The Diverse Syndicate

Startups are generally not funded by just one investor. They are usually funded by a collection of investors; the angel syndicate, followed by the seed syndicate, followed by the VC syndicate.

This gives the founder the opportunity to gain insights and advice from a group of people versus just one.

I was sitting next to a VC last night who brought up the age old question – operator vs investor? She is a successful early stage investor who has never been an operator.

My answer to her question was “both.”

Yes it is fantastic to have people in the syndicate who have been or maybe still are operators. They will be able to help you with all sorts of management issues.

But it is equally important to have the investor mindset in your syndicate. Investors tend to be very attuned to financial issues like burn rate, when to raise, from whom, etc. They also understand market positioning, strategy, and similar stuff very well.

While you are at it building a diverse investor syndicate, try to get women, minorities, and other forms of diversity into your syndicate.

Treat building an investor syndicate like building a management team. What you want is a lot of differing strengths not a bunch of the same strengths.


Comments (Archived):

  1. William Mougayar

    But there comes a point where you might have some many investors, that you’ll be challenged managing those relationships, and especially processing the input diversity you will receive.Great entrepreneurs thrive in processing that diversity in opinion and use it to their advantage, whereas others drown in it, and are not able to exploit what they harvested.

    1. Guy Lepage

      But there comes a point where you might have some many investors, that you’ll be challenged managing those relationships, and especially processing the input diversity you will receive.4-5 years ago I would agree that it might be a bit unruly. But in today’s environment, entrepreneurs have amazing tools to seriously mitigate the time bloat of managing a syndicate.. Weekly newsletter updates along with tools like, clerky and carta, makes managing a syndicate much easier.There are so many benefits as Fred has stated that the nominal added time is worth it imo. I find a ton of value to be able to ping send out a quick email to the syndicate for a wide range of feedback.A small caveat being, at least one of the founding team should be good at listening and implementing portions of the advice that will work best for them and their business.

  2. LIAD

    was going through a deck *yesterday* with a successful operator turned investor.he kept picking at parts of the deck – this is a VC focused deck – x doesn’t interest me, y doesn’t interest me etc. he wanted an operational focused deck based on harsh truths about getting from here to there – and not a vision/moonshot style presentation which early stage VCs tend to get off on. – point being – great to have a diverse syndicate – but likely to get them on board requires very different narratives and pitches

    1. William Mougayar

      But why not include both sides in that pitch? Make it a balanced pitch, and the types of attractions will be more genuine.

      1. LIAD

        I suppose you could. Just saying operators, especially with experience in the same industry as that being pitched appear to have a far more sophisticated granular approach to investing than general “stage specific” VCs. Which kind of makes sense. If you’ve been in the same mud yourself you’re risk radar will be more highly attuned.Probably why VCs call upon operators in diligence calls.

      2. Guy Lepage

        Good marketers segment their audiences for much more effective comms.

      3. awaldstein

        Selling is really not a balancing act. It has grey edges but only works with focus especially in this context for me at least.

        1. William Mougayar

          At the seed/early stage, it’s typically 1 pitch. Either it hits or doesn’t. In later stages, you could have different versions.

  3. Pointsandfigures

    Multiple networks are better than one.

  4. awaldstein

    Diversity if pretty well the answer structurally for most things in business.Been managing towards this in every company and team I led and it works.Feel strongly it is the answer in politics as well.

    1. Richard

      It would be nice if the far left tried to stay rooted in science rather than ideology. There is so little economic evidence for the idea that diversity is the answer for all things in business.Anyone who can prove it will win a nobel prize.

    2. JamesHRH

      I am not anti-diversity.I am anti-superficial diversity.Its noteworthy that Fred’s superficial diversity has no justification, while his Op or Inv justification does.You should hire my wife because of who she is – & part of that is her experience in male dominated cultures as a woman, where there a lots of things that need improving – but not JUST BECAUSE she has ovaries.

      1. awaldstein

        you either believe that our businesses and governments should reflect the markets and the populations we serve or you do not.if you do, you will find both diversity and greatness.this idea of superficial diversity is an excuse for non action from perspective.

        1. JamesHRH

          Excellent response.I believe that equality of opportunity leads to greatness of all sorts of shapes & colours.I believe that mandating equal outcomes leads to the Gestapo. ;-)I don’t believe that superficially reflecting the population makes government or business better. It feels good to some people. Check in on Justin Trudeau’s “Its 2015.” gender equal cabinet. His government is a trainwreck because he is deeply superficial.

