EP 48 How Alex Pattis Raised $75M in 300 Deals by Launching a Syndicate

Syndicates.

What are they?

How do they work and why do they exist?

And should you invest or raise capital through them? That's what we talk about today with Alex Pattis, general partner of Riverside Ventures, who's deployed over $60 million into 300 syndicate deals, and the co-author of Last Money In, the de facto number one newsletter for everything SPV, So whether you're an angel investor seeking access to deal flow or a founder trying to close out their next round, Alex shares his expert opinion on how these special purpose vehicles and syndicates work and why and when you should use them. This is episode 48 of Fundraising Demystified, the show where I interview founders and investors that are actively raising or deploying capital in today's markets.

And I'm your host, Jason Kirby.

I personally built and sold multiple companies as a founder, operator, and investor across multiple industries and different business models. And I designed this show to help uncover what's actually happening in the private capital markets and help founders and investors best navigate their capital strategy. The show is brought to you by my company, Thunder VC, a tech-enabled investment bank for founders by founders. Where we help companies get funded or acquired. Whether it's debt, equity, or the pursuit of an acquisition, our team can identify what's the best strategy and get the deal done for you. To learn more, be sure to join our weekly newsletter at join.thunder.vc. Again, join.thunder.vc. Now, on to the show.

Welcome back to the show, everyone. Today we have Alex Pattis with us, general partner of Riverside Ventures and the author behind Last Money In, the world's number one syndicate, VC syndicate newsletter. Welcome to the show, Alex.

Hey, Jason. Awesome to be here. Definitely excited to chat and share more details here.

Yeah, no, I'm excited to have you on the show. You and I have had a relationship for, you know, several months now, and I've really enjoyed listening to your— reading your content and And learning from your syndicate knowledge of, I think, what you've done over 300+ deals, I would love for you to kind of tell the audience a little bit about your story and how you went from a sales director to launching a syndicate that has done, you know, hundreds of deals.

Yeah, so my story really starts with being an early-stage operator within a startup. So I moved to New York. I had joined a healthcare tech startup. I was the first sales hire, employee number 11, had a 3-year run there, some great learnings, ended up joining another company called Market Access Transformation. Joined that company as the first employee pre-launch, really good business, bootstrapped for about 5 years, did a private equity transaction, and then ended up selling North of $200 million. So great outcome there. And across that like 8-year timespan, I got great startup experience. However, you know, while I was at the second company, Market Access Transformation, you know, I kind of felt like my net worth was really all tied into one single outcome, right? And living in New York was starting to meet founders and see people kind of building interesting businesses. And a lot of it was just curiosity and a little bit of looking to diversify net worth. And I got into angel investing. So started doing that for about a year, really small personal checks, just getting my feet wet. And through that year and that experience, I just love spending time with founders, learning about what they're building, figuring out if I could be helpful from like a go-to-market sales strategy, intros to investors, intros to customers, whatever it could be, and really wanted to do a lot more of this, but also had limited personal capital to do so. So from there, I actually joined Jason Calacanis's syndicate, which was my intro to syndicates, where I was an LP and essentially was able to review different deals that Jason was syndicating, which we'll get into to more details there. But it was a nice way to ramp up deal flow, see deals on a deal-by-deal basis, and commit when I wanted to, and very small minimums. I think it's like a $1,000 minimum or maybe $2,000 into these deals. And I guess after a certain amount of time of being an LP in the syndicate, I just was like, hey, this would be great to run if I'm running the syndicate. So started that journey. And yeah, there was kind of like a, you know, 1 to 2 year ramp up of just navigating, right, like growing an LP base. So you've got enough folks that you can actually put together a syndicate. Of course, getting into the right deals, being able to access some of the highest quality founders at early stages, typically pre-seed and seed. And just navigating everything from setting up a special purpose vehicle and operating a syndicate there. And I think, yeah, while it was definitely a ramp-up, it didn't happen overnight. I don't have the story of I launched this first deal and it went amazing and all these people invested. Um, I did at least stick with it. And yeah, luckily over the past now 3, 4 years, um, we've been in a healthy position. Yeah, as a GP at Riverside Ventures, we've now done 300+ SPVs, deployed $70-$75 million in total capital. So I've been able to, to back a lot of, a lot of awesome founders and, uh, have thousands of LPs that have now participated in deals with me.

