Angel Syndication: The “Treaty”

Problem: Imagine you shared your due diligence and then some years down the road the deal fails (half of them do after all).  You get a call from one of the newbie angels who was clearly relying heavily on your experience… and he wants to sue you for giving him bad advice!  Will you ever syndicate a deal again?

If we can’t find a way to get past the threat of litigation, then no one in their right minds will share their due diligence.  Without shared due diligence, deal syndication becomes nearly impossible.

Solution WITHIN angel groups: Within an angel group there are usually strong interpersonal bonds between members.  Members often live in the same geography and belong to the same social networks.  Suing a fellow group member because a deal goes bad is a great way to become an outcast in one’s own social networks.  Not surprisingly, this isn’t really an issue within angel groups.  Likewise in regions where strong bonds form between angel groups, this issue is less relevant.

Solution BETWEEN angel groups: Ensure the deal documentation that all investors sign includes a copy of The Treaty.  The Treaty basically boils down to  “I won’t sue you for sharing your due diligence.”  That simple.  Yet it is amazing how it changes the atmosphere.

I personally know angel group managers who regretted syndicating deals WITHOUT The Treaty.  They always include it now.  Your group may want to adopt the practice.

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One thought on “Angel Syndication: The “Treaty”

  1. Pingback: Angel Syndication: Best practices « Paul G. Silva

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