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.

SPV Marketing: Why Being Aggressive Isn't Always a Choice

You’ll often see Syndicate GPs market their SPVs with multiple posts. If it gets any type of momentum, expect at least 1-2 emails within the first 14 days of the process with updates on the amount of capital committed (i.e. social signaling), updates from the company (new investors in the round, etc.) or something of the like that can draw in new investor commitments into the SPV. I imagine for LPs this is quite annoying and starts to border on feeling like spam, but for many active syndicate GPs it is a critical part of the marketing process that I believe helps optimize the fundraise. 

But before I get into that - let me start with two takes, one obvious and one less obvious. 

• Aggressive marketing tactics can be annoying. Some LPs may find it spammy and salesy, and to be honest, most GPs don’t like to do it. I hate it (and so does Alex), but I do it because it’s extremely effective. If it didn’t work, GPs would stop doing it. 

• I genuinely believe social signaling is not a good way to invest as an LP. If you’re an LP and investing on social signaling (e.g. an amount an SPV has raised), there are better strategies. We haven’t fully crunched the data, but right now I’m inclined to believe there’s very little correlation between amount raised and company performance. 

Case Studies in Social Signaling

To take two outliers: one of the smallest raises we ever did was for a company that no one wanted to touch. It was an extremely painful SPV process, but by nature of being unvalidated without any signaling we were able to get into the deal extremely cheap (the company reduced its valuation just to get the round done). This company recently raised a Series C and is marked up around 25x net dilution in a few years. A separate company was one of our biggest raises ever - it was for a hot deal with tier 1 funds - the company more or less blew up in 18 months. And I’m not just cherry picking, it is very hard within my portfolio to detect a positive correlation between the amount raised and future performance of the company. 

If a deal gets a lot of traction, it’s fine to reread the materials to make sense of why and see if there’s something you missed, but do not invest solely based on this signaling like $ raised. 

But back to SPV marketing tactics. 

Okay so now that we’ve clarified why we market aggressively e.g. to raise more funds for our SPV - I’m going to share why GPs not doing this may be missing out (sorry in advance LPs). 

The Time Crunch Challenge

The reality of being a Syndicate lead is that we have very little time to make decisions and commit to a round and run a process - sometimes only 48 hours in the most compressed cases. 

Think about it. As a syndicate lead, I typically only put together an SPV for a company after a Term Sheet has been issued and terms are firm. At that stage, every investor who is sitting on the sidelines is trying to fill out the round. Unfortunately for us, most of those investors have committed pools of capital and can make decisions fairly quickly (or have already). 

For us however we need to tell the founder, we’re in! But also we’re not sure - we need to raise an SPV and then let you (the founder) know (which can take weeks). But please hold $1M for us while we figure it out! Yeah, you can imagine how well that goes. 

This makes it tricky for everyone. For the syndicate GP and the founder it’s a bit of a manage expectations game while we speed to figure out if we can even commit and if so, how much, and during the whole process hope to g-d the round doesn’t get filled with other funds who actually have capital. So for us, we need to move extremely quickly or potentially lose the allocation or get squeezed out altogether. This is where we sit in the stack and why, unfortunately, many syndicate GPs need to be aggressive around pushing LP capital. 

There have been countless times that I’ve “taken my time” with a time sensitive opportunity that led to me missing the deal entirely or left a lot of potential dollars on the table. This is particularly true with extremely fast moving rounds. We had one deal that I only had a day to commit to - I told LPs this when I launched the deal and we raised $250k+ quickly and were able to commit to that. The next day another $250k in capital came in that had to get kicked out of our syndicate because the LPs didn’t move quickly enough and the Company couldn’t take any excess funds. 

So my message to syndicate LPs - trust me, I (and other GPs) hate marketing, but it’s necessary to get many deals done. I think LPs understand, albeit some get annoyed, which I also understand. It’s not a perfect situation.

Alternative Approaches and Their Risks

I’ve seen some syndicators get around this issue, mainly by telling the founders they will backstop a commitment with either balance sheet funds, rolling funds or just with sheer confidence that they will have a successful SPV raise. The risk is if the raise is unsuccessful you actually need to backstop that commitment (which the GP may not have) or back out of the deal, which makes you look horrible and may have reputational damage. Unfortunately, I’ve seen this situation where a GP signed for a deal thinking he was going to raise the capital and he couldn’t - it was extremely messy to say the least and something I do recommend any Syndicate GP do. 

So what is our strategy - candidly, it’s to be aggressive. The second we want to move forward with a deal, we’re starting the materials on our end and getting our SPV in a position to go to market more or less asap. And then we continue to be aggressive with the fundraise because we have to. A lot of LPs don’t like it and will unsubscribe to our posts after a deal is live, and I don’t fault them for it, but it’s necessary for us to get deals done. 

If you enjoyed this article, feel free to check out our other articles on adjacent topics: 

• Where have all of the Syndicate Leads Gone?

• Understanding GP Authority and LP Rights in SPVs

• We’re Closing $30M+/year in SPVs as a Solo GP, Why Would I Ever Start a Fund?

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.

If you enjoyed this post, please share on LinkedIn, X (fka Twitter), Meta and elsewhere. It goes a long way to support us!

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!

Follow the Last Money In authors on LinkedIn

✍️ Written by Zachary and Alex