Inside the Mind of a Syndicate Lead
Alex Pattis
GP @ Riverside Ventures (300+ portfolio) | Co-Founder @ Deal Sheet → Curated private market SPV investments for accredited investors
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May Recap @ Deal Sheet
May Deals = 19 Deals Shared
Co-Investors in May included: Accel, Lightspeed Venture Partners, Sequoia, Founders Fund, General Catalyst, Bain Capital, Initialized, Y Combinator, Matrix Partners, Haystack, 776, Valor Equity, Fifty Years, Tribe Capital, Day One Ventures, Salesforce Ventures, M13, Canaan Partners, Hustle Fund, Soma Capital, Lattice, MaC Venture Capital, Marcy Venture Partners, Blockchain Capital, Fusion Fund, and more!
Stage of Deals:
May Syndicates featured: 12 different syndicates featured
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Inside the Mind of a Syndicate Lead: Dealing with the Challenges and Celebrating the Victories
The job of a syndicate lead can be a never ending roller coaster of ups and downs. Unlike traditional Venture Capital, once you secure an allocation, this is when a lot of the work and “pressure” begins. Time and time and time again…?
Ups and downs are a never ending constant in the role. You have to learn how to deal with the good and the bad, and move on. This can be somewhat similar to other founders/investors in that the highs are very high and the lows are quite low and sting a ton!
Zach and I joke that it never ends as a syndicate lead, because it truly never ends. At any given moment, we have a bunch of investments we’re raising capital for, a dozen other deals in closing and a pipeline of many companies that we’re working on to try to get an allocation for.?
Unlike a traditional fund that raises capital upfront, we need to find opportunities we like, diligence them, secure allocations and then STILL need to raise capital for them, which is not always easy, especially in this more difficult fundraising market.? Of course, you are supporting and rooting for your portfolio companies because that is how you actually make money in this business, but you are also back to sourcing and finding the next great opportunity to out together, and that hopefully resonates with your LP base. And vacations are candidly non-existent, when you have multiple deals you’re raising for, it takes months to clear out of backlog, which we never do because that’s our future pipeline…not a complaint as this is what we sign up for! But just a reality of running SPVs.??
All of these turns that happen when running syndicates trigger many different emotions. In this week's post, I am going to share some of the highs and lows of a syndicate lead based on the actual events that take place.
Let’s get into it…
When a deal raises quickly
We’ll start off with a good/positive feeling for a syndicate lead. This is definitely one of the better feelings for a syndicate lead. Obviously it’s great to have a lot of LP interest, likely more than expected, and have LPs also move at a quicker speed than needed based on the founder/round timeline.?
Great! Job finished?
Well it can be finished, but typically in this scenario, if there is an opportunity to get additional allocation, I am always going to try for it. If I can get additional allocation from the founder, then I will relay that update to LPs to try to increase our allocation. I think LPs think fomo style marketing is too much at times, but candidly it’s often completely necessary given where we are in the stack - we raise after a lead and terms are set for a round and that gives us an extremely small window to close on capital.??
If there is no additional allocation, then I will close up the deal and get ready to sign/wire. This is still nice as it was not “a grind” to raise the capital and all came together quickly.
When a deal falls apart or does not get any LP traction
This is one of the worst feelings of a syndicate lead. There’s a syndicate graveyard somewhere of all the people that did this and failed on the first deal and never got back on their feet.
We never want to put our time and focus into a deal that does not get done (i.e. we cannot invest), however it happens; and for any founder wondering, this is absolutely NOT a reflection on the company but rather on LP preferences, which tend to be geared towards a certain industry or signaling (e.g. in today’s market hot AI with top tier co-investing VCs). Some of the best performing companies Zach and I have invested in were those that were extremely difficult to raise for. Syndicate leads are wrong about LP estimated interest frequently, and it’s something we know and keep top of mind.
Not only does it sting to put the time and effort into securing the allocation, doing diligence, and putting together the memo/materials, but to me, it feels like we are letting the founder down. By the time of “failure”, we would have expressed interest to participate in the deal and secured an allocation, only to have to come back and let the founder know we were unable to get the capital commitment from LPs to go forward with the investment. Of course, the founder should always know this is a possibility (it’s important for syndicate leads to clearly explain the process and manage expectations), but we would never go forward if we thought this would be the outcome.?
As a syndicate lead, this hurts a lot, but you have to take the L and move on. As we say, we have a 10 second funeral and on to the next…?
When you lose an allocation
This stings especially hard because, by now you would have completed the following:
And now, after all of that, you find out for some reason you have now lost the allocation. This absolutely sucks! There are typically 2 reasons this would happen:
Luckily both of these are pretty rare and cannot recall the last time it happened, but it has happened. And when it does happen, it is incredibly frustrating to lose an allocation that was granted by the founder/company.?
This happens to traditional venture funds as well, so this is not just a syndicate feeling, however the VC likely didn’t have to go through the entire SPV setup & LP fundraising process like syndicate leads.
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When information leaks
Personally, this might be the worst feeling. Even worse than losing an allocation. I believe I am very founder-friendly and always try to be, so when a bad apple in the syndicate shares sensitive information, it’s likely the worst feeling as a syndicate lead, full stop. There’s not a ton else to explain other than kick the LP out of the syndicate immediately (and maybe even tell your other Syndicate GP friends about the individual to protect them from future issues).
On a positive note, it’s something that has made a ton of progress over the past years to keep information sensitive and LPs in the syndicate understand this and are very respectful. I feel very good about being smart as a syndicate GP to ensure information does not leak, but I'd be lying to say this has never happened. And when it did, it crusheddddd me! We share some of these stories in our prior article Chronicles of a Syndicate Lead.?