          1. awaldstein

            I wouldn’t use those terms myself but i understand what you are saying. I believe that intent changes the world.My belief on diversity drives this. Sure its a process but change can and is happening.Including changing myself through how i consume content and from whom to insure that i develop my own criteria for greatness within groups that are removed from my experience.Changing myself to appreciate greatness and quality in idioms not my own naturally is part of this.

          2. JamesHRH

            I love your interconnectedness between yourself and these perspectives. Its totally not who I am, although I think I am quite strong at appreciating other’s perspectives.Your comment here is completely laudable while having nothing to do with government or business reflecting the people they serve, superficially.They need to serve them effectively and some times that requires a familiarity with the experience of the people they serve. Should women & minorities work in business and government? Of course.Should x% of women be CEOs? No, because they serve investors who typically do not need to be reflected by their CEOs.Our disagreement is actually pretty narrow.PS – in case you don’t know, the Gestapo line is cribbed from an ancient Churchill quote about socialism, but it applies.Have a great day.

          3. awaldstein

            Thanks for that generosity.To me–to close–once you realize that you/me are not the new normal but to work effectively and impact change you need to take the reign and architect new normal situations, it all falls into some sort of line.

          4. JLM

            .Jimmie, “deeply superficial”? Haha. Very rich.JLMwww.themusingsofthebigredca…

          5. Richard

            That only person who really believes in diversity is the one who gives his up his seat – his meal at the table – so others eat or eat first. The rest are just bloviating.

          6. JamesHRH

            Where’s the taking a bow emoji?Are a bunch of your comments being deleted by you?

  5. Richard

    Socialcalitals Chamath Palihapitiya take on what motivates VC is far different. Check out @jasons podcasts for a look behind the curtain of seed stage/series A venture capital and what they are actually shooting for (spoiler it’s the 2 not the 20, : the next venture fund raise, the 2 is a nice stream of income for VCs).Founders are over paying for the so called expertise Fred talks of. They should negotiate for half of the 2 and use it to purchase advice as needed.

    1. Girish Mehta

      See my comment yesterday re the 2% -… “This is a mathematical outcome of the ( 2% mgt fee —— larger fund size —— larger investment ticket sizes ——Required Return from larger investments —— Large /Gigantic private valuation ) chain of relationships”.

      1. Richard

        Early stages are much more sinister according to Chamaths message.

    2. kidmercury

      lol fun attempted troll, but def room for improvement:1. the “2” or whatever USV charges is paid by the limited partners, the founders are instead selling equity to USV2. fees are a market, as one would expect, and funds known to outperform generally charge higher amounts. renaissance capital charges 5 and 44……or at least they did back when they accepted new clients, which they no longer do……most importantly, please take this knowledge to refine your trolling game. we know you can do better!

      1. Richard

        I provided a source – you might try listening to it.

        1. kidmercury

          no worries, i’m just trying to help you troll, given it is clearly a passion of yours. you’ve got talent, with a little effort sky’s the limit! 😀

          1. Richard

            Some are born contrarians. Add an upbringing in NYC, 4 years of Law and 6 years of Engineering – challenging a premise just is my first reaction. This said Fred and his VC minion are definitely the unhappiness multi-millionaires I’ve ever come across.On a serious note – pull up a compound calculator and see just how much 2/20 costs the LP and by default the startup – after all 25% transaction costs – and rigged funding rounds marked to market – are factored into the post money valuation.This is one of the reasons investors in equities today can accept lower total returns – historic total returns included 2-5 % transaction costs.

    3. Adam Sher

      The 2 is a very powerful force. Been there. I’ve previously posted that common fund manager behavior is to spend (i.e. invest) quickly to get to the invested capital threshold that allow the GPs to raise the next fund. The Fund docs typically result in managers that run 3 funds. The 20 is nice but you still get the jet with the 2.Founders aren’t overpaying for expertise, they are paying for runway and jet fuel, even if they think they’re paying for expertise. As JLM mentioned, there is scant evidence that funds on average add value beyond capital.

  6. Amar

    A lot of this has to do with the maturity of the founder(s). A mature group of founders – could be repeat entrepreneurs or could be first time founders – will establish healthy expectation and relationship boundaries. A lot of this is not a “this or that” but “when” question. Maturity (which does not always have to be measured in how many companies did you start?) will allow for the founder to clearly set expectations, manage relationship with both the individuals in the board and the board as an entity.Immature/younger founders often have to deal with the alpha-male/alpha-female in the board in addition to learning-on-the-job. It goes without saying – if all the board members have a “servant leadership” heart/spirit and can find a way to mutually work through their own operator/investor biases – everyone is blessed. But that rarely happens and thus the dilemma.

  7. Amar

    The notion of “servant leadership” is a great principle for an actual leader of organizations. VCs serving on a board are not really leading anything.Good distinction. Agreed!