The Art of SPVs with Alex Pattis [Ep 29]

All right, so before we get into today's interview, we do have a quick announcement that we will be hosting our first Wannabe Angels Breakfast Tacos Meetup at Vera Cruz in Austin, Tuesday, September 26th, and local time 9 to 11. Does that sound about right, Colin?

Yeah, Line Hotel there downtown. And it's nice to have people from LA coming to Austin here.

Yeah, I know. We even have a small budget and big thanks to Sidecar for sponsoring this meetup. You and I are both big fans of the product. And why did we decide breakfast tacos?

Because, you know, it's uniquely Austin. You can't get them anywhere else.

A little different. Will there be alcohol involved?

We shall see. We shall see.

There, there is a nice bar at right, right across from Veracruz. So I think that was the other reason I like it. It's like, all right, you know, there's all these events now. Everyone's like, oh, no alcohol. I'm like, ah, no, I want to drink personally, but no pressure. You can drink or you can have tacos or you can just come and hang. It'll be fun. We'll be covering drinks and tacos for the first, uh, 25 or 50 people that show up. Should be able to cover everyone, but just in case, like a million people We won't be able to pay for everyone, but should be able to get everyone.

All right, see everyone there.

Hope to see everyone there Tuesday, September 26th, 9 AM to 11 at Veracruz. Get some breakfast tacos in Austin. All right.

This is an investor who's asking their money back from a founder.

Yes.

I think that's bullshit. Fucking deal with it as an investor. And you're an investor in the company, you know, you already invested. Like, if you want to explore Secondaries or working with the founder to do something that's kind of helpful to you as the investor and as the founder, sure. But that seems like a bullshit ask to me.

All right. Today I got Alex Pattis. Did I say that right, Pattis? I feel like I said that.

Pattis.

Pattis.

Yeah. I was trying to do the French version. Anyway, well, normally Harry would be on to screw up the name, but he's off today. So it's just the two of us, Alex, which is exciting. And just quickly, how did I get to know you? I think I got introduced to you, Alex, through JT Garwood of Button. And that's how we got connected. So I think that's— yeah, is that right?

That's right. He said you were a marketplace guy and investor that, that I needed to meet. So I still remember that pretty well.

He is the master of connecting people. All right, well, let's we can jump into your bio because it's super fun, and I think you've one of the few people we've talked to that actually runs a pretty major syndicate. So I want to dig into that a bit more. The the last person we chatted on that was with Brian Nichols from was a long time ago. It's like our third episode. So I'm just eager to get a different take on how the the world of syndicates works. So Alex, I knew before this, but he's a seasoned professional with a strong track record. He's the One of the general partners at Riverside Ventures. He's invested in 200+ startups, providing valuable support to entrepreneurs in the early stages. His extensive operating experience includes scaling startups for almost a decade with a pivotal role at MAT or MAT. And then on top of that startup, like that startup was acquired for a 9-figure exit, which is pretty amazing. He also extends to co-founding Hampton. If anyone follows Sam Parr on Twitter or otherwise, or My First Million podcast. fairly well known, then you'll know what's going on there. But he's also recently started a VC newsletter focused on SPVs/syndicates called Last Money In. I've heard that phrase way too many times in SPV pitches. But I want to dig into that a bit more because you guys have been producing some amazing content. But overall, you know, you've got an amazing operating background too. You joined Matt as the first employee pre-launch, headed up business development. And then, you know, you raised capital from Silversmith Capital Partners before being acquired. So it sounds like, you know, you've been through the wringer, you know what it's like to be a founder, but you've also got this amazing background in venture capital. So welcome to the show.

Awesome. Appreciate that intro and definitely excited to be here and chat more.

Well, I think, you know, where we always like to start with people is how'd you get started? Like, you know, where— how did this even— this world of investing you know, come up to you? Did you— I know you, you do Riverside Ventures Syndicate. That's today. That's— but how did your angel investing slash VC investing, how did that all start for you? Where, you know, what was the first moment?

Yeah.

Yeah.

