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The Syndicate LP Churn Problem

Over recent years, angel investing has transformed from an exclusive domain of the ultra-wealthy to a more accessible asset class for individual investors. This democratization has largely been fueled by investment syndicates offering deal-by-deal SPV opportunities, allowing smaller investors to participate in private market deals previously reserved for institutional players.

Despite initial enthusiasm, a clear pattern has emerged: many limited partners (LPs) and individual investors cycle out of syndicates after just 2-4 years. This withdrawal behavior illuminates fundamental tensions between private market realities and individual investor expectations.

The exodus occurs primarily because most individuals lack the extended time horizon necessary for private market success. While institutional investors build strategies around 10+ year investment cycles, individuals often expect meaningful returns within a much shorter timeframe. When their portfolios show minimal realized returns after several years—a completely normal phase in the private market lifecycle—disappointment and impatience frequently lead to withdrawal.

This timing mismatch is exacerbated by psychological factors. The initial excitement of accessing "exclusive" deals gradually diminishes when faced with the reality of illiquid investments showing only paper valuations for extended periods. Without the disciplined framework and extended time horizons that institutions maintain, individuals struggle with the ambiguity and delayed gratification inherent in private market investing.

The pattern reveals a critical insight: the democratization of private markets hasn't fully addressed the structural and education requirements for success in this asset class. For individual participation to be sustainable, both platforms and investors need to better align expectations with the fundamental realities of private market timing.

The (Long) Liquidity Timeline: Private Markets Patience

One of the primary reasons individual investors churn from syndicates/angel investing is a misunderstanding of liquidity timelines in venture capital. Many new angel investors come from investing backgrounds in public markets where they're accustomed to near-instant liquidity.

When these investors first enter private markets through syndicates, they intellectually understand the 7-10 year horizon for returns, but emotionally expect much quicker, or some quicker outcomes. After two to three years without seeing tangible returns or exits, I’ve seen many grow impatient and provide direct feedback. When there is nothing to show for angel investing 2-3-4 years later, this causes churn.

What's more, the syndicate model itself may inadvertently reinforce these misaligned expectations. Syndicate leads often showcase their past successes to attract new investors, highlighting spectacular exits without adequately emphasizing the years or even decades these outcomes required. This selective storytelling creates an unrealistic benchmark for new investors who then measure their own syndicate experience against these highlight reels.

Deal Overwhelm: The Paradox of Too Many Opportunities

Syndicate platforms present individual investors with a constant stream of investment opportunities. Unlike traditional venture funds where capital is called over time, syndicate participants face investment decisions on a weekly or even daily basis..

A typical pattern (I've seen too many times) unfolds like this → an enthusiastic new investor joins several syndicates simultaneously. During their first 12-18 months, they invest in numerous deals, often deploying capital much faster than is sustainable for their overall financial plan. By year two or three, they realize they've overcommitted, having invested perhaps 80-90% of their intended venture allocation (and many times over 100% in 1-3 years)  across dozens of companies.

This deal fatigue is compounded by the structure of syndicate economics. Since syndicate leads earn carry on deployed capital, they're often incentivized to present as many "exciting" or high-quality opportunities as possible. After 2-3 years, many individual investors realize they've quickly built a portfolio of early-stage investments that will require follow-on decisions for years to come, with minimal liquidity in sight. Full disclosure: I am guilty of this too.

The Horizon Problem: Failing to Pace Investments

Successful venture investing requires a disciplined, long-term approach to capital deployment. Professional venture fund managers carefully pace their investments across vintage years, ensuring they maintain dry powder for follow-on rounds and new opportunities, which is something that is not built into the syndicate model.

Individual investors in syndicates, by contrast, rarely approach their participation with the same strategic rigor (we do have some LPs that do). Many fail to develop a multi-year investment plan that accounts for:

• Portfolio construction across stages, sectors, and time periods

• Reserves for follow-on investments

• Capital set aside for future opportunities

• The J-curve effect where early losses precede potential gains

After approximately three years, many individual investors recognize their lack of planning has left them with no remaining capital for new investments, just as they've developed better pattern recognition and judgment. The frustration of having improved as investors but lacking the resources to apply these lessons drives many to step back from active syndicate participation… way too early in the game.

Hobby vs. Asset Class Investor

Perhaps the most fundamental driver of syndicate investor churn is the tension between treating angel investing as a hobby versus a serious asset class. Many individual investors initially approach syndicate investing with enthusiasm more characteristic of a hobby than a disciplined financial commitment. Sometimes LPs want to simply be an investor in a company rather than focus on the valuation, ROI etc. By the way, there is nothing wrong with angel investing as a hobby.

This hobbyist approach manifests in several ways:

• Investing based on excitement rather than diligence

• Prioritizing social benefits over financial returns

• Inconsistent follow-on strategies

• Limited diversification planning

After several years of this approach, the consequences become apparent. Investors find themselves with a scattered portfolio of investments, inconsistent participation in follow-on rounds, and little clarity on overall performance. The admin burden of managing these investments across multiple syndicates begins to outweigh the initial excitement.

At this stage, many individual investors face a decision: either professionalize their approach to venture investing or exit the asset class. Many choose the latter, explaining the couple-year churn cycle.

The Psychological Arc of Syndicate Participation

The typical psychological journey of a syndicate investor follows a relatively predictable pattern:

Year 1 → Enthusiasm and Overconfidence

• Excited by access to deals

• Eager to deploy capital

• Focused on potential upside

• FOMO-driven decision making

Year 2 → Reality Check

• No liquidity events yet

• Follow-on requests begin arriving

• Portfolio companies face challenges

• Capital deployment slows

Year 3 → Disillusionment

• Capital mostly deployed

• Administrative burden grows

• Lack of exits creates frustration

• Opportunity cost becomes apparent

• (Hopefully starting to see some meaningful markups and breakout companies)

This three-year psychological arc closely mirrors the typical LP churn timeline, suggesting that emotional factors may drive investor behavior as much as rational financial calculations.

Conclusion: The Maturation of Individual Venture Investing

The three-year churn cycle for the retail investor represents what’s typically seen in the evolution of syndicate investing. As the market matures, both platforms and investors are developing more sophisticated approaches that may extend average investor tenures… or at least I hope. 

For individual investors considering syndicate participation, creating a financial plan for how you plan to invest as well as understanding this typical cycle can inform a more sustainable approach that keeps you in the game longer. By treating venture investing as a serious asset class rather than a hobby, pacing capital deployment across multiple years, and setting realistic expectations for liquidity timelines, we believe investors can position themselves for longer-term success.

While the syndicate model has democratized access to venture investing, participation still requires the discipline, patience, education and strategic thinking that have always characterized successful private market investing. The investors who recognize this fundamental truth are the ones most likely to break the three-year churn cycle and realize the potential benefits of this asset class.

If you enjoyed this article, feel free to view our prior articles 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