Case Study: Princeton Young Alumni Angel Syndicate
By Dana Iverson, Ayushi Sinha, Rachel Yee, and Eric Stinehart
My friends and I wanted to know what it takes to run an angel syndicate as students and early college graduates. We came up with an idea for the “Princeton Young Alumni Angel Syndicate,” which would be a group of early-career Princeton alumni (graduated within the last decade) who source, diligence, and invest together in early-stage startups.
Through our research and conversations with experienced angel investors, we were able to think though some difficult questions that may be useful to other young people hoping to launch their own angel syndicate. While we ultimately decided it was not feasible now, we’d like to share some directional guidance based on what we’ve learned.
- Young professionals and aspiring VCs want to build a track record. Syndicates, like the GenZ VC and Confluence.VC Angel Syndicate, enable students to write their first angel checks and exercise how to think like a VC. More kids are seeking access to deals that they can bring their differentiated perspective to, like consumer apps, and collectively invest in. Having a personal (and hopefully successful) portfolio may demonstrate their ability to pick winning companies if they seek to join a venture firm, or raise their own fund, in the future.
- Students are hungry to support friends and other student founders working on promising startups. College students are uniquely positioned with early-access to some of the brightest founders launching companies from their college dorm rooms. Angel investing allows students to take advantage of that proximity and unlock potential upside. 
- New grads unexpectedly living at home suddenly have an influx of disposable income and personal savings that would otherwise go towards rent and other living expenses. Now, you should carefully consider how much of your savings you can reasonably allocate to angel investing (some recommend 5–10% of your net-worth). That said, new grads with extra time and money may see now as the opportunity to get into angel investing.
- Angel investing can be a means to democratize venture returns for individuals who have typically been left out of the venture asset class. From Ayushi’s perspective: “Eric inspired me to consider angel investing. I thought maybe an angel investor would look like me, a young woman of color and daughter of immigrants. Sometimes, you don’t even know what’s possible until you get inspired by a friend :)”
The foremost limitation that comes to mind: who has the money at this age! Most students and new grads do not have the disposable income such that it is a smart financial move to angel invest, nor do they qualify as accredited investors. On the other hand, some may be able and eager to invest but do not have access to deals that would make the risk compelling. In order of priority, we first identified the following risks:
Legal and Governance
- Legal Feasibility — Would all members need to be accredited investors? How could they become one? Is it possible with SEC’s new guidelines or other investment vehicles like an investment club?
- Syndicate Structure and Governance — How would investment decisions be made? Would every individual invest in every deal within a more democratized “IC-style” structure? In that case, what is the voting/veto mechanism? Alternatively, should individuals have autonomy to decide which deals they invest in and how much?
- Fund Economics — If we took on a fund-like structure (like an “investment club” instead of a syndicate), how much total capital should we raise based on what we can reasonably deploy? What is the average check-size? How many deals might we expect to participate in over the fund’s life? How could we model expected returns and anticipate inevitable down-side?
- Board of Advisors — How could we tap into the Princeton network and form a board of advisors with experienced alumni? Who would be best to support our mission and guide us as beginners to execute it?
Logistics and Operations
- Deal Sourcing — How do we build an edge in and robust deal flow? Would individuals source from their network(s)? Would we only invest in Princeton founders? What other strategies could we employ? How could we gain access to top-tier deals and co-invest with VC funds?
- Check Value Proposition — Why would a founder let us invest in them? What value add could the syndicate bring to the cap table for founding teams beyond capital? How become credible resources to founders?
- Deal Diligence — How do we delegate this responsibility, and what are the deliverables (i.e. one-page investment memo, slide-deck)?
- Syndicate Operations — How could we facilitate the investment transaction in a professional way? How to incorporate the upfront costs of an SPV and leverage services that could guide us (i.e. Assure)? Would it be better to go on the cap table as individuals or as one group via SPV?
- Board Membership–Once the angel group invests in a startup, should one of our angel investors join its Board, and how should this be negotiated? How should we manage our relationship with the founder/startup (i.e. ask for updates) after the money has been wired/deal is closed?
Mission and Culture
- Deal Dynamics — What is the minimum investment per individual? How would we accommodate syndicate members with different levels of experience, commitment, interests, and check-sizes?
- Culture — How do you build an active and engaged community? What is the common sticking point that will bring the syndicate together?
