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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."
It also encourages larger angel rounds, which can help today's breed of capital-efficient startup reach more significant milestones before bringing in venture firms, if VCs are needed at all.
While venture firms often syndicate deals, Geshwiler says it's a process that has emerged over time and is done mainly on an ad hoc basis, which can lead to conflicts and legal issues. While it's rare in the venture world to see firms turn on one another in court, there can be drama behind the scenes. If these treaties can eliminate such grievances, they might just improve the chances of angels living up to their name. - Stacey HigginbothamSee an example of a due diligence treaty
See Oct. 12 post from Tech Confidential
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