same benefits from working with accelerators? And I also see a connection to your increased focus on investing in funds which is of course more scalable than syndicate investments. Thanks, Brad!

    • I would not put it in the context of venture investing doesn’t scale.

      For example, if we hired a dedicated partner to do this, we could manage it. Or if we hired an associate whose job it was to organize, leverage, and get value out of the investor network being created, that part would be more effective. And, while AngelList has great software, there’s a bunch of stuff missing that we would have liked. We could have built a small team to write this…

      But we chose not to. Our core team strategy has been not to add anyone, to stay very lean (e.g. no associates), and minimize overhead associated with managing a team. That’s one of the strategy tradeoffs we’ve made and weren’t willing to change it for this.

      We could have certainly put more money into each AngelList deal (instead of $50k). But we wanted to solve the other things first.

      • Dabelon

        Awesome post. What software tools/features do you think are missing in terms of interacting with your investor network?

        • It’s a long list. We spent some time sketching it out and then decided we were only dealing with it at a surface level so we stopped when we knew we weren’t going to execute on it.

      • Got it. Thanks again.

  • Awesome run down and transparency. Thanks.

  • Pierre Powell

    Brad, thanks, it was fun. I think we invested in all but two companies. My experiement/goal was different. We are Oil & Gas people. And I look at investing in oil wells like investing in start-ups; with NOT a normal distribution of return, but a skewed distribution; i.e. the mode, median, and mean are displaced.

    My idea was if you invest in ONE company, the most likely return is the mode, which is displaced in a skewed distribution from the mean; and it means you will most-likely return less. However, if I can invest a little, in a lot (with someone smart at the helm), then I can move my return from mode to mean.

    The things I really didn’t consider is the syndicate angels really had a difficult time obtaining enough information on whether we should or even could invest in later rounds; I’d want to follow your lead.

    Also, not sure about all the logistics of returns and the like, for example, I know that ONTHEGOPLATFORMS was acquired, not sure what that means for the syndicate, or us as a syndicate angel.

    Many Blessings

    • Re: OnTheGo – you should have received a message from them via AngelList. It was a stock for stock transaction – so we now own shares in Aether (the acquirer).

    • That’s an interesting point on following on, and pro rata.

  • Chris Amelinckx

    Thanks Brad. Do you have a suggestion for teams looking for Angel investment with an affinity for the great work at Foundry?

    • Just email me. We still make seed investments and will occasionally do something via FG Angels.

  • Once I get over the sadness, I will re-read and promise to understand the economics without emotion :). Thanks for all your team did to help the syndicated angel community grow past infancy.

  • Hmm. Interesting. Thanks for putting this together. It has been an interesting way for me to dip my toe in the water for angel investing. I’m only in five companies with little bitty investments but kinda fun. I’m worried I have not been promiscuous enuff to have a good chance at that 10x-100x but I feel like one of them might in the future have something happen. I guess we’ll see. Its been more than a year since these investments were made. I guess the last bit of experience I gain will be how long it takes for any of these to come to a conclusion, good or bad.

    • Timing – expect at least a decade for full resolution – probably longer. I’ve still got angel investments from the 1990s that are live / active (and successful) companies.

  • Mac

    A pattern has evolved. Every time over the past four years, when you’ve returned from being off the grid, it seems like big changes occur. Not certain what that forecast for 2016. 🙂 Thanks for the FG Angels experiment. Liked the idea of seed investing with Foundry Group in a leadership/ management role.

    • I think the timing is more around the end of the year (and my sabbaticals have been in November, which just happens to correspond when we have been making decisions around – or implementing – new big new things.

      We have another thing we are winding down (which I’ll blog about in the next few weeks) where the decision was made nine months ago to make a major change in what we were doing and then another decision was made at the end of Q3 to shut the initiative down. We are in the “finishing it up and ready to talk about it” stage for that also.

  • Dariel Luciano

    Neat post. How did you guys go about thinking when it was time for you to move away from angellist? Was it a series of conversations that ended up in that decision or did you have a predetermined benchmark you wanted to hit and then stop? Just trying to understand how fg thinks about when it’s time to cut something off.

    • We talked about it a few times. The first was at the end of 2014 (our first year of doing FG Angels) and decided to just continue for a while.Then we probably talked about it at the end of Q2 and the end of Q3.

      At the end of Q3, we decided to finish the investments we had in our pipeline and then stop.

