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Real LP Feedback → Why LPs pass on early-stage SPVs

We’re digging deep into the SPV archives this week…

We've compiled verbatim feedback from LPs across 12 distinct investment opportunities that we previously syndicated. The results are fascinating: 8 of these companies have since achieved 10x+ valuation markups from their initial investment rounds, while 4 ultimately failed or ceased operations.

To protect confidentiality while maximizing learning value, we'll present each case with:

• Context about the business and market

• Direct, unedited LP feedback on why they passed

• Summarized insights drawn from their decision-making process

Early-stage investing is as much art as science, and LP feedback offers a fascinating window into this complex decision-making process. At the seed stage, investors face a paradox: there are always compelling reasons to pass on a deal, yet this may be when the potential for outsized returns is highest.

The feedback we've collected reveals how even sophisticated investors wrestle with this tension. Some concerns prove prescient, highlighting legitimate business risks that eventually sink companies. Others – particularly on our most successful deals – demonstrate how conventional wisdom and pattern matching can lead investors to miss outlier opportunities.

What makes this analysis particularly valuable is the benefit of hindsight. We can now contrast these initial reactions against actual outcomes, offering rare insight into which early warning signs matter and which might be overweighted in investment decisions. For founders and investors alike, understanding this delta between initial perception and ultimate reality is crucial for developing better investment judgment.

Definitions:

• Winners Category = markup or acquisition of 10x+ valuation we invested at.

• Losers Category = The deal went to 0 or sub 10% capital return i.e. out of business.

Winners Category (10X+ markup or positive acquisition)

1. Seed stage consumer company that is now valued over 60x the valuation at this round. 

   1. “These founders have no idea what they are doing”

   2. “Interesting product but I think the market is saturated with these types of items. Will this make money for investors??? I'll stay tuned.” 

   3. “A bit skeptical of the model but thanks”

   4. “LTV:CAC not super impressive and not profitable on first order, which concerns me. Market size is also a concern. This has to/could go viral, in which case pass would be a terrible decision!”

   5. “Thanks for the look. My kids don't have (insert company product type) so I don’t understand this well enough. I’ll pass.”

   6. “Valuation”

   7. “I don’t understand this well enough to invest.”

2. VR concept that was in a very challenging state during covid, that has since gone on to ~10x with significant traction and multiple up rounds

   1. “Chapter 11 filing... this feels like we're paying to help bail out [tier 1 fund] TBH.”

   2. “i only do early/seed. I don't do physical locations.”

   3. “Scalability”

   4. “I tried this once and don't think the technology is ready yet. Probably not too many more years until it is, so maybe they can hold out until then.”

   5. “pass, interesting, but waiting for more traction.”

   6. “Not too keen on retail/ in-mall gaming. I believe it is at-home and Massive MultiPlayer Online Games”

   7. “Not ready to invest in VR”

   8. “Leave it to the insiders.”

   9. “I was huge into VR a few years ago, but if the pandemic has taught me anything, it’s that VR missed its opportunity. I simply cannot fathom how companies didn’t try to enter the VR space for meetings and other business applications.”

   10. “Already invested in a previous round and too little progress”

3. Telehealth company raising at sub $12m valuation, idea stage + pre-revenue

   1. “Not an area of expertise”

   2. “Don’t see defensibility or a lot of room for innovation”

   3. “Great idea but I do not have much experience in (insert business area)”

   4. “I am not interested in that market”

   5. “Outside of our strategy”

4. Pre-launch CPG co at sub $10m valuation. On paper, now marked up over 30x of valuation we invested in.

   1. “It’s too early for me but I would be interested in investing once they have a few sales”

   2. “Poor choice in branding with the name, too high set-up costs and no expertise in the space”

   3. “Don’t know the (insert company type) space very well”

   4. “Allergic to (insert company space) deals”

   5. “I have done enough CPG deals now”

   6. “Did not have time to do wire instructions”

   7. “Not interested in investing in (insert company category)”

   8. “This is not something I am well versed in thus feel uncomfortable pressing forward with. On top, this is still pre-launch which is an additional data point removing it from my risk acceptance profile. “

   9. “I avoid trying to predict (insert company category) fads”

   10. “Cool idea; not super comfortable unless I can try it myself; would prefer some actual hard data but its very early obviously”

5. Healthcare software seed company, marked up over 10x

   1. “Not excited about the company”

   2. “High valuation; current prices are higher than what my daughter currently pays for (insert company category)”

   3. “I am new to investing and building my experience around (insert company category). I prefer deals with Pro-Rata rights.

   4. “Don’t entirely understand how this differentiates from the other contact lens companies.”

   5. “Not much information provided and not many of these deals close.” 

   6. “Early-stage.”

6. Consumer company that exited for over 25x the initial valuation invested here. Invested in the first round of outside funding at sub $5m valuation.

   1. “Just not a space I’m interested in”

   2. “I don’t know have much context or conviction on the space or company”

   3. “Great concept. I am unsure about the (company category) requirements and controlling costs.”

   4. “Not sure about the business model”

   5. “Not in my scope”

   6. “Impressive growth, but the space seems a bit crowded by now. Sorry”

   7. “Bearish on the prospects, though this seems like a capital intensive one. You’d need to go hard on marketing and customer acquisition. Outside of my wheelhouse.” 

   8. “Weak moats.”

   9. “Really cool as a brand but not sure what defensibility is.”

