Due diligence treaties make deal syndication a snap
| November 13, 2007 |  View for printing |
After years of individual investment, angels began banding together in the early '90s to form organized groups. Now angel groups are creating syndicates amongst themselves to help fund larger deals. Syndicating a deal requires more than good-faith assurances between angel groups that no one will file suit if the deal goes south. To offset some of the risks, some angel groups are creating due diligence treaties.
In New England, where the effort began thanks to William Swiggart at Beacon Angels, 20 angel groups have spent two years creating a set of legal documents that essentially keeps groups from suing one another based on their due diligence. Swiggart, a lawyer, drafted the treaty. The model was adopted in Ohio, where several angel groups have signed such treaties. Its becoming a "cookie cutter" investment document that angel groups are beginning to embrace.
John Houston, managing member of Ohio Tech Angels, credits the treaties for encouraging syndication across the state. Angel syndication is beneficial for entrepreneurs because they won't have to create funding documents with multiple angel groups and can then get more money with less effort herding individual angels or groups, he says.
"We took a very systematic, process-oriented approach in order to syndicate better," says James Geshwiler, managing director of Boston's Common Angels. "It's the only up-front, thoughtful approach to syndication I've ever seen."
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