Co-Investors

Most venture deals involve more than one VC firm. In our industry vernacular, we call them "co-investors".  The group of venture firms is called the syndicate. How the syndicate comes together is an art and not a science.

Sometimes, one firm will do the first round by themselves, a second firm will join in the second round, a third firm will join in the third round, and the syndicate will get built round by round. That's how Twitter's syndicate got built. Our firm, Union Square Ventures, led the first round and some well known angels joined us in that round. Spark Capital led the second round and joined the syndicate. In the third round, which recently closed, Benchmark and IVP joined the syndicate.

Sometimes, two firms will do the first round together, a third firm will join the second round, and so on. That's how Zynga's syndicate was built. Brad Feld from Foundry Group and I co-led the first round, Rich Levandov from Avalon led the second round, and Bing Gordon from Kleiner Perkins led the third round and was joined by Sandy Miller from IVP.

Note that I started to use partner's names in the paragraph about Zynga. The individual partners involved are really important. While VCs work in firms, and firms do have reputations, it is the individual VC that you end up working with so it is the person first and foremost that you are working with and the firm second. Don't forget that when you put together a syndicate. I've seen many an entrepreneur make a mistake by picking a great firm as the lead investor and getting stuck with a crappy partner on the board. It happens all the time.

But back to the topic of putting VCs together. It's a very tricky process and frought with risk. The best way to solve the problem is to work with VCs who have shown that they can work together successfully.

There are probably five or ten VCs who I have worked with frequently in my career and I know very well and love to work with. It's not hard to figure out who they are and I've been paired with them on many occasions. And that lists grows and changes over time. Bijan Sabet of Spark Capital only got into the venture capital business a few years ago and he and I have worked together successfully on a couple deals now and he would most certainly be on that short list.

In fact, Bijan was interviewed the other day on this very topic by Mark Kathleen Flynn of The Deal. Here's what he had to say about this topic.

There are two great lines in this interview:

"We generally like each other"

and

"You can't fire your VCs"

So in closing, when picking your syndicate, choose carefully, make sure the VCs will "like each other", and focus on the person more than the firm. And most importantly, check out your VCs like they check out you. It's an important choice that you most likely will not be able to change once you've made it.

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