Now that's some phenomenal stats. And to kind of help it sink in with our audience a little bit more and kind of understand what you've accomplished, because this is, you know, definitely the anomaly, like this is very hard to do what you've done. But I think we need to kind of educate our audience a little bit on some key terms here in terms of explaining what is a syndicate, how does it differ from a venture fund, and kind of define what an LP is, an SPV, and things of that sort. Just give it maybe a little bit of an education to our audience.

Yeah, so let me— so I guess to break this down, like, I view syndicates as a backwards approach to a traditional fund, right? In a traditional fund, you go out, You raise your fund, however many millions you raise, and then over a couple-year timeframe, you're typically going to deploy that capital into your 20, 30, 40 companies. With a syndicate, it's backwards in the sense that I identify a specific deal that we're looking to invest in. And then once I get an allocation in that particular deal, I will then go to my LPs who have the opportunity to review the deals that I do. on a deal-by-deal basis and commit. So the LPs of a syndicate, right, they're not paying, you know, they're not investing like a traditional fund. They get the opportunity to kind of window shop, right, but see these deals and decide where they're going to allocate or not from there. So it's, you know, it's a different relationship and it's a different LP base, right? So for a syndicate, Like, when I say LP, I'm pretty much talking about all our accredited investors, but it spans in so many different directions of LPs, right? Some could be engineers or SaaS salespeople or part of an ops product role at a growth stage startup or a Google, a Meta, big companies as well. We've got a lot of folks that are founders or CEOs, both you know, high-growth startups, big companies, bootstrapped small businesses across the globe. We've got small family offices, folks that have made money in real estate. So it really varies, right? Our LPs are, are kind of all over the, the map in terms of their role. Um, but the beauty for them is the deal-by-deal looks. However, it's going to be super important for them to think through just building out a portfolio, right? Because when you invest as an LP in a traditional fund, the fund is diversifying, right? Diversifying your capital as an LP in the fund into a portfolio of companies. In a syndicate, you get to call the shots. But I think we see a lot of people that maybe do, you know, 2 deals or 5 deals over a couple years and That's just not going to be a large enough portfolio to really optimize for those 100x-type winners. But you get the benefit of the kind of deal-by-deal looks there. So let me stop there, see if that's kind of a helpful overview of how a syndicate works.

No, it is. And I think for founders or LPs that are looking at this, it's an inside look at actually getting to review the deal flows. It's more of like you get as an LP investor into syndicates, you kind of get to choose and cherry-pick what's of interest to you to write your checks, as opposed to picking the manager, uh, you know, just the manager to then make all the decisions on your behalf.

Right. And maybe just one thing I didn't mention is, um, the way a special purpose vehicle works is, you know, it is a legal entity that's set up for the sole purpose of investing in one company and going on the cap table. So You know, if we do a $100K investment and you invest $10K of that $100K SPV, you are going to technically own about 10% of that legal entity that, that's set up. So I just wanted to highlight that structure as well.

Yeah, and there's also a typical fee structure in setting up an SPV. Can you kind of break out how the fees work for the investor and also how it impacts the founders?

Yeah, so, um, for the investors of a syndicate, I'd say that the standard or like the norm for syndicates is to do 20% carry. There's a little like there— it can deviate a little bit if, if certain people do 10 or 15% carry, or at a certain hurdle they're doing 25, 30%. But I would say the standard is 20% carry. Um, most of the syndicates Like your typical syndicate that operates on AngelList is not doing any management fees. However, there are plenty of folks that do do management fees, and it could be a syndicate, it could be a traditional fund that's running a special purpose vehicle kind of outside of their fund. Sometimes you'll see 2% fees across 10 years. Sometimes you'll see a one-time 2% fee. And then you're always, or almost always going to have SPV setup costs. So those, you know, can range from $3.5K to maybe, uh, $10K, $15K on the very high end. Uh, that is a kind of one-time fee for the SPV to be set up, and that gets prorated across the LPs who participate in a given syndicate there.

