The Abstract Truth

The Real Price Fixing Scandal in Angel Investing is Deal Syndication

Posted by rbpasker on October 9, 2010

Deal syndication in angel and seed investing is a double-edge sword for the entrepreneur.

On positive side, you get a bunch of smart and well connected people and firms investing, who will all work individually and in concert to help you out.

On the other hand, with this arrangement you may miss the opportunity to get the best price for you deal because the “lead” angel sets the price, and other investors get to ride along.

The question is whether syndicate investors might have paid more if you had talked to them first, and your lead would have been a follower at a higher price.

In deals where the entrepreneur is having trouble filling the round, there’s not much choice, and the “rolling capital raise” works in the entrepreneur’s favor. He takes what he can get as it comes along, and moves on.

But in deals that are over-subscribed, a more entrepreneur-friendly solution would be to allow more capital in, and increase the pre-money valuation proportionately. This way, increased interest in the round will increase the price of the round.

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