Angel investing isn’t always a solo endeavour—often, smaller investors band together to increase their collective impact. In Australia, a common way of doing this is through investment syndicates, which may use a special purpose vehicle (SPV) to pool funds and hold shares on behalf of multiple backers. Below we explore how syndicates work, why startups often prefer them, and some legal considerations for Australian angel investors.
What Is an Investment Syndicate?
An investment syndicate is a group of individuals—or sometimes other entities—who come together to invest in a company under agreed terms. Instead of each investor separately holding shares on the cap table, one investor (the “lead”) coordinates the deal. This lead investor usually conducts much of the due diligence, negotiates terms, and then invites others to join under the same deal parameters.
Benefits for Angel Investors
Shared Risk and Expertise
By pooling resources, angels can spread their capital across more deals, reducing exposure to any single company.
Stronger Negotiating Position
Collectively, a syndicate may command better terms (e.g., share price, governance rights) than an individual small investor could on their own.
Reduced Administrative Burden
Often, the lead investor handles legal, financial, and administrative tasks, streamlining the process for everyone else.
What Is a Special Purpose Vehicle (SPV)?
A Special Purpose Vehicle—or Special Purpose Investment Vehicle (SPIV)—is a separate legal entity formed solely to hold a particular asset or group of assets. In the context of angel investing, an SPV will pool funds from multiple investors and invest them in a single target company, appearing on that company’s cap table as one shareholder.
How SPVs Operate
Structuring
In Australia, an SPV is typically structured as a proprietary company under the Corporations Act 2001 (Cth). Each participant in the syndicate holds shares (or units in a unit trust, depending on the setup) in the SPV rather than in the operating company.
Legal and Regulatory Compliance
SPVs must comply with the Corporations Act just like any other company. Lead investors or professional fund managers may rely on exemptions in s708 of the Corporations Act (e.g., small-scale offerings or sophisticated investor exemptions) to raise capital without issuing a formal prospectus.
Management
The SPV may have its own board and constitution, outlining how decisions about the underlying investment are made. This structure can be particularly useful if the deal needs ongoing governance or monitoring.
Why Startups Prefer to “Roll Up” Smaller Investors
Cap Table Clarity
Australian private companies can face shareholder limits (e.g., no more than 50 non-employee shareholders under the Corporations Act for proprietary companies). Consolidating many small investors into one SPV keeps the direct shareholder count low, preserving flexibility for future funding rounds.
Administrative Simplicity
Managing lots of small investors—each requiring shareholder notices, signing documents, and updates—can become onerous. When smaller investments are rolled into an SPV, the startup deals with one entity (the SPV) instead of dozens or hundreds of individuals.
Future Fundraising Ease
Potential venture capital (VC) investors often look for a clean cap table to avoid complications. An SPV containing many small investors can be more appealing and less time-consuming for future large-scale funders to manage.
Streamlined Decision-Making
Having many minor shareholders with direct voting or consent rights can slow progress. An SPV can appoint a single representative to vote and make decisions, making the startup’s corporate governance more efficient.
Key Considerations for Angels Joining a Syndicate or SPV
- SPV Governance: Understand how decisions are made within the SPV. Who controls voting power? What happens if the SPV needs to raise additional capital?
- Lead Investor Role: Clarify the lead investor’s responsibilities, any carried interest (a share of the profit), and the fees involved.
- Exit Rights: Confirm how exit scenarios are handled. If the startup is sold or goes public, how are proceeds distributed among SPV investors?
- Regulatory Compliance: Check how the syndicate or SPV is structuring the offer to comply with the Corporations Act. Often, investors must qualify under the “sophisticated investor” or “professional investor” exemptions in s708, or the deal must stay under the 20-in-12 rule (raising from no more than 20 non-associated investors within a 12-month period).
Final Thoughts
For both startups and investors, investment syndicates and SPVs can streamline the fundraising process and simplify cap table management. Whether you’re an angel with limited capital or looking to build a diversified portfolio, joining a syndicate and investing via an SPV may be the most practical route. Just remember that these structures introduce another layer of governance, so it’s important to do your due diligence—on both the startup and the syndicate itself.
If you have questions about syndicate terms, SPV structuring, or the legal nuances of rolling up smaller investments, our team is here to provide clarity and guide you through the process. We regularly assist founders and angels alike in navigating these complex but rewarding pathways of investment.