And correct me if I'm wrong in any of these points, but effectively the SPV is just a— it's an LLC that gets set up And it's a one-line entry on your cap table as a founder. So maybe there's 50 people in an SPV, you know, 10, 20, 30, 50, however, you know, it could be a bunch of $1,000 checks. But that doesn't matter to you as a founder because it all comes onto your cap table as just one entity with, you know, one kind of person making the voting decision or one person to kind of get the votes from as opposed to having to go and chase a bunch of small check writers. So it creates a—

Yeah.

much more simplified cap table. And SPVs can be used for a lot of other purposes, which we, you know, don't have to go into on this call. But from kind of your model, it's syndicating out to your existing LP network that has a particular appetite for the deals that you bring to the table and kind of circulating all that. But if you can kind of walk us through, how do you engage with the founder when it comes to running the SPV, getting allocation, and kind of communicating Whether you oversubscribe or undersubscribe to whatever amount you commit to?

Yeah, good question. It's definitely an art there because the reality is, right, I'm working to meet the best founders, stay in touch with them, get allocations once there is a lead in place and terms have been set, right? We're really never leading the round and setting terms. So you have to kind of secure your allocation at the right time. And the reality is I never know exactly where it's going to land, right? Like, I have a— I can guess based on the dynamics of the round, the co-investors, the founder background, the growth, the interest and relatability to my LPs. I can take a guess, but the reality is I never really know. So I think what's super important is when you're securing this allocation with the founder, it's just important to highlight We are a syndicate. We set up a special purpose vehicle, and this is how it works, right? And the way it works is, you know, I would say, hey, Jason, like, I'm interested to participate in your seed round, your Series A. I would love to get $200K allocation because I think that's where it's going to land. It could be a little bit less, it could be a little bit more. What I can do is get moving on my end and kind of keep you afloat in real time as to kind of where the allocation is going to land. And what I would do on my end is pretty much just set up the deal memo, kind of an overview of why we're excited about the opportunity, the founder, and typically we'd share a deck. Sometimes founders want to kind of review materials, make sure they sign off on it. Sometimes they don't really care. So work with them in that regard. And then we share this with our LPs. To pretty much get them to express their interest and if they are interested, commit to the deal. And it's typically, I mean, it's, I'd say it's like a 10-day process. We can do it a lot quicker, right? We've had allocations fill in 1, 2 days. There's some that are a grind and it takes longer, but I'd say 10 days is kind of the typical turnaround. And what I'll do with the founders is kind of just check in with them, right? Maybe a couple of days after we've launched, highlight that Hey, we've got $100K of the $200K committed. I feel really good that in the next couple days we'll be able to land at that $200K. Or, hey, it turns out there's not as much interest as I thought. It looks like we're going to land closer to $100K and not the $200K. Ideally, I would've set them up to understand that so I don't leave them hanging and they need to find $100K elsewhere. And then there's the other side where it's, hey, this filled up super quickly, a lot of demand for the round. Is it possible to get $300K, $400K allocation? And if we can, that's great, right? We don't want to leave our LPs' money on the table. We don't want to have to scale back LPs. But I think we also, we know our place. We have to be flexible with the founder and, yeah, kind of work with them to identify what what allocation makes sense or does not make sense for their given round.

And why do you think founders work with syndicates instead of funds to fill their whole round? What's kind of the advantage that founders should be aware of working with a syndicate?

Yeah, a couple of things. I mean, first, I do think the manager is one of the most important things, right? So like me as the manager of Riverside Ventures, I think those founders have to be excited to have me on their cap table, whether that's operational experience, making intros, or really not doing that much. But when they've got a request, you know, once a quarter on an investor update, jumping in and being helpful there. So I think that's a large part of getting allocations and knowing everybody else kind of funnels through me. So while to your point, there might be 20, 50, 100 LPs in an SPV, they really only interact with me. But I also think, well, think and know, right? We've got a bunch of LPs that have all sorts of great operational experience starting companies, founding companies, leading teams, and a bunch of different connections that can be valuable when it comes to looking for customers and getting an intro or looking for talent and trying to find a director of engineering or a head of sales. So I think a lot of syndicates is the manager who's the person kind of the founder is working with, but also being able to leverage the LPs in the syndicate and the value and the connections that they can bring to the table as well, without having that same seat at the table as a board member and maybe these institutional leads who I don't want to say they take up a bunch of your time. They do, but that's part of the role and what they get hired for, right? Hired or raised capital for. Whereas I think we're a lot more kind of laid back when it comes to requests and updates. Of course, we want to be kept in the loop, but we play our role, and I think our role is different from a lead and a board member.

