“The [SyndicateRoom] model was a result of my experience. I was working with business angels when equity crowdfunding appeared. I loved the idea of a wider group getting access to investment in early stage companies, but I didn’t like how it was being done, and I still don’t like it. By operating on a company-led basis, I believe the industry is unlikely to give investors the returns they want. You see, there’s a difference between the deals available to business angels and the deals available to the crowd, and there’s a strong demand for investing in early stage companies. SyndicateRoom supplies that demand and addresses the problems of company-led crowdfunding: high valuations, poor investor protections, lack of detailed due diligence and lack of guidance by experienced investors.”
Just in case readers just woke from their long winter’s naps, earlier this month, the UK-based investment crowdfunding platform SyndicateRoom, swiftly funded its own company to the tune of £1.2 million. Key details: the offer was previewed to registered investors on the platform allowing the portal to measure interest, shares were devoured despite a £5,000 cap per investors. “Clearly the round would have been funded faster than 33 hours if individuals would have had the option to purchase more,” commented Crowdfund Insider’s JD Alois. Super angel Jonathan Milner participated as the lead investor purchasing shares worth £250,000. In keeping with SyndicateRoom’s modus operandi, small investors were offered the same share class and price per share as the professionals.
Igniting SyndicateRoom’s success is CEO and Co-Founder Gonçalo de Vasconcelos. In just over three years, de Vasconselos has led SyndicateRoom to raise £24.5 million and counting, engaging a “smart crowd” and granting the crowd access to the deals to which Business Angels are also investing…”because the crowd deserves better.”
As a contributor to Forbes, de Vasconcelos writes and speaks regularly about equity crowdfunding, business angel investment and venture capital investment. “Being one of the best-networked people in the business angel industry I am passionate about giving the crowd access to the top companies into which experienced business angels are investing their own money,” averred de Vasconcelos on LinkedIn. “This is what drives my vision for SyndicateRoom.”
I recently enjoyed the opportunity to interview the passionate supporter of democratization of investment in startups via email and learn more about SyndicateRoom’s successful equity crowdfunding platform and model, Business Angels, future plans, UK regulations, the Investor Academy and future plans. Our interview follows:
Erin: Congratulations on your successful self crowdfunding round, easily hitting its £1.2 million funding goal representing a 14.12% equity stake in the young company. Please comment on what led to your successful campaign, how it’s wrapping up and plans for SyndicateRoom’s near future.
Gonçalo: Thank you. We largely believe in showing over telling, and by delivering a high quality service we’ve given our members faith in our brand – both as a service and as an investment opportunity in its own right. We also hosted our event, which was received with unprecedented praise. Our investors appreciate how we’ve become a key player in the market in such a short period of time, and they value our unique model. As with all our opportunities, being able to invest under the same negotiated terms as the lead investor (in this case Jonathan Milner) would have given us an advantage by putting investors’ needs first.Now that we’re fully funded, we’re starting to implement our plans for growth, though I can’t comment on what these are in too much detail at this point in time.
Erin: Why did you limit individual investors to a £5,000 max investment?
Gonçalo: Our funding round was oversubscribed prior to the launch, including offers from most of the top business angels in the UK. As Jonathan Milner said at our event, he would have taken the whole round if we had let him. However, we wanted to open up our round to as many of our members as possible, so the board decided the best way to achieve this would be to restrict investments to a maximum of £5k, even for the top UK business angels. For us, opening up our company to our members wasn’t just about reaching our monetary goals; it was about the potential for those shareholders to become brand ambassadors.
Erin: How does your model promote greater fairness, efficacy and transparency for investors?
Gonçalo: There are two models in equity crowdfunding: investor-led and company-led. The company-led model is a one-way relationship. The investment terms are set by the company, often at the expense of investors.
SyndicateRoom is the only UK-based investor-led platform. The lead investors negotiate the investment terms and validate the deal by investing with their own money, and our members then invest under the same economic terms at the same share class and price per share – essentially a syndicate of investors formed around a lead investor.
Erin: What are your exit expectations for SyndicateRoom’s investors?
Gonçalo: It’s too early to say yet. Equity Crowdfunding is still a young, fast growing industry, and there’s no track record of exits yet. That said, I think there are two possibilities: either being acquired by another company or potentially listing the company further down the line.
