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My how to use a syndicate for founders to manage party rounds kinda blew up last week.
I got lots of questions about syndicates in general, so figured it was time for a guide on how to manage them when you're fundraising.
I got lots of questions about syndicates in general, so figured it was time for a guide on how to manage them when you're fundraising.
First - I'm referring to angels who source deals and use syndicates so they can raise money from their network of LPs. A syndicate is usually led by someone with pre-committed investors backing and in exchange for syndicating a deal, they take carry.
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When fundraising, I typically found that I would get introduced to an angel investor who wrote small checks but ran a syndicate. They'd tell me "if you're open to it, I can do a syndicate and raise somewhere between... range of investment $"
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Syndicates are a double-edged sword. With the right syndicate lead, they can be great but because the syndicate lead has to do a capital call for every deal, it's not a sure thing/fixed amount of $ so it can get really messy.
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Quick side note - syndicates are a great way for less networked people to get access to deal-flow and they help make early stage investing much more accessible.
You still have to be accredited fwiw
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You still have to be accredited fwiw
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Because $ isn't guaranteed, I typically recommend a syndicate at the end of a round or after you have your lead investor.
Ironically, many syndicates will tell founders that once they find a lead they can do the syndicate (lol, no shit, my grandma could with A16Z leading).
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Ironically, many syndicates will tell founders that once they find a lead they can do the syndicate (lol, no shit, my grandma could with A16Z leading).
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It gets messy when founders agree to this and then head into meetings with VCs letting them know that "once we have a lead, syndicate XYZ will invest up to [insert number here]". I made this mistake when raising for my first company.
It's also weird signaling.
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It's also weird signaling.
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The reason why doing a syndicate at the end of the round works better is then *you* control the allocation the syndicate can fill and back into that amount. + at the end of the round it's usually ok if the syndicate fills the low or high end of their range
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The other dynamic that happens here is the syndicate lead now goes to to their LPs and says, "company ABC is closing a hot round and we have $N in allocation that we need to fill by soonish date. Get in now!" which drives FOMO and helps get more monies committed.
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The exception to this is experienced syndicate leads who have proven they can successfully do capital calls - @jason, @julianweisser, and @arfrank are a few great examples where I wouldn't worry about their allocation filling up.
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Syndicates can happen on AngelList, Assure, http://Sydecar.io , or http://Allocations.com and some will even show you the typical investment size, number of deals in last year, and # LPs who have invested (blurred out for privacy)
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Finally, unless it's a rockstar syndicate lead, bump them until the end of your round or give them a fixed allocation upfront but drive urgency. Don't use it as FOMO when pitching VCs because it can easily backfire if you squeeze out a larger check without having a lead
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