Yeah, and I think you describe it well, and I think a lot of syndicates are In kind of your world of, you know, there's some value add, and it's about kind of getting access to a larger LP base once that deal gets distributed and kind of maybe those LPs want to add value in some way. Maybe they only write a $1,000, $2,000 check, but they know the people you need to get connected to. And there's these additional value adds that can come with kind of casting a bigger net, but not paying the price as a founder having, you know, the 50 names on your cap table. So it's a great way to kind of get access to a broader base of investors. I guess from my experience working with syndicates and just knowing how the ecosystem works, what would you say are some of the pitfalls or the kind of misunderstandings that founders have towards working with a syndicate? What were kind of expectations don't align?

Yeah, I mean, I think first and foremost, it's just understanding how they operate. Like, I kind of talked about this and, right, like, I can, I can express a ton of enthusiasm in investing in your company and excitement, but the capital is not ready to go. So I have to go back and I have to find the capital. And sometimes it works amazingly well and sometimes we fall on our face. And so I think just that's an important thing for founders to understand. While they could commit to the round, that's one thing. Having the capital ready to go is another thing. Also, I'm generalizing a bit here, but Again, syndicates are not leading the round or setting terms, right? So, you know, if you're going out for a seed round, I think, right, and you want to pitch me and I'm excited about it, that's great. I'm not going to be the first VC who jumps in and prices it and kind of gets everything to fall into place. That's not me. I can certainly be helpful in making those introductions, but there's very little I'm going to do and I can do in terms of committing and investing until that lead is in place. So to that point, I think syndicates, they fit better, generally speaking, once you've got a lead, you've got the terms that are set, and you're looking to fill in capital with value-add folks, folks who can move quickly, folks that you've known and have been around for a while and want to get on the cap table. But like, if you're reaching out to me because, you know, I invest in you know, B2B SaaS companies at seed, I'm not going to be the right fit if you don't have a lead in place yet. So it's a— as my partner and I say, we do a lot of kind of hanging around the hoop, but I don't shy away from kind of that role.

Yeah, and that's kind of why I asked the question, was to educate founders on the fact that, you know, if they don't understand how syndicates work, they can come to you, they can be super excited about like, oh, we talked to Riverside Ventures, they're amazing. They love us. But they have— you have a certain process, as many do, where you're not going to write a check until certain checkboxes are— or you're not going to syndicate until certain boxes are checked.

Exactly. And I guess, like, to explain that, because I think it's important to founders, is, right, like, the relationship of a syndicate is different than a fund, right? The capital is not already there. So we need to find the capital. And in order to find the capital, there are certain things that our LPs look for when we syndicate deals. Founders, their background, that's always going to be important, right? Like, why are we betting on the right horse for whatever the business could be? I would say it's quite similar to other VCs and how they think about market sizing, traction. But another thing that's a little bit superficial, but it's very real to syndicates is, Who's leading the round? Who are the co-investors, right? A lot of people in my syndicate, I think they enjoy being part of my syndicate. They, you know, think I pick good deals, but they're going to be more excited to see tier one VC that's leading the round than Alex is excited because XYZ. So it is a bit superficial, but I think that's super important. And you know, it's like if I talk to a founder. who's raising a seed round and we want to commit, having a tier 1 VC and getting that buy-in from our LP base is going to be 2x, 3x, 4x versus the same deal, the same founder, the same company, but without that tier 1 VC. So I think, I don't know, people shy away from talking about it. I don't feel the need to, but I think that's going to be a key driver for a founder in working with the syndicate and understanding Well, Alex, the show is all about demystifying the fundraising experience, and that's what we're doing here in terms of demystifying actually how syndicates really work.

And that's why I wanted you on the show, is because I feel there's a lot of misunderstanding or missed expectations for founders of what to actually expect. And I wanted to talk about this point because when it comes to small checkwriter LPs, they're having to rely— one, they use syndicates to get access because they wouldn't be able to get access to to deals otherwise. Like, they're not writing big enough checks. So the LP incentive is really, you know, join a couple syndicates, no commitment required to join outside of, you know, maybe you eventually want to write a check. So it's optionality to kind of see what's coming across the table. But then it's also when you actually write that check, they're not doing— they don't have access to the founder. They have no diligence abilities. They can't do diligence on the deal. They're not getting the data room. And so unfortunately, it is a vanity game in terms of like, oh, a16z is investing. Oh, well, they must be great. You know, but we can talk about their track record and things. But they, you know, having a tier 1 VC just makes people feel like, oh, well, someone else did the diligence. Someone else had the access and approved. So I feel more comfortable jumping in on this than otherwise of either a no-name VC or no other co-investors, because that's the riskiest of it all is when you invest alone. And a lot of investors, that's just a hard pass in a lot of cases if no one else is at the table. And it sucks for founders because they want that one person to be the person, but no one wants to be that person.

