🚀📈 Playbook to Launching a Syndicate

a newsletter about VC syndicates!

(Note: you can do this as a side hustle like me)

This week, Zach and I are publishing our v1 “Playbook to Launching your own Syndicate”. Whether building your own syndicate is of interest or not, we’ll get into the details of how we would approach it starting from scratch today.

Before we get into it, I think it’s important to shed light on the experiences we’ve had firsthand to develop this playbook.

  • Overall SPV Experience: We’ve collectively led syndicates for over 500+ investment opportunities, so we’ve seen A LOT. We’ve also supported dozens of new GPs in a support/co-syndicate and other roles where we bring our LP’s and expertise to someone else's SPV (essentially teaming up on a SPV).

  • What Works & What Fails: Throughout the 500+ SPV’s we’ve led, Zach & I have seen what works and what does not work in terms of getting a SPV done and how to manage the process, founders, LPs, questions, information, and all sorts of funkier scenarios.

  • Exposure & Support of New Syndicate GP’s: We’ve helped a lot of new syndicate GP’s build out their LP network and syndicate brand, and have been able to watch & see which new GP’s are able to accelerate versus stumble and why this happens.

While there are nuances and different approaches to starting a VC syndicate, the reality is there is a formula that will help ease your way into the ecosystem and that’s what this post is really focused on.

Let’s get into it!

Last Money In’s 7-step approach to launching your own syndicate from the ground up

Step 1: Back other syndicates & participate in a few deals to provide an understanding of deals, memos, best practices, etc.

This step is more of an active “watch from the bench” step. Backing other syndicates (i.e. becoming an LP) provides an opportunity to get familiar with the following:

  • different approaches and best practices on how to operate a syndicate

  • structurally, how to put together a compelling investment memo

  • how a GP positions their syndicate and expertise and overall brands themselves

  • the types of deals that make for a good SPV

  • timing around deal process - from launch to closing the deal and wiring

  • co-investors and other signaling that can drive LP interest

  • portfolio operations – passive GPs or more active with LPs and building a community (e.g. Slack, LP updates, etc.)

This is essentially an opportunity to see how others run their process to better inform how you would ultimately run your process in the future. I know Zach spent several years as an LP before he ever put together his first SPV and that allowed him to hit the ground running when he finally launched one.

Step 2: Source Deals For other Syndicate GPs

This is exactly how I got started. We’re essentially encouraging you to get in the game early and is a good step before launching your own syndicate. This isn’t a requirement and every GP has a different path, but I’m highlighting this because it’s a great gateway to get involved in the ecosystem quickly without having it all figured out just yet.

It was important to prove that I had access to strong enough deals that other syndicates could plug into their process and put together. It’s also a quicker way to get started because you just need to focus on sourcing the best opportunities whereas you don’t need to have your capital network (LPs) built out.

It also provides a great opportunity to get an inside view on how syndicate GPs run deal processes, while also getting some of the economics without an LP network. You should note to them that you’d like to understand the stepwise approach and be kept in the loop. Given you’ve sourced the deal, they should be okay with this.

Step 3: Figure Out How to Tell Your Story & Establish a Brand 

Okay – so now you’ve backed a number of syndicates and ideally gotten a sense of best practices. Even better – you’ve sourced a deal for other GP’s to get an inside view into how a syndicate is run. Now you’re looking to put together your own deals and run the process first hand.

Now we turn to building a brand and thesis around the types of deals LPs can expect from you and why. Share your background and/or story on what makes you uniquely positioned to identify and invest in quality startups. This will help build trust early and establish a layer of credibility. Explain the industries you know well, prior experience as an investor and/or operator, biggest achievements in your career, how you access founders and get into unique deals etc.

Needless to say, there’s no one size fits all here – some examples on how GP’s position themselves:

  • Vertically focused investing based on your operating/investing background and/or network

  • Thesis you see playing out that you want to focus on

  • First money in i.e. we see deals before the big VCs

  • Alumni network investing – leverage your employers or school’s network

  • Geographic investing e.g. we’ve built startups in Africa (or LatAm, or SEA, etc.) and we will get you access to the best startups in this ecosystem

  • And more.

Check out our syndicates as examples to reference:

Step 4: Be Selective

When it comes time to launch your first SPV, it’s important to remember that you are brand building with every SPV you run, and so deal selection at this stage is important to help build momentum and credibility as you build out your syndicate. It’s better to show early on that you have interesting deals and that these are the the types of deals LPs can expect you to get in the future.

For the purposes of this conversation “selective deal” can mean:

  • Pedigree of the founding team - ideally management teams with exits or in management roles at other unicorns/established public companies etc. i.e. great founder-fit

  • Compelling traction and/or a near-term path/story ahead

  • Growing market/TAM

  • Defensibility

  • Strong founder thesis to answer the “Why Now?”

