🚀 How I grew our Syndicate to over 6,000 Limited Partners

a newsletter about VC syndicates!

🚀🚀🚀How I grew our Syndicate to over 6,000 Limited Partners

The VC syndicate ecosystem is a great place to build a VC platform extremely quickly. For context, before I started Calm Ventures, I had less than one year of actual paid VC experience. Despite this, in my first year starting Calm Ventures, we grew to over 1,000 LPs (LP = Limited Partner = an investor who contributes capital in exchange for a share of the profit) and well over $10M Assets Under Management (AUM); year 2 we scaled to over $70M AUM and 2,500+ LPs; today we’re now at over 6,000 LPs and $140M AUM and we’re just getting started.

So how did we get such a large LP base this quickly? I’ll share the details and explain how anyone can build a large LP base in relatively short order.

💼I had a few things working in my favor before starting Calm Ventures in 2020.

  • I had quality deal evaluation experience both on the sell side as an investment banker and on the buy side as an investor at a growth equity fund

  • I was an LP in 15+ other VC Syndicates for over two years and was in the fortunate position to see how the best General Partners (e.g. fund / syndicate managers) ran their syndicates and the different methods that were used in the ecosystem to hack growth

  • I built early soft relationships with several of those syndicate GPs

  • I had an early sourcing strategy developed that I felt could provide a semi-reliable cadence of deals

  • My background had prepared me for the roller coaster ride of venture, which gave me some resiliency to push through the inevitable MANY ups and downs that come with starting your own firm (or syndicate in this case)

Of note - many people have entered the syndicate ecosystem with a completely different background and succeeded (my Partner on this newsletter, Alex Pattis, came from an operator and sales background as one example), but part of this added context is really to underscore that it took some time to fully understand how this venture syndicate ecosystem works. We’re going to give you the formula so that you can build a large syndicate yourself efficiently.

🌱Now to my first syndicate.

When I first launched Calm Ventures, I had no idea whether I would be able to raise capital for my first deal, but I knew what was needed to put me in the best position to succeed based on watching other GPs operate in this ecosystem for several years.

  • First, I needed to find not just a great company, but the investment itself needed to have the right “signals'' to be marketable for a broad LP base of accredited investors. Thankfully I had spoken to a startup at my prior fund that was a very compelling business and with the right signals for this ecosystem. For context – in the syndicate ecosystem “signal” can mean a few things; in order of highest signal: 1) Tier 1 set of VC co-investors; 2) Rapidly growing traction or high profile business; 3) Founders with a track record of building businesses to $100m-$1B+ valuations. LPs like to see this as it provides a strong layer of deal credibility, which frankly as a new GP, you may not have. Traditional venture funds DO NOT require the same signaling to invest in companies. While you do not need to syndicate a high signaling investment, if your goal is building a large LP base quickly, this will expedite things quite some bit.

  • Secondly, I needed to find a large syndicate GP on the platform who would partner with me on the investment – this is referred to as co-syndicater, and it had several major benefits. As mentioned, I knew the players in the syndicate ecosystem having watched them from the sidelines for a few years as an LP. By partnering with a larger GP, my deal/SPV would now be exposed to that other GP’s entire LP base. If any of his/her LPs found my deal compelling, and invested in it, they would automatically have to apply to become a member of my syndicate (that’s how this ecosystem is set up). So basically, partnering with larger GPs/platforms was an easy way for me to build a brand and attract LPs quickly. Large GPs want to work with emerging GPs because they want access and economics in the best startups.

  • The third piece is putting together a compelling investment memo. We will go over how to write one in a separate post, but to start I would definitely check out Bessemer Venture Partners memos, which they provide for many of their top portfolio companies here.

Our first deal was for an ad tech platform – admittedly not the “hottest” space. But it did have a several positive attributes going for it – it was a great team with strong traction and with a unique and novel approach to the market that was only now possible because of technology. While AdTech itself wasn’t that interesting to LPs, it was a marketplace platform with compelling traction, and marketplaces were considered very interesting given all the winners that came out of the 2010 era (e.g. Uber, Lyft, Airbnb, Etsy, etc.). But most important, there was a tier1 VC leading the round – Garry Tan’s firm Initialized Capital. Initialized was an early investor in a number of incredible companies including Flexport, Coinbase and Instacart, and they had a widespread reputation for being best in class in venture capital.

So here we go. We now have a deal to go live with.