Yeah, totally. I think that was a great summary. I'm not going to say it's impossible for a syndicate to do a deal without a co-investor. I just— that deviates from kind of the norm in how syndicates So let's switch gears a little bit.

You have a great newsletter in terms of educating people on syndicates and just how they work. And, you know, you obviously have done countless yourself. What are you seeing in kind of the market for syndicates? You know, are you seeing more and more of these pop up? Are you seeing people do these in lieu of actually starting funds? Kind of give us your sentiment on the syndicate ecosystem.

Yeah, I've got multiple thoughts there. I think so many folks who I think are successful in running a syndicate, they are there to build a portfolio and go on to raise a fund or join a fund. So I think it's kind of like this middle ground of let me get my feet wet. I'm not jumping into like a 10-year commitment or anything here in starting and running a syndicate. And let me prove that I've got good deal flow and I can get LPs that are interested to participate in my deals. So I think a lot of folks who start syndicates, the goal is to go on to raise a fund. I've enjoyed kind of doubling down, tripling down in the syndicate ecosystem, but I think a lot of folks do that. I do think sometimes I just talk about syndicates all the time and everybody's like, oh, like This sounds awesome. Like I have good deal flow. I have a bunch of people who invest in deals with me, and it's just harder than it sounds, right? Like actually having those people to commit capital, have multiple people commit into a deal, get that done, and be able to like repeat that whatever deal over deal, month over month, whatever it is. It's not easy. So it does require a lot of kind of work, and I think a lot of people. Um, a lot of people think it's like, oh, if they have great deal flow, then they can run syndicates. And there's a lot of work that goes into growing, nurturing your LP base, building trust with them. So I think it can be awesome, but it's, it's, you know, it's kind of like raising a fund. It's, it's not that easy, right? Like, it takes a, it takes a lot of meetings, it takes a lot of, uh, work and storytelling to, to raise that capital to actually hit go there. And then also in terms of deals in the ecosystem, I do think right now people are— I mean, look, people are a lot more focused on the economics of a business, right? Not how big this can be, but how much capital is it going to take to get it to be as big as it's going to be or whatever unicorn you want it to look like. And I also see a lot of individuals that are interested in some of these later stage, like growth stage, pre-IPO stuff, which I get because it's like a shorter path to liquidity. So like the lockup for them is typically going to be a lot smaller than investing at pre-seed and seed where we're talking about a decade and maybe longer. So we're seeing a lot more dollars go to these sexier growth stage post-product market fit deals. I also think that is truly unique to the LPs that invest with us, where it could be $5K, $10K, $50K, $200K checks, right? It's just that access to be able to write those size checks in these $500 million to $10 billion companies that are still kind of pre-IPO. I think a lot of folks like that, and syndicates are potentially the only way to invest in many of these companies because you can't go direct. However, the top early-stage deals are still getting done. You know, this isn't 2021 anymore, but I think people are still certainly deploying capital. They're a lot more cautious about it. And yeah, those are kind of some of the things that are top of mind of what I'm seeing in the ecosystem right now.

To give people an idea, like, you definitely have one of the larger syndicates out there in terms of LP base. And when it comes to getting deals done, I know you probably only can speak for yourself, but if you can maybe speak to the broader syndicate market, like, what percentage of LPs actually are doing deals in terms of like a deal-by-deal out of like the whole LP base that you have versus maybe how many LPs are actually active in a year and had done at least one deal?

