Running a syndicate is very different to running a fund.
Funds raise capital from LPs who make legally binding commitments to send money before the fund starts looking for deals. The fund manager has full discretion on which companies to invest in, and how much to invest (within agreed constraints).
With a syndicate, on the other hand, you find a company to invest in, then market the deal to investors, who decide for themselves if they’ll invest, and how much. It’s the opposite.
This means that syndicates need a well-run, bespoke process.
Let’s keep it short and sweet. Here’s my 14-step framework:
End to end, the process takes 4-6 weeks. I break it into 3 phases:
Deal sourcing: finding and diligencing companies.
Investor facing activities: Marketing deals to investors and nurturing interest.
SPV formation: collecting and deploying capital.
The red dotted lines in between steps represent checkpoints where the process can end. They prevent me from wasting time on deals that aren’t going to make it. This is valuable for me, and for founders. We are all busy.
I source deals through a combination of inbound and outbound. The best inbound comes from other investors in my network. More on that in a future post.
Between steps 1 (sourcing) and 2 (qualification), I do some basic deal filtering. I have a checklist of things that I need before even taking a call. Broadly, I need comfort that the deal fits my thesis, and that the team look credible.
At Step 2 - deal qualification - I perform a sniff test on the company. I document relevant information. I try to understand the business model and economics, and assess whether the startup is investment worthy.
If I decide the deal passes the second checkpoint, I begin full due diligence. Less than 5% of deals make it this far.
In terms of DD process, I dig into and question all of the company’s assumptions. I run background checks on the founders via people familiar with them, and I try to speak to customers.
As the diligence comes together, I assemble the data room (Step 4). I usually do this in Google Drive (reasonably secure and easy to share with LPs).
Between step 4 (data room) and 5 (deal publication), there's another checkpoint. I ask myself some hard questions. I need to have 70 - 80% conviction at this stage that the deal is investment worthy before I’ll share it with my LPs. Sharing poor quality opportunities is a surefire way to destroy your reputation.
Investor Facing Activities
I gauge and nurture interest with investors through a series of “activations”. You can think of them as marketing actions. This phase in the process really is a marketing funnel:
(Step 5) I publish the deal to my network, by using an email automation tool (eg. MailerLite). You can also share it in a WhatsApp or Slack group, if that’s your thing. You can use a simple product like Airtable or Typeform to collect interest in investing. This is a great way to know who you should focus on when following up.
Once I’ve collected initial interest, I will typically ask the founder for an allocation (if I haven’t already). This will fall within a range (eg. $200k - $300k), based on my sense of how much interest there is in the deal.
Step 6 - 7 are optional additional activations. They depend on the deal timeline and how much information you have to work with. Examples: Update LP’s with progress on fundraising or good news from the company on a recent commercial contract. Gentle nudges.
I will also monitor who is looking at materials (via docsend and email tracking links), and follow up individually with people who seem particularly interested. It’s crucial to be responsive and professional with investors. This helps them come to a decision quickly.
Step 8 is mandatory. I always host an investor call with the founder(s). This gives LP’s a chance to get to know more about the team and the business. As much as my LP’s trust my judgement, it’s ultimately their call, and they need to feel that they trust in the team’s ability to execute.
In step 9, I may bring investors and the founder together on a second call for a Q&A session and deeper dive. You can also run this Q&A in Slack or WhatsApp if doing it asynchronously is easier. It gives LP’s the chance to really dig in and ask specific questions as part of their own due diligence process.
By this point, I’m 95% sure the deal is going to go through. The call and Q&A serve as a forcing function for investors to commit capital (step 10).
Now it’s time to create the SPV through a service provider like Odin.
Once an investor is onboarded onto the SPV platform, I make capital calls (step 12) by asking them to execute document signing and wire funds.
Then the syndicate can be closed. We receive capital and transfer it to the startup!
Finally, depending on the platform, I take care of any additional administrative matters. This includes side letters, pro-rata agreements, carry share amendments or carry splits. Odin actually takes care of most of this stuff automatically in-platform, or with the support of their deal operations team!
And that’s it. The deal is done. I update LP’s on a quarterly basis on how the business is performing, and stay in regular contact with the founders to see how we can help them grow.
Find out how you build and scale your LP network in part 4.