- Accessibility — Is it possible to make the angel investing experience accessible and available to those who can’t write checks? How do we ensure equity and equal footing in our mission?
- Investor Education — How could we include a curriculum that would onboard both members who have not invested before and help all members grow to become better investors?
We surveyed some of our non-angel classmates and asked if they would participate in an angel syndicate. Based on their responses, we brainstormed some stereotypical (non-exhaustive) personas to better understand the personalities involved and align personal incentives:
- The Aspiring VC–This person wants to use the syndicate to exercise their venture skill set. They could be a young professional in any field who wants to angel invest as a side hustle, bring in a high amount of deals, and build their track record through it.
- The Enthusiast–This person might have a more popular idea of what it means to angel invest. They like the idea of making angel investments and want to be exposed to companies in a specific category that excites them (i.e. healthcare). Angel investing is more of a curiosity or side hobby than professional stepping stone.
- The Observer–Some people may make fewer investments or are unable to commit as much capital as others, yet still want exposure to the activities and the community of the group (i.e. events, pitch session, group information).
- The Tech Bro/Gal–This person is very tapped into the startup ecosystem. They are a nerd for the myths and traditions surrounding entrepreneurship and Silicon Valley. Maybe they are at an entry-level role at a startup or big tech. They may be more technical/product-oriented or have fleshed out theses around different technology trends and sectors.
- The Finance Bro/Gal–This person wants to make riskier personal investments and/or are attracted to venture as a sexy asset class. They may aim to professionally move from sell-side (i.e. IB) to buy-side (i.e. VC). They have a strong and rigorous grasp on business fundamentals. They may think about more traditional metrics of success success (i.e. profitability, cash burn). Their interest is driven more by financial returns than tech culture. They may have a strong conviction around certain sectors or themes but are more likely to be generalist/opportunistic.
- The Philanthropist–This person brings a more charitable mission or purpose to angel investing besides making money. They might have a broader set of values and goals (i.e. empower more female founders, advancing double bottom-line businesses). They don’t care as much about returns as they do about making an impact.
For a more data-driven analysis in the future, it’d be interesting to survey the current practices of those already making angel investments:
- How many of our classmates are already making angel investments, and who are they (i.e. segmented by geography, job, etc.)?
- How are they doing it (i.e. solo, angel syndicate, investment club)?
- Will there be a conflict of interest for young alumni who might have something in their job contract that prevents them from investing/doing their own angel deals (i.e. works for a venture firm)?
- How many angel investments have they been making, how often, and what has their average check-size been?
✨ Key Insights ✨
From our research and conversations with a few experienced angel investors, we unearthed the following insights on starting an angel syndicate for young people, as well as angel investing in general:
- Most syndicates are driven by deals and SPVs form around deals. It is not as common to have blank-check syndicate waiting for a deal. It is more likely an individual finds a deal and ask a few friendly investors if they want in on the opportunity. Some syndicates are loosely formed around shared associations or networks (i.e. female executives of Shopify, university alumni, specific geographies). These individuals strategically invest together within a common goal. While syndicates can be community-first, most are opportunistic and deal-by-deal.
- Lack of investor accreditation is a non-starter. We expected this to be the biggest limitation, and indeed it was! The majority of young participants would expectedly not be accredited. Not being accredited poses a legal and reputational risk that is hard to solve for.
- Based on its legal definition, creating an “investment club” may be a non-perfect, but creative work around for non-accreditation. This is the structure of the GSB 2020 Fund for Stanford MBA students. Investment clubs are not regulated by the SEC. One draw-backs to an investment club is that it cannot have more than 100 members. 
- Cultural synergy is more important than you think. In fact, it is even embedded into the legal definition of an investment club. Investment clubs are not allowed to recruit members because it would be viewed as a part of an investment scheme. The onus is on prospective members to approach a club based on its known brand, people, and community. On top of that, all club members must actively participate in the investment club’s management. If there are passive members, their membership may be considered an investment in a security, similar to the shareholders of a mutual fund, and, in that case, would need to register with the SEC. Therefore, club members must put in critical effort to regularly and actively engage its membership.
