06Sep / 2016

What is a Syndicate?

When it comes to explaining syndicates, Paul Graham does it best,  “Angel investors often syndicate deals, which means they join together to invest on the same terms. In a syndicate there is usually a "lead" investor who negotiates the terms with the startup. But not always: sometimes the startup cobbles together a syndicate of investors who approach them independently, and the startup's lawyer supplies the paperwork.”

 

You get the idea. However, syndicates go deeper than piggybacking on VC acumen. In the last decade, the success of investor-led syndicates have re-shaped VC strategy across many platforms and it has influenced multiple micro-economic shifts.

A better-networked VC often has a better fund performance.

Findings from a Berkeley study on VC networks and investment performance states;

“Depending on the specification, a one-standard-deviation increase in network centrality increases exit rates by around 2.5 percentage points from the 34.2% sample average.”

 

And concludes;
 

“Controlling for known determinants of VC investment performance, we find that VC funds whose parent firms enjoy more influential network positions realize significantly better performance, as measured by the proportion of portfolio investments that are successfully exited through an IPO or a sale to another company. Similarly, the portfolio companies of better-networked VC firms are significantly more likely to survive to subsequent rounds of financing and to eventual exit.”

In short, strong VC networks DO have a better track record of successful IPO’s and acquisitions.


Now the next head of the hydra, how well are Angels and VC’s networked today? Rational thinking would suggest, uh, they’re preettty well connected. Here is a heat map from the awesome people at CB insights that highlights how often VC’s invest together. The darker the blue the more frequent the collaboration.

 

vcsyndicateheatmap1.jpg

 

An ideal scenario would see more darks and less whites. However, the sample data above shows that not all VC’s have the established networks you’d imagine. Instead, we tend to see small clusters of VC firms and individual investors working together. Platforms like LetsVenture, Angellist and Syndicateroom are positioned to bridge these gaps by providing an interactive marketplace to help investors gain visibility and share their deals with other investors or backers.

Key takeaway: Not all VC’s have the established networks you’d imagine.


The last hydra head in this post: Bringing the discussion home. With over $5 billion invested and 4200+ startups in 2015 we are the third largest startup base in the world and the fastest growing startup ecosystem. All facts you know already. So know this too: Being a networked VC in India’s startup ecosystem is now more important than ever.

Don’t get comfy with your current network, think bigger because now you can.


Being part of a syndicate provides certain benefits:

  • Gain higher investment power from your network as a lead investor; invest in startups with high minimum requirements.

  • Get access to profit dividends and investor equity in return for playing a ‘leadership’ role.

  • Learn from industry veterans who know the ins and outs of the industry and follow investment activity of successful angels and startup founders.

  • As a backer, deal with less risk; leaders would not risk their own skin if they don’t believe in the investment.

  • As a startup, gain access to higher sums of capital and spend less time fundraising.


LetsVenture’s platform is tailored to the Indian startup ecosystem for both local and global investors. With over 2,200 Angels and 11,000 startups our syndicate option provides an informed marketplace where lead investors can share their deals with other investors or backers. This social aspect allows the investor to have greater visibility on the platform and keep followers notified on their investment activity.


Click here to learn more.


We got insights from some brilliant sources, click on the links below to read the full article:

Paul Graham on angel investing :

http://www.paulgraham.com/angelinvesting.html#f1n

CB Insights venture capital investment syndicate heat map :
https://www.cbinsights.com/blog/venture-capital-investment-syndicate-heat-map/

Berekely study on VC networks and investment performance:
https://www.stat.berkeley.edu/~aldous/Networks/hochberg.pdf



Let us know if you have any questions or comments below. You can also email us at amogh.lux@letsventure.com