If you are from Europe and want to invest in an AngelList Syndicate, here is my experience getting the required paperwork finished. But first, some background for those who don’t know the syndicates system from AngelList.
AngelList Syndicates are a system to commit relatively small amounts of money, starting at $1000, to co-invest with angels on the platform. You essentially choose an angel you trust and back him, allowing that angel to invest higher amounts, their and your money. Gil Penchina for example has a personal syndicate. He will invest an average of $10.000 per deal, but can commit over $3 million from over 300 different backers. This allows him access to totally different deals and he earns (if he chooses to) a share of the potential profit, similar to how a VC makes money.
There are lots of questions whether angel investment make sense, but based on founding multiple companies, and interacting with some of the best angels in europe doing it, I can safely say that it can work very well indeed. One of the important items, also mentioned by AngelList COO Kevin Laws, is that you invest in a lot of different companies to spread your risk. This makes Syndicates even more interesting. If you want to commit $40.000 to angel investing in an asset class type of way, you will need to do 40 $1000 deals to spread your risk. This is not possible by yourself, but possible on AngelList. (Note: It is still risky though :))
There is one specific FAQ entry though that is important for people outside of the US: Can investors outside the U.S. back syndicates? -
Yes they can, but they should have a Tax Identification Number, or TIN. DISCLAIMER: I AM NO TAX ACCOUNTANT AND THIS COULD BE WRONG! But at least it is some answer :)
Due to many Angels in Europe investing from Investment Holding Companies, I will look at the process for investing from such a company. As a company you need an Employer Identification Company (EIN). The “Employer” part is misleading. The reason is that AngelList needs to know what to do about Taxes payable in the US when you join such a syndicate, as it is organised via AngelList. Without a TIN, they will just withhold the normal Tax on investing income, roughly 30% from my knowledge.
(Update: I think you might also be able to get an EIN instead of an ITIN as an individual, but you need to have registered a business, even if it is not an LLC. But research that yourself and/or leave a comment. :))
Through form W-8ben (instructions), you can notify the fund in case of an exit that there is a tax treaty between your country and the US. This way, they can send over the entire amount without withholding taxes. Pay attention though that there is a new form for foreign companies to use called W-8ben-e, which is so new it does not even have instructions. For now you can still use the old 2006 version of the W-8ben. So this will not stop to be fun. :)
Important now is the EIN. In all honesty, it is actually pretty well explained on the IRS site, if you can find it. Finding the right form is really the hardest part. But here are the two links you need:
Now the cool part: You can call the IRS and get your number directly. The relevant office is in Philadelphia and opening hours are 7am till 10pm (wow!). I suggest, and they do too, that you fill out the form to be prepared for what the IRS agent will ask you. But the important items are this:
- You want to do investments into US startups
- You are doing so from an investment holding that is an LLC in your country
- You are the sole owner
- You are doing this to receive a reduced rate of withholding pursuant to an income tax treaty
- Keep the address of the company at hand
After 5 minutes you will have your EIN and be ready to join a syndicate. Have fun.
Joining an Angellist Syndicate from Germany (or even Europe) was originally published in Oliver Thylmann’s Thoughts on Medium, where people are continuing the conversation by highlighting and responding to this story.