When you need to fight for a deal
Picture Michael Jordan in the locker room lacing up his Jordans for the NBA finals game 1, and what is going through his head. That’s me putting on my patagonia vest about to jump on zoom to convince a founder to give me an allocation in a competitive round.
Okay, I clearly took that too far, but as a syndicate lead, this is your moment to really convince a founder of why they should include you in their precious cap table. It’s an opportunity to shoot your shot. I also (proudly) do not own a patagonia vest fwiw.?
For super competitive rounds, sometimes, syndicate leads need to go to bat to secure a hard-to-get allocation. While I may be anxious to secure this, I also typically feel pretty excited and motivated in these scenarios. I typically feel excited in this scenario for 2 reasons:
The feeling of winning a competitive allocation after having to fight for it gives me a great feeling of satisfaction as a syndicate lead. It feels that the allocation was earned in a way that is elevated from most fundraises.?
When you get scaled back
Getting scaled back sucks. Essentially, you raised capital for a deal you got an allocation into, but due it being a competitive round, you now cannot commit the original allocation requested (got sized down) and therefore LPs commitments are going to result in getting scaled back too, given the syndicate allocation got scaled back.?
This is definitely another “part-of-the-game” scenario with syndicates as it happens here and there. It’s also why in some scenarios where you foresee this, well then once you have the capital committed you want to sign & wire before the round could get more competitive. There are nuances here like whether it's a SAFE/note vs. priced round as this might be out of your hands, but the point is that the quicker you hard confirm the allocation the less likely of getting scaled back (LPs take note our marketing isn’t for nothing :), which is best for you and your LPs.
It’s not a good feeling but, comparatively, it’s way better than getting cut out of the deal, so as a syndicate lead, you live with it. Sometimes LPs might express frustration here because they did not want their LP commitment to get cut back, which I can understand, but this is also a “we’re all in this together” scenario. Definitely part of the game for syndicate leads and syndicate LPs. It’s also important for LPs to understand this before investing in SPVs.
When you get a big markup
It’s a great feeling hearing from a portfolio founder relaying the exciting news of a big markup likely by a new VC joining the cap table! While it’s not the end goal, it’s typically a great signal en route to the end goal of IPO//acquisition i.e. liquidity for LPs. Most likely, the syndicate will be doubling or tripling down here, so this is a nice LP update in parallel to running a new vehicle to re-invest.
Venture capital is a power law game so increasing your portfolio's number of fast growing startups with breakout potential is a fantastic feeling as an investor/syndicate lead. The outsized winners for syndicate leads are massive (versus traditional funds) as the GPs have deal-by-deal carry, meaning the winners do not get averaged down (like in a pooled traditional fund) and for LPs, it's the same as the GP. LPs in an outsized winner will get an outsized return without being averaged or pooled with any other deals.
So, news of big markups feels great as a syndicate lead and are directionally some of the best news you can receive en route to the liquidity destination!
When you see the deal you are running being syndicated by another syndicate lead → If you’re not first, you’re last
This is another scenario that really stings for a syndicate lead. It signals that you are now late to the punch and a percentage of your LPs will have seen a deal you are about to syndicate elsewhere, and from a different GP. This is certainly one of the unique things in the life of a syndicate lead and not really all that relevant to traditional VC. And another reason why speed / efficiency around our process is so important.?
When you’ve got an allocation in a company and you are planning to launch the deal and share with your LPs, you obviously want to feel like you are providing unique deal flow. Access is such an integral part of the syndicate lead role as LPs really piggyback off the leads access to quality deals. When you launch a deal that was recently launched by another syndicate lead, it can lose its “uniqueness”. It’s already been seen and discovered by a portion of your LPs who might also be an LP in the syndicate that launched the given deal.
Due to being 2nd to launch a given deal, it is likely going to have some negative effect on your allocation size as you may have lost LPs to the other syndicate. Sometimes, we will team up and co-syndicate with the syndicate who might have launched a deal first that we were planning to run.?
When a company goes to zero
One of the worst feelings as an investor, but also part of the game. The best VC’s in the world have all experienced this a ton; Andreessen Horowitz has famously stated that half of their investments will be zeros (or near it). Again, for syndicates this is different as there is a specific subset of LPs who feel the burn more so than LPs in a fund as the SPV is not pooled with any other deals. The capital of LPs that came specifically into this deal will go to zero, while those who did not invest here have zero exposure and therefore are not affected at all by this company shut down.?
While this is unavoidable, it’s a terrible feeling for investors to hear this (100x+ worse for the founders of the company though, but this piece is not about them). You carry the experience forward to try and become a better investor, and explain to the LPs the details of why this company is going to zero, but ultimately anyone investing in early stage venture should understand that most of your investments will return <1x capital back and you’re returns will be driven by your exposure to the outliers.
Obviously no LP likes hearing this news but most also understand that this happens to early-stage companies and they know what they signed up for.
To recap, being a syndicate lead is a unique and challenging role. From the excitement of securing a competitive allocation and seeing a portfolio company receive a significant markup to the frustration of losing an allocation or having sensitive information leaked, syndicate leads must navigate through various ups and downs. They also face the disappointment of deals falling apart, lacking LP traction, or having a company go to zero. Overall, the life of a syndicate lead is extremely rewarding at times but it’s a near constant emotional rollercoaster, so get ready!?
If you enjoyed this article, feel free to view our other articles on the POV of Syndicate GPs:?
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.