As the syndicate lead, there are a few key steps in running deals and putting yourself in a spot to deploy capital and take carry.
Sourcing Deals – Where are you finding these investment opportunities? How are you communicating with founders about your interest in investing and the value prop of your syndicate?
Due diligence – Running the process with founders and your syndicate investors – What is your due diligence process? How do you get to a yes/ no? As you’re running your own due diligence, it’s important to think through what deals you’re going to introduce to your investors, and how much you’re going to rely on them to give you a green light based on their willingness to write checks over a given deal. This can sometimes influence syndicates to simply push deals that they know their syndicate investors will say yes to and can become the way they evaluate deals rather than their own personal thesis.
Getting Allocation – You’ll negotiate allocation after deciding to invest in the company. With syndicate allocations, it can be a chicken and egg problem, how much allocation you’re given from the founder vs. how much your syndicate investors are willing to invest.
Sharing Deals with Your Investors – From here, each syndicate organizer runs their process differently. I send an update email out to the accredited investors on my syndicate list, which are tagged by area of interest & check size. They’ll usually reply with more questions, or a yes or no. These yes’s (and their associated check sizes) are called commitments. They’re not legally binding but are rather held by someone’s word; I keep track of them in a google sheet.
Running Your Deal Process – Once you have the deal in place with the founder and commitments from your investors, it’s time to spin up the SPV and run the deal. The Assure platform streamlines the process to handle the structuring and administration of your deals (more on the Anatomy of an SPV later).
Admin for SPVs into startups are pretty low-touch after you close the deal. With a service provider like Assure, all of the necessary taxes are done by the Assure team and necessary tax documents are available for your investors on the platform
Filling Pro Rata
Some GPs use SPVs to fill pro rata allocations when their fund doesn’t have enough capital left to deploy. Other GPs use SPVs to invest in companies that may fall outside their fund’s usual investment philosophy—allowing LPs to self-select if they want to participate in the investment.
Build an Investment Track Record
For new GPs, raising SPVs can be a way to build an investment track record. By raising an SPV, they can approach LPs with a specific investment opportunity rather than just pitching a somewhat theoretical investment philosophy (called an “investment thesis”). That in turn can help them build a network of LPs that may later be interested in investing in a fund.