Syndicate Protocol — viola, your wallet is now an Investing DAO.
I have always been fascinated by early-stage investing. The sheer ability to support a founder at the outset of a business is truly humbling and inspirational. In the early-stage investment landscape, the Syndicate Protocol is one of the two protocols that have my attention and deep interest in how they are re-inventing early-stage investing and syndicate formation. Syndicates and investment clubs are non-traditional mechanisms for people to pool together resources to make investments.
Firstly, defining what we mean by investment clubs or syndicates is essential. The United States Securities and Exchange Commission(SEC) defines an investment club as a group of people pooling resources together to make investments. According to the SEC, an investment club;
Is allowed to have up to 99 members. Any investment outfit with more than 100 members is called an investment group by the SEC and subject to more regulatory scrutiny.
Makes investment decisions via consensus.
Cannot charge management or performance fees and are not allowed to solicit funds from the public.
Must not offer the securities the club and its members holds to the public.
Must contain only accredited members if they are to invest in start-ups founded in the USA.
While the United States SEC has a clearly defined regulatory framework for investment clubs, the framework differs in other jurisdictions. Thus, it has been somewhat challenging to create a global and permissionless syndicate structure where people can pool in money to invest in whatever interests them given varying compliance mandates in different jurisdictions. However, before examining how the syndicate protocol makes forming and running an investment club far easier, let’s look at the progress and evolution of investment clubs and syndicates.
Traditional Investment Clubs
Investment clubs have existed for a long time as humans came together, pooling resources to invest for a better life. However, famous proclamations state that the first investment club was formed in the 1800s in Western America. This investment club is said to have been created in 1898 in Texas in the wild west era when there was pervasive lawlessness in the United States. Around the same time, other powerful investment clubs were kicking off around the globe. For example, a Peau de l’Ours (The Skin of the Bear) pioneered by Andre Level started in 1905. They became a revered investment club, eventually owning art pieces from artists like Picasso, Matisse, and Braque and generating gross revenues of about 116,545 French francs.
The modern investment club movement started on March 1, 1940, when the Mutual Investment Club of Detroit began. However, in the early days of investment clubs in the United States, traditional investors on Wall Street did not regard the brilliance of investment clubs and their nimble techniques. It was not until 1967, wall street started acknowledging the prowess of these investment clubs. In the Business Week magazine released on November 25, 1967, a headline about investment clubs read "A Field Day for the Little Guys." By this time, investment clubs in the country had a combined portfolio value of more than $900 million, with more than two million people involved1. Investment clubs continued to grow strong into more recent times when there were evolutions in how investment clubs and syndicates were structured.
The Rise of Internet-Based Investment Vehicles
As the internet removed barriers to communication and made the world “smaller,” investment clubs started organizing via the internet. Although there have been many iterations of investment clubs native to the internet, one of the most memorable iterations of performing deals via investment clubs or syndicates using the internet is AngelList, founded by Naval Ravikant.
Setbacks of Traditional and Internet-Based Investment Clubs
Despite the widespread benefits of investment clubs and syndicates, there are still several issues that investment clubs face. These challenges include:
Depending on the guiding principles of the investment club or syndicate, it is often slow and expensive to coordinate the activities of an investment club or syndicate—for example, every syndicated deal coordinated on angellist costs about $8,000.
Compliance issues can become very damaging to the growth of syndicates or investment clubs. In addition, different countries have different rules guiding the formation of investment clubs, and it is challenging to meet all the requirements simultaneously.
There are few tools internet-native that aid investment clubs investing in digital assets like tokens, NFTs, etc.
So how does syndicate protocol solve these issues?
Syndicate Protocol
Syndicate protocol, simply put, is a decentralized investing network. The syndicate protocol’s first product is a native on the go web3 investment club that anyone can create in minutes.
The syndicate’s web 3 investment club offers a variety of features that greatly ease the flaws that beset traditional and internet-based investment clubs and syndicates. Some of the features of the syndicate investment club include:
Users can create unlimited numbers of on-chain investment clubs.
These clubs can be run from any ethereum based wallet such as metamask, gnosis, etc.
Investment clubs can automate several investment club activities, including deposits, cap table design, investment and activity reporting, distribution of digital assets, etc.
Syndicate protocol maintains simple legal templates for entities to adopt in creating the club and ensuring compliance. The syndicate protocol also allows for users to incorporate third-party legal documents.
Approximately 100x cheaper for users to use in setting up an investment club. Setting up an investment club via the syndicate costs $100-$250.
Users can invest in on-chain and off-chain assets — including Non Fungible Tokens, Tokens, start-ups, and other real-world assets via legal entities in corresponding jurisdictions. To invest in start-ups in the US, investors must be accredited. However, non-accredited investors can invest in any on-chain asset.
Users can create EINs, bank accounts, K-1 tax filings, and other features from Doola, a third-party service provider.
Call to Action
The syndicate protocol offers a service that had previously been difficult for the average person to access. As a result, non-accredited investors and non-financial players have often missed life-changing investment opportunities, and the syndicate is trying to level the playing field.
Thus, I encourage you to try some investing with your friends by starting an investment club.
Step 1 -
Visit the syndicate protocol’s website and connect your wallet. Then click on “create an investment club”
Step 2 -
Name your club and club token. The club token will be the on-chain representation of your membership in the investment club. Once you have made deposits, you will be sent tokens representing your stake in the investment club.
Step 3 -
Select the upper limit of the club’s raise.
Step 4 -
Select when you want the deposit to close and the maximum number of people you wish to have in the club. Remember, the maximum allowed per the SEC rules and regulation is 99 members.
Accept the terms and conditions, confirm your wallet, and voila, you now have an investment club.
Final Thoughts
Syndicate protocol is one of the two exciting protocols I am excited about facilitating early-stage investing for the general populace — the other protocol is DAO Maker. I hope the protocol can quickly become multichain enough to accommodate participants across different EVM and Non-EVM compatible layer ones.
Reach out to Syndicate Protocol
Don’t forget to hit me up on Twitter or drop a comment if you have any thoughts on this.
Thanks.
George A. Nicholson, Jr., & Thomas E. O’Hara. (1968). Investment Clubs. Financial Analysts Journal, 24(3), 141–146. http://www.jstor.org/stable/4470356