Sent on January 28, 2022.
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I’ve been operating an angel syndicate for a year now, focusing on gaming startups. Here’s how it all got started and what has happened in the first year of operations.
It was the fall of 2020. I had been doing angel investing for one and a half years. These were 5,000 or 10,000 euro investments in pre-seed stage game studios. But I wanted to learn how to invest other people’s money.
Why other people’s money? I had been thinking about getting into Venture Capital for many years, and I felt that a great way to collect that experience would be to start angel investing with other people’s funds.
I picked ideas from Jason Calacanis, who operates an angel syndicate of over 2,900 members. The idea: Jason presents deals to the syndicate, then the syndicate pools investments together to invest as one line on the startup’s cap table.
I wanted to build an angel syndicate, specifically for gaming. Why not invest just my own funds? As a syndicate, a group of angel investors invest in a company, and the syndicate lead gets a share of the profits if an exit happens.
To get started, in Nov 2020, I talked to a few legal experts on how to set up an SPV in Finland. Once I had the Finnish SPV ready, I started contacting friends in the games industry to join the syndicate.
The initial syndicate was about 70 people, all recruited from my network in a few weeks. In early 2022, the syndicate has grown to 125 members, and more are constantly joining.
As a member, it’s free to join, and there’s no obligation to participate in any of the deals, but if anything interesting comes up, the member would DM me and say they’re in and with how much. The minimum is $2,500.
Over 90% of the syndicate investors are from gaming—they are working or have previously worked in gaming or are working in gaming-related businesses. There is also a minority of tech investors who are already investors in gaming.
To operate the syndicate, I took inspiration from the MDM Syndicate (no longer operating) Slack channel, which was led by @eric_seufert. I present deals to the syndicate on the Slack channel, and individuals DM me how much they want to invest.
For presenting a deal, I put together a package of material: the target company’s deck, my investment memo where I point out why the company makes for a good investment, and an interview video with the founders.
All the syndicate members will have access to the material. To raise from my syndicate, founders need to be willing to share all the information openly, and if there is information in the deck that is not wanted to be shared openly, it should be removed before sharing.
I’ve done twelve syndicate deals so far, ranging from pre-seed to Series A. The allocation size has gone from $50,000 to $200,000. In almost all cases, a leading VC firm has been setting the terms of the round.
Regarding the terms for the syndicate investors: I get a 20% carry, meaning that if there were an exit, I’d get 20% of everyone’s profit after returning the initially invested amount. The carry is a very similar model to how VCs profit from exits.
Will I be involved post-investment? Yes, very much so.
As I’ve previously discussed in my newsletter, I focus heavily on becoming a great value-add investor for gaming founders. I put a lot of emphasis on developing how I help founders by mentoring and coaching, giving product feedback, and allowing them to utilize my gaming network.
Regarding investor updates, the founders can share updates with the syndicate investors and ask for help, but it’s always an “opt-in” kind of relationship for both parties.
As a long-term goal, I plan to create a gaming founder community around Elite Game Developers. From my experience as a founder, you can learn the most by studying what others have done and how they’ve succeeded or failed.
It’s not all been smooth sailing.
Some founders have declined an investment from my syndicate in the last moments. There has been worry about sharing their deck with hundreds of people, mainly when some founders are still employed and don’t want to leak the deck to their employers.
I have alleviated these privacy concerns by watermarking the decks before sharing them with the syndicate. I’m looking into using Docsend to share the decks in the future to have more security over the material.
Another improvement I’m working on is to minimize the work on closing deals and wiring the funds to the company. First, I’ve recently moved over to the UK-based SPVs with a service provider since the Finnish SPV was too rigid for setting up more than a few deals a year.
But, there’s still work to be done on making things smoother for investors. The logistics include many steps after I get an investor to commit, going into a KYC process, including pictures of passports, selfies, personal details, proof of funds, and signatures.
Then with the wire transfers, as most of us know, international banking between different countries and currencies is not always easy. Wires getting sent back, banking fees cutting into the wired amount.
All this will become easier as more deals are done, and the syndicate members and I get used to the process and all the related steps.
I’m also learning a ton through my work with Play Ventures and have been able to co-invest with the syndicate on many deals.
For founders and investors, if you have any questions regarding the syndicate, please hit me up on LinkedIn or Twitter. I’m happy to share more details.
All those five-star reviews can’t be wrong 🙂 Get my book, “Long Term Game: How to build a video games company” from Amazon. Available on Kindle, audiobook, and paperback. Check it out
🎙 Ask me anything #8
This is my eighth Ask Me Anything podcast episode, where I answer people’s questions related to game studios, fundraising, and all other entrepreneurship-related stuff. I will be recording another episode quite soon, so please submit your questions by filling out this form.
Questions that I answer include:
- Can you have two lead investors if two VCs are interested in you?
- How much is too much for Seed round?
- And how a hyper-casual studio should approach blockchain gaming.
- and more.
Listen to the full episode by going here.
📝 Useful tools and templates
- Advisor agreement template
- Investor update template
- Cap table template
- Convertible note
- Shareholders’ Agreement
- Non-disclosure Agreement
- Co-founder equity split calculator
- and more
If you know of a founder or a group of people who are planning to start a game studio, let them know of these templates.
📃 Articles worth reading
+ The App Store has a ‘Too Big To Fail’ problem — “The presence of certain apps is so imperative to the App Store’s broader consumer appeal that Apple has no choice but to allow those apps to defy its various platform rules and restrictions. These apps are too big to fail: if Apple were to enforce its rules against these apps and block them from the App Store, it would suffer extreme commercial consequences.”
+ The Unbundling of Venture Capital — “When I first started as a VC the energy was very different than it is today. Investors have typically thought of themselves as gatekeepers (though probably not out loud.) Founders need capital for their businesses to survive and investors have the capital. It was a buyer’s market to the benefit of VCs everywhere. A lot has changed in the last few years, but two big things have shifted startup financing into a seller’s market.”
+ Building Sustainable Web3 Games with Owned Liquidity & Tokenized Assets — “Not only can a player cash out their characters, but they can also cash out all of the work they do farming materials for the game. Nothing is stopping a player from farming Eye of Newt all week, then selling it for USDC or ETH on Sushiswap.”
💬 Quote that I’ve been thinking about
“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something.”
— Steve Jobs
Join the Gaming Angel Fellowship online course and community
Elite Game Developers offers member a possibility to learn angel investing.
Here are some comments from fellowship members:
“I think this course can truly arm potential angel investors with the tools and confidence they are looking for.” — Martine Spaans
“The course is as valuable to those building businesses as it is to those looking to invest. A shared understanding of the dynamic between young business and angel investor is a great foundation for any partnership.” — David Amor
Sign up here, and you’ll get immediate access to the Slack workspace and everything else.
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