Yeah, it's a great question. So of my syndicate, about 60% of the syndicate has done at least one deal. Now, it varies a bit because for folks who have become a little bit more inactive and have not done a deal in the past year, I segment who I send my deals to. It's not like you're in the syndicate, you're out of the syndicate, and you see everything. Right within the syndicate, priority is going to those who are a lot more active, have deployed more capital over time with me. So there's a lot of different ways that I break down who gets sent which deals, and right some deals are not sensitive at all. Some deals are hypersensitive, so we got to work with that. So yeah, I guess look you've got folks, and I think there's a lot of churn in this space, right? Like you see LPs that come in. They back some syndicates and they're like, wow, I'm seeing a lot more deals that I'm excited about than I thought I was going to. So however much they thought they were going to deploy that year, they ended up deploying more. And that's an unfortunate thing, right? I think because of that reason, it's like, oh, they were only around for 1, 2 years. They didn't think about really building out a portfolio the way they should be over a 5-year you know, plus period. So we do have a lot of folks that come in and maybe overallocate too quickly and then leave. But then, you know, on the other side of the spectrum, you've got folks who are quite savvy investors and, yeah, have a little bit more long-term thinking there. And then, sorry, the last thing. Yeah, I've got a large syndicate, so I think the LP buy-in per deal is fairly small, but I don't think that's a bad thing, right? If you're an LP, you shouldn't be doing every deal that I put out, right? I think that's your opportunity to double-click and figure out which deals are you excited about. They resonate with you. They're a good fit in terms of the stage that you want to invest in and figure out. I mean, I think it's just important to figure out per year how much do you want to deploy and how many portfolios are you portfolio companies are you looking to add per year and kind of back into that?

Yeah. And at the end of the day, in most cases, a lot of LPs are a part of multiple syndicates and they're seeing multiple deals in multiple areas. And it's hard to, as you say, kind of estimate exactly who's doing it. But it's interesting for founders and other people listening to kind of understand how you think about distribution of a deal, like how there is control for the GP to decide who gets what deal, maybe not doing a spray and pray. A lot of people feel syndicates are just a spray and pray to like a giant list. Maybe some people bite, but you've been doing this for a while. You have some pretty solid experience and you kind of know who to bring what deal to, to kind of get the— deliver on the promise that you made to the founder and trying to get that allocation secured. So Now, from a perspective of a founder going to market, maybe they got a lead, they got some momentum going in their capital raise. What would be some of your advice to a founder that is considering, had a conversation with a syndicate or is looking to pursue syndicates as an option to fill their round? Yeah.

So I think the timing you laid out is correct, right? Like that is the ideal time. It's more actionable at that time when you've got a lead and terms in place and you're looking to round out potentially with syndicates. I think it's important to just understand who's the manager of the syndicate, right? Do you want to work with— I mean, like, you're still bringing people onto your cap table. It's a long-term relationship. Do you want to work with them? I think it's also important to understand how they interact with their founders, right? I don't think there's necessarily a right or a wrong way for syndicates to kind of act or interact post-investment. But I think it's important for the founders to understand, right? Are you going to be more hands-off and frankly just super easy to work with? Or do you typically get involved and help with XYZ? And then also, who are the LPs in your syndicate? What types of I mean, like, what's the typical check size that you're writing? And how do you add value? Or how do folks in the syndicate add value if that's something the founder's looking for? So again, I think there's a lot of different ways it can kind of be carved out in terms of right fit, wrong fit, and where syndicates add value versus just are easy to work with, but important for the founder to kind of get the details from the syndicate lead and understand more about the LP base.

Yeah, that's common advice I give to a lot of founders, always ask questions. A lot of founders, they pinch their heart out and they're like, well, I think we did a great job. And then they actually have no idea what that investor can write a check for, how it's gonna work, how long it's gonna take, and all that kind of stuff. But I think another thing to tap into is the reality of these check sizes. In most cases, it's a $100K syndication. And in that case, sometimes there's fees as we talked about, like the setup costs, those cost $4,000, $8,000. That means the founder usually only ends up with maybe $92,000, $94,000. And so that's something else to kind of keep into consideration is like you were told $100,000, but you're actually only getting like $92,000 or $94,000.

Yeah. So I think that's important for that. Syndicate to explain, right? And if I'm so, so if right, if I'm looking to invest in your company and I want to write 100k, I know I need to raise about 110k so that I can invest 100k, right? And I, I kind of take that like that burden is on me to to under right. I'm not, I'm not looking to like I can explain to the founder, hey, thus far we've raised 100k. That doesn't mean I can invest 100k. That means we've raised $100K. I can invest $91K or whatever it may be. But when I request an allocation, I'm baking in the fees and everything there as well. So also important for founders to understand, and hopefully the syndicate explains, hey, if we've raised X, that means it's 0.92X of investable capital.

