Syndicate Room is looking to invest £10m in over 50 start-ups in 2022 from its £26m Access EIS fund.
The Cambridge-based investor offers an EIS fund that co-invests in start-ups looking to raise between £400,000 and £3m with its network of top angel investors.
In what is a unique business model, Syndicate Room is part portfolio, part fund with angels reviewing the deal flow.
Crucially, Syndicate Room invests much earlier than most other financiers, with angel investors leading the way as to what to invest in.
“We go in with the angels before most funds will,” co-founder Tom Britton says. “And for us to be able to get into those rounds and support these businesses, many of which have an ESG or impact focus even though they’re not necessarily impact companies, means a lot to me.”
The VC has recently invested in Oceanium, which uses seaweed to replace plastics and extracts the nutrients for food.
“We’re investing in companies who are working on cancer drugs to start-ups creating B2B applications for operational efficiency – it’s a wide spectrum of impact but it makes you feel good.
“It’s a real mix, which is a good thing because markets go hot and cold. The big thing over the last few years is anything with machine learning.”
Before co-founding the VC in 2013, Britton was at Trainline in 2006 when it had around 40 employees, having moved to the UK to play lower-league football. After a five-year stint, he left to complete an MBA at Cambridge where he met Syndicate Room co-founder Goncalo de Vasconcelos, who has since left the business.
In 2018, they made the decision to wind down the platform in its initial form and work on a model of a fund which essentially moved like an Exchange Traded Fund (ETF) but instead of tracking a stock market index, such as the FTSE100, would shadow the UK’s top angels.
‘They allowed us to double what we were investing into each company almost overnight’ – Syndicate Room co-founder Tom Britton on BBI buy-in
“We pulled together a lot of data and, using our own analysis, rebuilt the UK market,” he says. “We looked at how the market was growing, how many companies were raising, how are were progressing and who was investing in them.
“We found some surprising things from that. If you look at all of the companies that raised £100,000 and over in 2011 – there were almost 700 of them – and indexed them, you would have seen an annualised portfolio growth of 28 per cent and 19 per cent in cash returns.
“So we thought, ‘wow, the market’s great. How do we tap into that?’ We decided we could do that by building a diverse portfolio and using the best angels as a proxy for quality.”
That fund was launched in November 2019 and in January 2021 British Business Investments (BBI), a commercial subsidiary of the British Business Bank, decided to commit to the fund.
“They have been a great partner but also allowed us to double what we were investing into each company almost overnight,” Britton says.
The VC is concentrating its efforts on investing outside of London, with a higher concentration of female angel investors and in men who have backed female-founded companies. One third of the portfolio has at least one female founder.
On the investor side, it is also lowering the barrier to entry for people to access EIS and the tax relief it offers. The minimum investment into the fund is £5,000 – a significant drop from the typical £20,000 entry requirement for EIS funds.
“It is difficult for a lot of people to afford the later stage funds but by lowering it, we’re getting more people into EIS and therefore more money to that earlier stage of start-up, so it’s feeding itself.
“I really do think with the diversification we allow, I can’t say it’s de-risked, but you’d like to think with this portfolio you’re going to have more failures, more successes but hopefully on the whole a higher return than what you’d get elsewhere.”
Top 3 qualities Syndicate Room looks for in an investment
#1 – One of the super angels involved. “If you don’t have a super angel, we can try and help you find one. We know what they’re interested in but that’s not our main business. Most of the deals come from the super angels – they bring us the round.”
#2 – Company is raising £500k-£3m in the round. “We’re a seed fund with this model.”
#3 – Sub £15m pre-money valuations. “We like to see sub £10m, but occasionally if someone’s raising a little bit more at the upper end of that, we’ll look at £15m. That too depends on the angel.”