  • Elizabeth Kraus

    Great post. I benefited tremendously from my participation. Excellent diversification for a small amount of capital. It increased my profile on AngelList which has increased my credibility and our deal flow for MergeLane. Seeing the terms of all of the deals was a great benchmark for setting valuations and terms. I got to know the team at AngelList and saw their ability to innovate on a dime. And like you touched on, it made me realize how hard it is to add value to a portfolio that big. Great learning for going forward.

    I am 100% glad I did it, but decided to take a break because the volume got a little overwhelming. In the future, I think I’ll continue to invest in syndicates, but will 1) invest in syndicates investing in 10 or fewer deals per year or 2) lower my expectations of myself for tracking the deals and the updates. I think viewing it more as a diversification tool and broad deal flow funnel makes more sense than trying to view it through the same lens as my other angel investments.

    And re: building the community of angels, it might have had a bigger impact than you think. It is really hard to figure out who is interested in angel investing and AngelList is quickly changing that. I’ve met at least twenty angels because they created a profile on AngelList just to join your syndicate. I’ve also had a few investors reach out to me because they saw my involvement with FG. Great impact for the ecosystem.

    Thanks for all of your hard work with this. It made a difference.

    • Super feedback.

      Re: the Network – that’s interesting and I hadn’t considered that.

  • jkostecki

    Hi Brad and thank you and Seth for the analysis. How did you guys go about doing due diligence on the companies you invested in? I understand that your selection criteria was based on a thesis and experience, but what other steps did you take to not only choose among the 700k startups listed on Angel List (of course not all of them are raising) and then once you decided to consider the investment how did you vet the teams and the startups themselves?

    • It varied a lot but broke down into roughly three categories.

      1. We knew the founders already and had some relationship.
      2. We had a relationship with one of the lead angels who had done a lot of work already.
      3. Random – and we had to do a new diligence process.

      1 and 2 were the majority of the investments we made.

  • Interesting experiment – thanks for sharing the results with us all. Curious to hear what AngelList’s response to this was? Have they been begging you to stay or simply accept it as over right away?

    • Naval is a total gem and his team is excellent. I sent him this post to review and he said “Looks balanced and thoughtful Brad, thanks for running the experiment with us.”

      He also had some other hypotheses about who / what situations with VCs AngelList would work more effectively in.

      I have enormous respect for Naval and hope to have more opportunities to do things with him.

  • Very interesting. Thanks.

  • Seems like you could have used one slack across all the investments to limit your time commitment?

    • Nope – Slack would have never worked effectively for this. The nature of the syndicate is very dynamic since individual angels can invest in whichever companies they want. So it’s a complex many-to-many relationship with us in the middle. Email doesn’t work effectively either.

      • Oh I see. I thought the problem was dealing with communications between the sydicate lead and the portfolio companies.

        • Nope. AngelList does that very well.

  • James Green, Drowning Worms

    Very interesting Brad. It’s interesting that a VC found it hard to build a network of angels. I know, as an angel, it’s also hard to build a network of VCs (perhaps also due to limited time, but on both sides). There’s clearly a willingness and appetite for some kind of angel-VC introduction service. If you find something that fits the bill, please share it. If I come up with something, I’ll message you somehow! All the best and thanks for the info.

    • I thought more of the Angels would be proactive about developing a relationship with us. That was an incorrect assumption on my part.

  • re: #3 “we have been disappointed in how we have – or haven’t – been effective at building a broader network of angel investors.”
    – my guess is that the AL tools that “aren’t there” relate to potentially some CRM of sorts that could interweave all these angels into a manageable relationship management?

    • Correct. We thought about trying a few different approaches but given the dynamic nature of the syndicate and who participates in each deal, this didn’t make sense to do outside of AngelList.

  • Cool that you are being so transparent about it. What I am curious about is off all the investments, how many have raised another round? Did they do traditional VC-or did they raise it on Angel List? How many failed fast? Too soon to ask about exits.

    My own experience/perception of Angel List is that if a company wants to raise money, they need to have raised some prior to listing on Angel List. They also should have a name lead investor.

    Angel List is a great development and there are a lot of other platforms trying to follow them. On the flip side, it gets seed stage companies the capital they need, but not necessarily the mentorship guidance they need. (Based on your and other experiences I have heard)

    • It’s too early to analyze the outcome data. Many of the companies are still in the round they raised, a few have failed, a decent number have raised another round, and one has been acquired. We’ll do an analysis at some point in the future – but probably in another year or two.

      • Makes sense. Huge respect to you for putting it out there as transparently as you have.