- Reverse-engineer the investment vehicle before you launch it. It may be tempting to raise as much money as possible for an investment club. However, you want to be conservative with your fund size based on how many companies you anticipate investing in over the fund’s life, how much angels are willing to contribute, and the total capital allocation you could expect to receive in any given round. These projections are key to avoiding sticky situations that could be detrimental to the group’s performance and reputation, like not being able to fill a round.
- Nail down your unique advantage. The record amount of dry power in the venture industry makes getting on founders’ cap tables increasingly competitive, so be ready to make a case for your unique value proposition, beyond capital, as a “strategic angel” investor. You also want to determine your differentiated position to generate returns and succeed for yourself. To justify our current idea, we’d have to further consider what our secret sauce would be as young people and prove out our strategic ability to gain access to the best deals.
- De-risk by investing in classmates. Usually, an angel syndicate designates a lead who is the point-person for communication with the founder and leads diligence for the group. At the earliest stages of a startup, one of the most important aspects to de-risk is the team. Making investments in people within your network, or that you already know well, can save time to build conviction around their execution ability and character, as well as conduct candid channel checks. That said, you equally want to acknowledge the limitations of your network and avoid excluding any potential opportunities from your deal flow.
- Partner with trusted investor(s). Especially if your group is mostly students or new grads, it’s important to build an expert advisory board who preferably has deep venture experience and an understanding of the psychology behind striking a good deal. Although unlikely, we also considered what leverage we might have to form an agreement with top-tier venture firm(s) to co-invest in their pre-seed/seed deals.
- Consider joining an established angel group. Not only may you find mentorship from more experienced angel investors, but traditional syndicates with older investors need more young people too. You could bridge the perspective gap for consumer brands and startups targeted towards Millennial and Gen Z audiences and bring validation to products that older folks don’t see market opportunity in.
- To make angel investing worth it, you need to invest in ~ 10 startups. Expect that most of the startups you invest in will generate zero returns. Remember you’re mostly investing in a team and pitch-deck at this stage with limited traction and proven ability to win.
- Running an angel syndicate or investment club requires a significant amount of personal investment beyond capital. There’s a real financial and time commitment barrier to entry. All participants must understand their responsibilities and how their expectations to contribute. Some angel syndicates have implemented a compensation structure for deal leads.
Possible Next Steps
Based on what we determined to be feasible for us personally and as young college students and graduates, we scaled down our initial idea to the most reasonable next steps below:
- Become an accredited angel investor individually. ✨ TIP✨ For those who do not meet the net worth or income requirements, passing the Series 65 exam is the fastest and easiest way to become an accredited investor and participate in private investments.
- Invest in early-stage startups via equity crowd-funding platforms, like Republic, StartEngine, WeFunder and other sites.
- Develop a branch of Princeton Alumni Angels for young alumni. Incorporating under PAA would provide us group a brand halo, as well as widen our network, give us insight into their diligence process, and allow us to leverage their existing deal flow and resources.
Over the course of this project, Ayushi, Rachel, Eric, and I pivoted from trying to set up an angel syndicate to learning what we don’t know first. We have hopefully moved to the “I know what I don’t know” bucket and have de-risked some early questions around forming an angel syndicate at this stage in our lives.
 Student Venture Funds — Large VC funds, like First Round Capital and General Catalyst, have launched programs, like Dorm Room Fund and Rough Draft Ventures, to support and invest in student entrepreneurs. Funds like Contray Capital and 1517 Fund operate on the thesis that investing in student-found companies can lead to outsized returns.
 Investment Clubs — You can think of an investment club as a small-scale mutual fund where decisions are made by a committee of non-professional club members. Unlike a mutual fund, an investment club is a true democracy. It is typically structured as a general partnership or LLC in which all members participate by vote to determine the club’s investment decisions. Because all members actively participate in the club’s management, ownership interests in investment clubs are not considered securities by the SEC. Typically, the membership may meet on a regular basis (usually every month) to discuss investment opportunities and their existing portfolio. Club members unite their collective knowledge and resources to make investment decisions, however each member invests their own money individually, and the funds themselves are not pooled.
Thank you to Rob Walk and Christine Brumback of Princeton Alumni Angels and Steph Mui at GSB 2020 for sharing your experience with us.
Shout out to Albert Wang, Theodor Marcu, Rohan Shah, Ali Partovi, Steph Sher, Eno Reyes, Nitish Jindal, David Awad for their input along the way!