   10. “Like the subscription model, but appears most of the mgt team is part-time.” 

   11. “Setup % too high.”

   12. “Great idea but the deck is not giving me faith in the market understanding”

7. Seed round for an AI productivity tool. ~24x increase in price per share since investment.

   1. “Feels like a feature not a product, limiting overall exit potential”

   2. “Retention”

   3. “Don't see recurring revenue. Don't see people re-upping.”

   4. “Thanks for the look. I like the idea, but I already use (competitor). I'd take another look in a future round if they show traction. I'll pass for now.”

   5. “This may be one of the worst pitch ideas i have seen in a long time”

   6. “Looks like could be a big winner if it goes viral!”

   7. “Thank you for showing this investment. Passing because no paying customers yet”

   8. “Valuation looks high relative to stage of company's development.”

   9. “Too much of a gimmick”

   10. “No proof of revenue / not strong proof of user growth to justify 12M cap.”

   11. “Thanks for the invite but i generally don't invest in anything that does not include pro rata rights.”

   12. “Looks like a great business, but i have to pass. Preserving cash to weather the current uncertainty”

   13. “Valuation”

   14. “timeline too short to be able to figure out the real opportunity here, it seems limited as a chrome plugin. thank you for sharing this.”

8. Robotics company that did a 10x acquisition from this investment stage

   1. “Cool idea but don't understand market to invest at this early of a stage, thanks.”

   2. “Having worked in autonomous tech at Tesla, it feels like this company is going with an overly complicated and expensive solution. I also imagine this needing a lot of maintenance.”

   3. “No pro Rata Rights”

   4. “I don't know anything about this market. Thanks!”

   5. “Not my area of expertise”

   6. “While company might have 1st mover advantage, I don't think company will be sustainable long-term with their bolt-on solution.”

   7. “I don't understand the market well enough”

   8. “Innovative space for autonomy but not one I'm able to easily assess or add value in. Good luck on this one!”

   9. :Not a segment for me, and I don't see the drivers working out quickly enough.”

   10. “Not interested at this stage in [Company] need more traction. Also I’m in several other robotics startups already I understand higher valuations”

   11. “I don't understand this well enough to invest.”

   12. “High Valuation.”

   13. “Saw it a while back.”

Losers Category

**note that all of these investments below were pre-seed or seed stage companies i.e. the riskiest stage to invest at. 

1. Pre-launch Marketplace Company raising at sub $5m cap

   1. “No pro rata & low lead investment.”

   2. “Not a replacement for real life (insert company category), has limited supplementary value.”

   3. “Too far outside my areas of interest/experience anyway.”

   4. “Seems awfully similar to (competitor) which has been around for awhile.”

2. Seed stage fintech (lending) company, pre-revenue, idea stage

   1. ‘No pro rata and low lead investment”

   2. “Domain”

   3. “This makes me laugh out loud - they are trying to copy what DailyPay, Payactiv and a dozen others have already done. But they have no product, no revenue, and intend to take their fees out of the (sensitive business model point).”

3. Pre-launch physical consumer company

   1. “It’s not innovative. Valuation cap way too high. Nothing in the deck about actual (insert company type). Too early. Nothing proven. There’s not even a brand for us to look at. I just think these stages should be founders putting their own money at risk.”

   2. “I don't like the (company sector) market.”

   3. “Too early for me, but I like the idea and would be interested in a future round.”

   4. Interesting workaround concept but i'm not convinced consumers want (insert company sector).”

   5. “I don't invest into family related founding teams as there is too much concentration risk for financing disputes.”

   6. “No idea how project demand or how this will be positioned.”

   7. “Seems too early of a concept to invest.”

4. Pre-launch, seed consumer hardware subscription company alongside Lerer Hippeau & other reputable VCs

   1. “Pricy; just don’t have bandwidth to think about whether this is sufficiently differentiated.”

   2. “Domain, do not understand this space”

Summary

After analyzing the LP feedback across both successful and failed investments, some interesting patterns emerge. For deals that became winners, LPs often passed due to concerns about market saturation, lack of domain expertise, early stage risks, and questions about defensibility - issues that these companies ultimately overcame. Notably, even successful companies faced skepticism about founder experience and market dynamics. 

For deals that didn't succeed, LP objections tended to focus more on fundamental business model concerns, lack of innovation, and execution risks - concerns that proved more prescient. What's particularly striking is that across both categories, many LPs passed simply due to lack of domain expertise or because the investment was "too early" - highlighting how challenging early-stage investment decisions can be, even for any investor. This feedback underscores that while due diligence is crucial, maintaining conviction in the face of reasonable skepticism is often necessary for capturing outsized returns in early-stage investing.

If you enjoyed this article, feel free to view our prior issues on adjacent topics

• How We Invest in Over 100 Startups a Year as a Syndicate and Why Most Funds Can’t

• Our Tiny SPV Could Turn into a $3M+ Carry Check

• Syndicate Leads: Not Quite VCs, Definitely Not Brokers

Last Money in is Powered by Sydecar

Sydecar empowers syndicate leads to manage their investments more effectively. Organize, manage, and engage your investor network effortlessly with Sydecar’s management and communication tools. Their platform also automates banking, compliance, contracts, tax, and reporting, freeing up syndicate leads to focus on securing deals and strengthening investor relations. Elevate your syndicate operations with Sydecar.

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✍️ Written by Zachary and Alex