Yeah. And I think that also is an indicator of what your relationship might be with a syndicate lead if they're not providing this level of education and managing expectations and they're And that could be a potential red flag for founders looking to work with syndicates. So what are some common mistakes that you are seeing syndicates make in the market right now when it comes to getting deals done?

I mean, I'd say one, just like lack of transparency on the process with founders, right? We've kind of spoke about this, but I mean, I think it's an absolutely terrible look to pretend you're not a syndicate and act like a fund and say, great, we're going to commit this, and then explain to them later that you don't have the capital. I also think it's hard to really know these allocations that you're going to get. So being transparent and asking for ballparks, I think, is important, right? Ultimately, it's the founder's decision. You got to work with them to figure out what works and where there is or is not flexibility. But a lot of times you'll probably have folks that request more allocation and come back later to invest less capital. And I think that probably leaves a bad taste in the founder's mouth. Maybe they didn't understand that fully and it would have been better for them to do that, but they didn't ask questions. But also regardless, it's like if I say I'm going to invest $200K in your company and I end up investing $100K, that's $100K less or $100K that you got to find elsewhere. So yeah, I think those are some of the reasons these deals don't get done. Sometimes I also think there's a lot of syndicate leads. Look, it's a bit of a grind, right? Every single deal, you need to find the capital to get it done. So it's not necessarily easy. I think there are definitely some bad actors where they just go into hyper-sell mode on really selling a deal, maybe making it seem better than it is, or picking and choosing details to share, which I think will haunt them in the long run. And yeah, I think for that reason, maybe folks have invested in deals that that potentially felt the picture was painted a lot more pretty at the time and over time realized the company isn't really doing as well. Or, you know, so I guess generally speaking, it just doesn't feel like a great look to go into crazy sell mode for any startup for that matter, right? You never know with any of these businesses what's going to happen. So certainly nothing is a sure thing.

Yeah, and it's also seen as a— especially, I would say, more the seasoned investors— when a deal is oversold in the sense of like excessive adjectives of like, they're amazing, or they're, you know, like these types of things that oversell or kind of like try to fluff it up, uh, quite a bit. One, it's illegal from my side of the work, uh, you know, being a registered rep, like cannot use those type of frivolous words or You know, like they're gonna be the best in the world, those types of things.

Yeah.

But often, like, seasoned investors know that that's all BS and that, you know, someone's trying to puff their chest and usually is a negative sign. That's if I see that in the syndicate distribution or, you know, from a founder telling me how amazing they are, it's often seen as a red flag. They're having to puff their chest as opposed to let their— let what they've done you know, show for itself. So these are generally good advice across the board. What's a fun story? What's a deal that you've done that either blew up or maybe like a fun deal that kind of came about in an interesting way? What's something you'd like to share?

So 300+ deals, I got a lot of stories packed in there. Okay, a couple stories. Good one. Invested in a company probably 2020, maybe 2021. I think we got in at like $40 million valuation. Company's been growing profitably, very little dilution, very little institutional capital. We've done a couple SPVs. You don't hear this often from startups, but they're actually in a position where they recently bought back shares. from investors. So this was a great opportunity where we sold, I think it was like 30-35% of our first SPV. We returned a 3x to investors there, and we still got 70% of our capital sitting in the deal, you know, so playing cheerleader role for the future ahead. But nice win, great opportunity to return 3x and still keep the majority of our capital in the deal. Also a nice kind of liquidity avenue beyond the typical IPO acquisition. So that's an exciting one. I mean, a funny chaotic one, right? Like, there was a deal once where I launched the deal to LPs. Within literally the first hour of the deal, a handful of people committed. One of the LPs committed like $10K and immediately went to LinkedIn and updated his profile to investor in the company, which, I mean, I've, I've never come across that before. Obviously the founder was super pissed, reached out to me. I mean, I didn't even know what to say because I'm like, this isn't something I typically need to coach people on not to do. Uh, so that's the one that, that, that's one that stinks. That's just like Maybe, I mean, most LPs would never do that, but I think LPs need to be sensitive to certain materials. Also, another, you kind of spoke to this, like, there's been a handful of deals we've invested in where the founder, you know, maybe I've educated them throughout the process on like how the SPV works. And a lot of times we'll have founders that are like, oh, that's cool. Like, I actually have a bunch of friends, family, customers that would be interested in investing. I don't want to take them direct. Like, can I send them to your SPV? And we love that. We're like, yeah, of course, if we can be helpful, right? And you want these folks on your cap table, we can be very flexible with economics based on what you're looking or not looking to do. So we're seeing more and more of those, and I think it's great, and it's just a win-win for the syndicate and for the Um, founder. So yeah, those are some that, that stick out. I've got—

