In light of our last article covering ‘Syndicates 101’, today we’re going to explore the specific roles that investment syndicates play in private markets. Specifically, how syndicates have emerged as a means for founders to efficiently raise capital from value strategic aligned investors. As fundraising options continue expanding for founders, syndicates can help fill the capital stack for many early-stage founders.
Who are the syndicate investors?
Syndicate investors are individuals seeking early-stage investment opportunities in any given affinity or industry. The deals in most cases are sourced and vetted by designated syndicate “leads” who often have experience investing alongside early-stage founders and around their given thesis. Joining a syndicate is easy, and requires only that individuals create an account on a given crowdfunding portal or broker-dealer platform (AngelList, MicroVentures, etc). While a fraction of them remain exclusive, most syndicates can help investors expose themselves to deals and individuals they wouldn’t have elsewhere.
What do syndicates mean for founders?
Instead of partners and capital being guarded behind the curtains of traditional allocators, founders can now raise money from a group of angel investors with incentives that are aligned to their business. For example, if Company A wants to raise $500K, a given syndicate lead may commit $10K to that round and ask their syndicate investors to join them for the remaining $490K. The investors who are interested in participating in financing Company A are then grouped into one private fund alongside their lead. In recent years traditional capital has begun investing alongside syndicates as a means of exposure to the growing asset class. In fact, notable venture capital firms along with solo General Partners have emerged as leads too. Not only are investors then exposed to earlier stage founders, but they’re able to build an audience within the syndicate as well. For larger fund managers with an open mind towards newer opportunities, syndicates are merely an experiment
Where are syndicates investing?
Syndicates are most commonly investing in early, pre-seed, and seed-stage companies. There are syndicates for specific industries, others for geographical affinities, along with more general industry-agnostic ones as well.
A founder-centric fundraising market is continuing to evolve as retail investors and traditional allocators are being merged together for an inclusive future. As investing through syndicates grows in popularity, founders will see higher access to capital while investors access to a more diversified system of capitalism.
Scott Byron
Syndicate Growth Advisor