Erin: You chose not to overfund the campaign; do you have over funding rounds in the pipeline?
Gonçalo: We chose not to overfund because we knew exactly how much we needed for the next stage of our growth. We do have over rounds on the horizon, and this recent round will allow us to achieve a better valuation for them. Having more rounds will be beneficial for our existing shareholders as they will see an upside on the value of their shares.
Gonçalo: That’s a statistic we’re really proud of, but unfortunately it’s unlikely to last. Business angels get it wrong, and some companies will fail. Two have already had problems, though these have been resolved. But to have lasted 19 months without a single company failing is, as far as we’re concerned, a success – and certainly a much better statistic than any of our competitors can boast.
Erin: How are you sourcing deals for your platform?
Erin: Please explain your strategy of pairing pros with the crowd highly curated early stage investment offers, highlighting advantages and disadvantages.
Gonçalo: It’s a two way system. The business angels negotiate the investment terms, and in return the companies get the angels’ experience and network of contacts. As for the online investors, they’re accessing the world of the business angels for the first time, and investing in the same sought-after deals under the same economic terms: for pound per pound invested, they will make or lose the same amount. That’s a world-first, and a strong, unique proposition.
On the other hand, it’s a lot more curated, and we have less deals live at any one time. That’s because the amount of companies who attract angel investors is slim. You need a robust idea, a robust IP, a robust team. You need to protect yourself from competitors. But we actually see this as an advantage: rather than browsing 50 deals with only a few interesting propositions – and even fewer with attractive valuations – you get a limited number of highly curated investment opportunities. The only variable is your own interest in the company. It saves time, and time is valuable to our members.
Erin: SyndicateRoom has constructed a crowdfunding model that pairs professional investors with retail types. The investment terms are such that Angels / VCs receive the same deal but retail investors may benefit from the due diligence of a more sophisticated lead. What led you to developing this model?
Gonçalo: The model was a result of my experience. I was working with business angels when equity crowdfunding appeared. I loved the idea of a wider group getting access to investment in early stage companies, but I didn’t like how it was being done, and I still don’t like it. By operating on a company-led basis, I believe the industry is unlikely to give investors the returns they want. You see, there’s a difference between the deals available to business angels and the deals available to the crowd, and there’s a strong demand for investing in early stage companies. SyndicateRoom supplies that demand and addresses the problems of company-led crowdfunding: high valuations, poor investor protections, lack of detailed due diligence and lack of guidance by experienced investors.
Erin: How did you secure your initial partners? How do you secure them now?
Gonçalo: It used to be much harder. The angel networks and venture capitalists weren’t sure how we would fit in the market, and they were worried that we would steal their deal flow. But we proved ourselves, and it became easier. Now there’s a waiting list for our Introducers’ programme.
Erin: What are your thoughts on the UK regulatory environment for crowdfunding platforms? How well are the regulations working? Describe your experience with communication between FCA and platforms. How do you see the regulations evolving?
I think the regulation works well at the moment. It’s robust and it protects investors. That said, additional measures need to be taken to ensure that companies comply with legislation. As for our own experience with the FCA, we have had a great experience so far.
Erin: What are SyndicateRoom’s biggest challenges?
Our model has unique benefits to investors, but not all online investors fully understand that. Winning the attention of our audience means educating them on their options, of which ours offers the best experience for investors. For this reason we’ve recently launched our ‘Investor Academy’ with top-tier law firm Taylor Wessing, providing information to online investors to help them make educated and well informed investments.
Erin: To date, SyndicateRoom has raised over £23.6 Million. What plans — international and national — do you have for further grow Syndicate Room in 2015? 2017? 2020?
Gonçalo: That was yesterday. CamNutra closed over night and as soon as the funding round is processed, the total will be £24.5 million.
With the money raised from our funding raised will help us grow exponentially. What we do, we do well, and we want to accelerate that on a larger scale and continue to develop as thought leaders in the industry.
It’s hard to imagine 2017 when we’re still so young. That said, I foresee people beginning to realise that equity crowdfunding has to work for investors to be sustainable, which will put us in the prime spot to lead the market. By then we’ll have done our next funding round which will allow us to grow even more.
I think the way companies and investors will look at finance in 2020 will be dramatically different. Online investment will be as natural as paying online using a credit card or ordering something from Amazon.