We launched and ended up closing the deal with a ~$350,000 investment. The entire process took a few weeks from launching our SPV to wiring the funds, and a relatively average amount of effort against my now large personal stake in this business. My work was primarily founder call/s, due diligence, confirming an allocation with the founder, putting together the deal memo and finding a co-syndication partner to help reach a large LP audience.

🤝💸 For this deal, I ended up partnering with one of the largest GP syndicates on the platform, who I split my economics with, but between the other GP and myself, we now had nearly 20% joint carry (profit share) on a $350k investment. So if the company we just invested in doubled in share price we would make approx. $70k on this investment (20% x $350k in profit); if our share price went up 10x (which was possible as this was a Series A investment), we would split $630k in profit. If somehow, the Company is able to reach a $5B valuation, it’s very likely we would be splitting a $3.5m (or more) carry share profit, just on this investment. The odds of that happening of course are small, but this is part of the reason people love angel investing and this asset class – one investment can change your life, and accessing these opportunities has NEVER been more accessible.

Okay so that’s it – you do this, you rinse and repeat – seriously.

  1. Find a great startup (at any stage) with strong signals

  2. Properly diligence

  3. Put together a compelling investment memo and thesis

  4. Work with a large syndicate GP to help with the deal (diligence, marketing, other value add)

  5. Rinse and repeat

By the time our first deal closed, Calm already had close to 100 LPs. I don’t have the exact number, but I’m nearly positive I brought in a co-GP for my next ~50 investments because I was very focused on growing an LP base quickly even if it meant I would give part of my profit share to other GPs. I was seeing the big picture, and I can’t tell you how that has paid dividends in many ways – for another post…

📈We were able to add an additional 20-75 LPs per deal we ran, again bringing on at least one large other syndicate GP to support us to reach a wider audience (among other value add). At 25 investments, we were already above 1,000 LPs. Shockingly it’s relatively straightforward to build a 1,000 person LP base if you understand this formula and can access/diligence great startups – we discussed how we source in our last post here for reference.

Though I will say as you get bigger (>2,000 LPs) it becomes harder to attract new LPs, but if you happen to get that large, you are very likely to now have a brand, and LPs start to find you organically. Even at 6,000+ LPs in Calm, we’re adding well over 100 new LPs a month and most are no longer coming through GP partnerships, but rather through the brand we’ve built – in other words because of our size, investors are now finding us organically through referrals, LinkedIn, via our fund admin platform and more.

🔎To save you the headache, I’ll share the big mistakes I see many new GPs make that drastically slow their LP base growth.

  • They don’t co-syndicate their best deals. Meaning they want to have all the economics in their most interesting / highest signaling deals or they just don’t want or understand how to scale the LP side quicker. This is perfectly fine – many GPs succeed immensely by operating without partners - but in general expect them to have a slower growing LP base. Additionally, if you’re only sharing your tier 2/3/4 deals with GPs then they aren’t going to want to work with you as much, quite frankly.

  • They don’t syndicate deals with strong signals attached to them. The reality is many of the best deals have minimal signal (external VCs, traction, etc.), but if you want to grow an LP base quickly, you will be able to move much faster in THIS specific syndicate ecosystem by finding and syndicating high signaling investment opportunities. Again, this is in STARK contrast to the traditional VC model, where signaling or marketability of a company means a lot less. Why is that – VC Funds raise their capital upfront and deploy as they see fit (more or less) – syndicates need to raise capital for each company we invest in so positioning and marketability matters unfortunately.

  • A GP is not easy to work with. Honestly EQ goes a long way in all of business, and I’m at the point where if you’re a massive pain to work with, it’s just not worth it…. what qualifies as a massive pain? Untrustworthy, needy, erratic and/or having a deal you bring us on to fall through.

🚀So in conclusion – in theory, building a large LP base is an extremely repeatable formula. It’s not all roses because in practice, even with a formula, you need to do the work. There’s no way around that.

What every new GP needs to ultimately figure out in order to put this formula into practice is 1) how will you source (we discussed in our post here), 2) can you evaluate and diligence, 3) can you put together a digestible investment thesis (Bessemer’s examples here). If you can solve for these 3 and run with the aforementioned formula – I promise you, you are well on your way to building a huge VC syndicate that can scale to many tens of millions in AUM in a relatively short period of time.

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✍️ Written by Zachary and Alex