  • High signaling VCs leading or investing in the round

  • Favorable valuation relative to the overall company quality and progress

*This can vary depending on the stage of the deal, but it’s a good frame of reference to be able to address all of the above

It’s also important to note that there is not a one size fits all for “selective” – as noted above, some GPs have established a brand of being the first money into deals e.g. finding opportunities to get in before the big VCs, while others have branded their syndicates around co-investing alongside the named VCs. There are a lot of ways to brand build and being clear with your brand and selective with your early deals will all help build credibility, trust and momentum.

Some GPs try to syndicate companies that they really believe in without the signaling to go around it (traction, investors, resume of management team, etc.) – this is a hard sell in this ecosystem if you have no brand yet and haven’t built trust with LPs.

Step 5: Co-Syndicate (or Partnering) with Other GPs

The syndicate ecosystem in general is far more collaborative amongst GPs than traditional venture capital.

GPs in this ecosystem (typically) aren’t optimizing for ownership percentage and can be flexible on allocation size. More often than not, GPs have more allocation in a company than they can fill within their networks – though this certainly isn’t always true… - and that helps build a collaborative mindset amongst GPs.

What we care about and what matters is access to the best deals, and for that reason, collaboration across GP’s is very common.

The world of co-syndicating deals feels VERY NEW to me. Even just 3 years ago, not many syndicate leads were teaming up the way they frequently do now.

What is co-syndicating? Co-syndicating is when 2 (or more) syndicates team up to run a SPV together, essentially becoming Co-GP’s on a given deal. Zach and I have done this many times together but also with other syndicate leads.

It’s pretty common and a great way for individuals with dealflow to get economics without leading the SPV. More on this at a later date…

The reason co-syndicating is so important as a new syndicate lead is because this will help:

  • Access a larger capital pool (via your co-syndicate partner who should ideally be more established than you)

  • Get exposure to new and potential LPs to back you (it’s kind of like getting re-tweeted so all these new followers can get exposure to you)

  • Grow your LP base faster. Generally, the more you co-syndicate in order to grow your LP-base, the quicker you will be in a position to operate independently

  • GPs also provide other value add in the process

In Summary: co-syndicating is a growth hack that allows you to build your syndicate brand faster and get exposure from other syndicates & LPs.

Step 6: Invest Alongside Tier 1 VC’s/Co-Investors

Look, this sounds superficial, but the reality is these tier 1 VC’s have established brands, and well, YOU DO NOT… yet. If you happen to already have a large established brand in VC or the technology ecosystem that has given you a meaningful layer of trust and credibility, you may not have to focus on this, but for everyone else it will make your gateway into the syndicate ecosystem easier.

But let’s talk about why co-investors matter in the eyes of an LP (regardless of the outcome of the deal):

  1. Tier 1 VCs offer a meaningful layer of credibility and certainty around institutional assistance and company runway

  2. Investing alongside tier-1 VCs underlines your ability to get into what are typically competitive deals that are more challenging to participate in due to high VC/investor demand. Getting into competitive rounds like this also amplifies the GPs deal sourcing capabilities.

  3. LPs value getting an opportunity to invest alongside these tier 1 funds that were also investors in Facebook, Airbnb, Uber, Snowflake, Toast, Brex, Snap, Doordash, Ramp and so on. Investing alongside the VC’s that were early in some of the biggest wins venture has seen is attractive to many.

There are Syndicates that have branded themselves as being able to get into deals BEFORE tier1 VCs see them. You can do this, but unless you already meaningful credibilty, it is a longer term game as you need to build LP trust by proving you can actually do this, which may take years.

Disclaimer: investing alongside a tier 1 in reality does not mean a company will perform well. Zach and I have both invested in plenty of deals alongside the top VC’s that will unlikely have a positive outcome. This is standard in venture capital where there is high risk across the asset class and an expectation that a small batch of investments will do so well that they will make up for all the other companies in your portfolio that don’t make it. Welcome to venture capital :)

Step 7: Have A Strong Thesis on Why You Are Syndicating The Deal

It’s important to take a stance and explicitly call out why you are syndicating a particular deal. We’ll typically see some version of a TL;DR that captures the LP’s attention towards the top of the deal memo.

Most of these TL;DR’s will likely include some of the following bullet points:

  • Why is this the right founder/team & overall quality of the team

  • What problem is this product solving and is this a better/best approach

  • How big is this problem / Market

  • Who else is investing in this deal and is there sufficient runway to milestones

  • Are the deal terms fair/enable upside

  • Discussion on traction / unit economics

  • What are the competitive moats and is this defensible

  • How is this investment derisked / what are the risk factors and how have those been mitigated

In my opinion, these are several of the main reasons a VC would invest in a given startup and therefore it’s important to call these out upfront, and explain your rationale on most, if not all the points above. It will give your LP’s an understanding of 1) why you are excited about the deal and 2) capture the main points and their attention to further read/diligence. In the actual memo, you should flesh out your TLDR points further.

Congrats, you are now a syndicate lead. Let’s collaborate!

That’s all for this week. We’ll be back in your inbox next Wednesday on our next topic. Thanks for tuning in!

Questions? Comments? Feedback? We welcome all, and would love to hear from you!

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