I wanna, I wanna kind of call out why that LP updating his LinkedIn was, was an issue, um, and not, you know, one, the founder was upset in terms of like, you know, technically that investor sort of invested, but it wasn't their, you know, deal. They didn't originate it and have the relationships with the little A little presumptuous to basically say you're a part of the team as an investor. A little taboo. If you're not direct on cap table, it's, you know, this is advice to our listeners here. You're not technically an investor. You can't declare that you've sourced that deal and you're on that cap table. So just—

Correct.

Some words of wisdom there. I see a lot of, I would say, aspiring investors or just, you know, people that are using it to kind of tout their resume for getting into, um, you know, venture or something of that sort, trying to do that stuff. But unless you source the deal and manage a relationship, uh, you shouldn't probably be, you know, putting that on the, on the resume or on your LinkedIn. So I'm glad we kind of called that out. Uh, I think it's something a lot of people need to—

Hopefully that was a one-and-done situation that I never deal with again.

Yeah, I've done a couple syndicate deals myself and some are cool. I'm like, oh man, I'd love to say that I did that, but like, that would just be so inappropriate to say that. I'm like, oh, I invested in those companies. Like, I backed a syndicate. That's what I did. Yeah, yeah, that's it.

Yeah, you see a lot of that out there.

And I tagged along. So, you know, credit needs to belong to where it's owed. But going back to that, you mentioned on the the founder side in terms of bringing in your own investors as a founder into a syndicate. So allowing your friend, you know, allow the syndicate to run your friends and family round, which kind of brings me to the SPV. So special purpose vehicle, the LLC that gets spun up to kind of consolidate a bunch of investors into one line item on a cap table. It's, you know, strategic when it comes to future capital raises or exits or just having to get shareholder approvals. And it's a great way to either one, do what they did with you where, hey, I don't have to do any work as a founder. I just say, hey, you're interested in investing, go talk to that guy. He'll get you all taken care of. It'll be clean and easy.

Yeah.

And you'll get your piece of whatever I create in this exchange. Or there's also REVs, which are on AngelList, or you can write your own SPV with your own lawyer or other platforms like Sidecar and stuff where the founder can run an SPV that has no carry or fee structure, upside fee structure, just the cost to set it up. And syndicate that out to your own audience. So it's basically like a crowdfunding-esque type experience that's not ran through a crowdfunding platform. It's just, but you gotta keep it tight and you gotta keep it to accredited investors only. So there's limitations and whatnot, but that's something that I see founders doing and educating themselves on as an option. So I think that's something we definitely wanna share with our audience today.

Yeah, absolutely.

Well, you know, Alex, I've really enjoyed the conversation that we've had and, you know, the knowledge that you've been sharing. You know, you have a podcast— I'm sorry, you have a newsletter and you have— you're crushing it on LinkedIn in terms of the content you're putting out there. What's the best way for people to learn more about you or potentially reach out to you?

Yeah, as you said, active on LinkedIn at Alex Pattis. And then follow my newsletter, Last Money In. We post every week, do a deep dive, something in venture capital through the lens of a syndicate lead. So putting a lot of thought and effort into that on a weekly basis.

It's definitely a good read for aspiring fund managers or syndicate leads or people that want to get exposure to how venture works. I definitely feel that the content that you're putting out, Alex, is super educational, very valuable. And real. I feel you give really real insights as to what's going on that can really help people wrap their head around how this ecosystem works. And if they want to add value, you know, don't put that you're an investor on one of the syndicate deals. You might need to do a post on that. But no, it's been great having you on the show. And you look forward to including all those links in the show notes for everyone to dive into and learn more from. But Uh, thanks for sharing all your, your insights.

Yeah, this was fun. Appreciate you having me.

All right, great. Thank you.

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