Behind the scenes of running a syndicate to invest in startups

I've been an active angel investor for 7 years and a syndicate lead for 3..here's what goes into running a syndicate to invest in startups

If you invest in startups, you’ve probably heard of syndicates - but I realize there’s not too much material out there to understand behind the scenes of running one. I feel if the instrument is better understood, more people would feel comfortable investing in startups via syndicates. So here it is - my experience of building and running my syndicate SSV | Shrishti Sahu (linked here). I use Angellist as the only platform where I run this syndicate as of now, even though there are many other platforms out there. I have a unique base of 350+ LPs who co-invest in deals with me, we’re just a little short of having invested $1,000,000 USD since 2021 across 10 deals (roughly a ~$100K cheque) at the pre-seed and seed stages. I love to participate early and help founders go from 0 to 1. I’m often the first commitment into deals and love helping founders put their round together. If you’re raising, reach out to me on email, Twitter, Linkedin - let’s chat. I invest in 3 capacities - a personal cheque > $100K, my syndicate ($100K-150K), and via my family office (SSV) - Series A and upwards. If you want to keep getting these insights about tech, investing and startups please subscribe below. Enjoy the piece and do share your feedback!

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Syndicates are a mode of investment where a group of investors comes together to invest in a company/entity. Each syndicate will have a lead investor who will take the step towards securing allocation in a company, and then present the investment opportunity to its group of investors - Limited Partners (investors of the syndicate that invest on a deal-to-deal basis) and manage the terms and negotiations on the group’s behalf. The lead would typically share an investment memo covering the problem, solution, business model, traction, growth, founding team, go-to-market and enlist their reasons for investing in this company and also the risks. Then the LPs get the opportunity to look at the deal, evaluate it, ask questions and review it, and then decide. After the LPs have committed what the Lead’s target was, usually there is a capital call to get the funds wired into one account and then transferred to the company after the diligence, paperwork, legal negotiations and closing documents are in place. 

What’s the profile of these leads and why do people back them?

A syndicate lead is often someone who has considerable experience in the startup space. They may have either been an operator/founder, an investor, or someone who has been angel investing for a long time. They have access to good founders hence good deals and good judgment proven by their past investment decisions and how they perform. They may also have a good reputation, past successes in their career, or a brand that helps them raise funds from their LPs. Investors band together to back them because they are known to have a track record.

How do they source deals?

As a result of their time in the startup world, these syndicate leads usually have deep networks and are well-connected in their domains. They may have access to really good founders through their past work experiences or they may have worked in a big tech company or high-profile startup to have access to future founders. They are also well-networked with VC funds and other investors to be able to attract co-investments and follow-on capital for the deals they’re raising capital for.

To help understand this better, sharing a little bit about my background and how I got started. After building my first company, I worked at Facebook (now Meta) leading Startup Programs for South Asia, where over 700+ startups were a part of the different programs run by Facebook hence developing a really strong network of founders. I ran 3 accelerator cohorts at Facebook focused on emerging tech (AR/VR, AI, etc) so I’ve seen many startups go from 0-1 and hosted many demo days. Also, I worked at a fund where I looked at early-stage investing, am well-networked with funds and other investors, and exchange deal flow and notes with a lot of them actively. What also helps is my angel investing experience having backed more than 40 companies now, I do get a lot of deals via my portfolio network - which is honestly the best quality. And lastly, I write a tech and investing-focused newsletter which also helps people understand and relate to my investing style and philosophy - it’s a tight-knit community of 2000 folks - the brightest and sharpest minds of Indian & Global Tech & VC. As a result of all this, I’ve been a part of the startup ecosystem for 10+ years and am fortunate enough that founders choose to give me a seat on their cap table. :)

Deal Process

A syndicate lead will keep meeting founders just like a VC fund would. Could have more than 2-4 founder meetings a day, so 100+ founders a month after having gone through 1000s+ of pitches and decks that may have come via various sources. It’s insane amounts of processing data, evaluating multiple opportunities together, going deep into spaces within a short span of time and building a thesis, and finding the ONE to back in the space. You have to meet several companies in the space to know for sure that you’re backing the best founding team and that too very quickly. A lot of them are ambitious outbounds and cold emails to founders because I really believe that you have to fight to win the best deals- they won’t just come to you.

But then, thank god for referrals and deep networks that one keeps getting healthy inbound (and no, I’m not talking about a random email list that you’ve been put on by some investment banker). I mean seriously investible deals - out of which you mostly reject at the deck/email stage, then you get on calls with 20% of them and shortlist 1% to actually invest. You’re always hustling, always on the move to get into the right network and smell the best deal in the market. You’ve to attend events, talk to people, exchange deal flow, thoughts, talks, and what not to make sure you’re top of mind for people to think of you when they meet a good opportunity. 

Then comes securing the allocation once you’ve decided to go ahead with the company. You have to manage the process and make sure it’s quick as the best founders will not want to wait for more than a month to complete the process. After the allocation, typically you would start talking about the company in your circle - letting people know that there’s an interesting company you’ll be fundraising for.

Then comes the investment memo where you share your thesis on why investing in the company is a good opportunity. You explain the problem, solution, business model, traction, growth, founding team, go-to-market, and enlist their reasons for investing in this company alongside the risks. You go live with the deal and then wait for the responses and questions to come in. There are multiple things LPs ask for some common ones being - rationale for valuation, further explanation of some details in the deck, growth trajectory and prospects, customer pipeline, financials, and exit plans. You keep promoting the deal until you hit the target raise amount then close the deal. Post which, the legal paperwork and closing process starts. Once all the documents are in place, the capital call will happen which basically means investors receive a drawdown (a document with the investment details and wiring instructions) and the funds are wired into one account. Then the capital is deployed and closing documents are shared with all the LPs.

Post which, a lead would usually share monthly or quarterly updates from the startup to the LPs keeping them updated on the company’s process. 

And, the best case scenario is if the deal becomes successful, with good PMF and follow-on financing, then the lead gets to make a decision whether to stay invested or get an exit.

And if they decide to exit, the returns are distributed to the LP base minus the lead’s carry (a share of the profits as a reward for sourcing the deal and providing an opportunity to invest).

Phew - that’s ALL it takes. I’ve met all kinds of syndicate leads - some who do it full-time, some who are founders + run their own syndicates, and some who will do 1-2 deals a year. There are many flavours and investing styles that one can choose from - as active or as passive as you want. I know a few of my LPs prefer to basically ‘index’ my syndicate - where they’ll put a small cheque in every deal I bring onto the platform to get maximum exposure whereas some will only invest maybe 1 deal a year. To each their own.

All I can tell you is, that it’s quite a thrill to be able to run this process & all while you have a front-row seat while the future gets built + the luxury of hanging out with the best minds in the ecosystem.

It’s only fair to include my syndicate link here for those who are curious: SSV | Shrishti Sahu