  • Mike Porath

    Brad, thanks for experimenting with FG Angels. Your investment in The Mighty gave us the time to focus on doing what we needed to do to raise the next round. Happy to be a very small part of Foundry’s portfolio.

    • Thanks – and our pleasure. We look forward to continuing to help!

  • Eric Ver Ploeg

    Huge admiration for you guys in trying this experiment. Of course, most experiments don’t pan out, but getting in early and learning as much as you can, is way better than sitting back and watching.

    • Yup – it’s the best way to learn!

  • James Routledge

    We run the largest syndicate in Europe and I can definitely sympathise with you on points 1 and 3.

    1. AngelList is a great product but it is still buggy and lacking good UX. The legals and completion process is still messy and time consuming too. I don’t think they’ve taken the pain out of that yet.

    3. AL has good liquidity and a lot of investors on its platform, yet to form a relationship with a new investor and get them to actively fund your syndicate deals takes a lot of work. To do this still requires a face-to-face relationship. Fundamentally angels still invest with who they actually know, and most importantly trust.

    Thanks for sharing your learnings on it.

  • Awesome post. Sad to no longer see regular FG Angels deals!

    While actively running the syndicate is no longer the right strategy for FG, what are your thoughts on benefits/drawbacks for individual angels investing via syndicates?

    • I think it’s an awesome platform for that.

  • Thanks for the transparency, Brad.

    In addition to hiring a potential VP/associate to run this, what about the added benefit of translating follow-on pro rata rights into special purpose vehicles via AL? In this case, the deal flow (originally not the intention of FG Angles) could become meaningful for your main FG LPs if given that exposure, no?

    • I think this is going to be a curious debate over the next few years. I’m not convinced of the argument about soaking up all the pro-rata rights, especially at the early stages. And, it’s not important for us or our LPs as a fund since we (Foundry Group) certainly have the capability to do that from our main fund if we want.

  • Another experience that demonstrates how difficult it is to replace an experience based on trust with a seemingly more efficient process based online. Thanks for sharing the details.

    Meanwhile, two years ago, you were worrying about the 99 investor limit in the syndicate. Was that ever actually an issue, and did you have to turn away some of those 416 investors in any of the deals? Or did AngelList find a workaround?

    • The 99 investor limit is and continues to be an issue.

  • Thanks for the opportunity to invest with FG in the syndicates from the very beginning, it’s been great to see the wide array of companies and in a few cases I’ve been able to broker introductions for a few founders despite my very small stake.

    Given the deal flow volume, it was tough at times to keep up with even basic analysis of the investment opportunities as there often wasn’t a large enough lead time from announcement to closing (at least not enough for me). If you delve into these waters again perhaps there is a way for active syndicate members to join a (secure, private) community discussion of the opportunities, contributing our expertise where applicable, before the deals reach a close. I think we’d all be able to accelerate our knowledge advancement this way.

    If you even opt to pick up education / learning / edtech as a theme area and want a large company and startup perspective feel free to drop a line, helping would be the least I can do.

    Thanks again and all the best for a great 2016 and beyond.

  • I am the founder of a company and a first time CEO. I am here basically looking for advice on what to do with my company. Here is my situation. We are still in startup mode, however we are making money. I have always been an entrepreneur at heart, and I have managed to retain 100% percent of the company. I realize now in order to bring my vision to fruition, I am going to need the right team, and also some funding to get the company moving. Is this the purpose of seed funding? And if so, can someone please lead me in the right direction. I want to start taking the necessary steps to acquire the resources we need. Any advice is much appreciated.

  • Elena Borodina

    It’s mind boggling and sad how much money is wasted on bad people and bad ideas. You could build so much more instead, and with less. In fact, having so much cash on hand, I don’t see how these angel investors and especially VCs don’t just bring all of this startup development in house. A solid working prototype of most of these startups would cost 25-50k, especially with a solid, trusted go-to team. You own all the equity, re-use back office, avoid startup mistakes, avoiding wasting money. Need Uber of X cashcows? Easy. Need Zero-to-One breakthroughs like Google’s algorithm? Invite tech geniuses who want to create rather than raise money and party in San Francisco.

    I only see upsides.

  • Sorry if this is a stupid question, but would it make more sense to “invest” in individual angels? Presumably you could limit to angels that fit a certain profile (low time sink, at minimum). You could magnify their impact on their portfolio companies and maybe get 1 in 100 great follow on investment. Outside of my world, but I’m just curious if that would work.