So I think it was a little bit of like working in startups and being based in New York City and having a bit of that bug for venture capital, the wider like startup ecosystem. So When I moved to New York, which was about 10 years ago, I had started at a healthcare data analytics company. I joined as the 11th employee, kind of first business, like sales hire. And I think the company had about 2 customers before I joined. I was there for 3 years, like saw a lot of the startup chaos. We scaled the business pretty well, ended up getting acquired. It wasn't a great acquisition, but it was kind of a good full Foray into the world of startups, super early stage, understanding the chaos, the ups being feeling amazing, the downs really stinging. And from there ended up joining the next company that you had mentioned, MAT Market Access Transformation, which was even more exciting, right? Of joining as the first employee. It was pre-launch, so I had met the one of the founders in my previous role and. It was the stage of we've got a concept and that's about it. And yeah, got involved there pre-launch, preparing for the launch, was running business development, commercial development, and scaled that business for about 5+ years. Very similar experience of like the ups being amazing, the downs stinging pretty extensively. And luckily for us, it ended up being a really good business. We kind of figured things out across those 5+ years. Grew it profitably. Yeah, I mentioned ended up raising capital from Silversmith Capital Partners at the end of 21, or maybe sorry, the end of 2020. And then in 2021, ended up selling the business outright. So kind of while I was here, I just kind of found this love and passion for early stage startups, like specifically that zero to one stage of trying to find product market fit, trying to get customers to buy something that nobody else was doing at the time, ideally an innovative technology that had benefits but also required a different way of thinking. And through being based in New York, kind of casually was meeting some founders, just seeing more cool businesses and people around me, and didn't really know a ton about venture capital. Started reading books, consuming content, but kind of learned about the opportunity to angel invest. In a small way and kind of decided I wanted to try this out. So I think in 2018, I started angel investing, did that for a year, very small personal checks, absolutely loved it. Like so much more than just the finding companies to invest in and like the opportunity to make a lot of money at a future exit, but just the networking, the learning, it truly like grabbed me in. And From that kind of year of angel investing, I joined some syndicates, learned a little bit about that process on the LP side, and decided I wanted to kind of do that myself. I've always been pretty social and very into networking, so kind of saw this as a cool opportunity to build an LP base and try to start getting to a number of deals. And yeah, jumped in headfirst, kind of struggled over the first couple, first year, couple years to navigate how you actually put an SPV together, growing an LP base that was interested in the deals I was seeing, of course, getting into kind of top-tier deals that other folks would be equally excited about and buy into, and kind of just stuck with it for a while. Met some really great people along the way who I think were super helpful. Brian Rosenblatt, who started Riverside but now is a partner at Craft Ventures, was pretty Sorry, more than pretty meaningful in helping me move along there. And then I'd say, yeah, over the past kind of three, three and a half years, kind of put my foot on the gas, started doing a lot more SPVs, was building an LP base that could support kind of higher deal volume. And yeah, it's been an exciting kind of last couple years. Also, the change in the markets have created some challenges, but we've been able to put a a portfolio that I'm really excited about together, build an LP base of awesome individuals kind of across the globe who are participating in deals and actually being helpful to a number of deals, and have also gone on to raise a very small micro fund where we manage just a couple million dollars, but now have the opportunity to deploy capital out of a traditional fund while continuing to frankly deploy a lot more capital through through SPVs. So I can talk a little bit more about like where we focus and stuff like that, but that was the foray into the world of angel investing and venture capital.

Yeah, no, that's great. I appreciate you telling us. So for the first angel deal you did, how did it come about? Did like some friend approach you and say, hey, Alex, I need some money for this cool idea I have? How'd you find it? What, like, what, there's always a good story here.

So I got connected, I got connected to some other angel investors that had been starting to invest in deals. And to me, I was like, awesome. Like, I want to do this too. Would love to connect with you guys, like understand what deals you're seeing, because I certainly had no deal flow at the time. And they were very helpful in like kind of showing me the first couple deals I looked at and also ended up doing. These were like Wall Street guys who had an interest in angel investing on the side, also based here in New York, and kind of just built a relationship with them, started to be a bit more value-add in looping in other folks that might be interested in these deal-by-deal opportunities. Also just like fully jumped into learning like, you know, what are the questions you should be asking and like what should you be vetting in terms of founders, businesses to figure out if it's a good investment opportunity. But then also like navigating the, okay, how do I actually start to meet other Other founders get intros, show that I can add some value, and I think that's different for all people. But yeah, I don't know if it's an amazing story, but that was there was a couple guys that that kind of looped me into the world, and I kind of grabbed the bull by the horns from there.

Did you do feel like you with your first deals or anything? Did you make any classic mistakes or anything you would do differently? Like did you know put way too much into the first one? Yeah. Or you know like so.

Absolutely guilty of that. I think put way too much in the first one. You know, I, I wrote about this recently, but like, I think you, like, you think of angel investor and it's like this rich individual who has a lot of money and can deploy a lot of capital. And the reality is, I don't know, I think you need to be extremely wealthy to be a true angel investor doing that. Granted, there's a lot of ways that, you know, folks can invest smaller amounts. But I think that's a much better approach. To getting started, right? Like more checks and smaller checks. So I made that mistake. I also just didn't understand like the value of kind of investing alongside institutional capital, which I think sometimes it's not valuable at all and overrated. But in the case of this first company, it was a consumer app. There was no near-term. monetization strategy. And for that reason, right, it was going to require more future capital to see the vision play out. And I think, yeah, it's just important to understand monetization path to profitability. And if it's not there, right, how is this company going to get funded? And are they the right people who can sell the vision and fundraise? So in the case of my first investment, that was something I didn't realize that in hindsight was definitely a mistake.

Yeah, I kind of view it as like a road trip that there's limited gas stations along the way and you need to figure out how far in between those gas stations are and if you need them. If you got an electric car, you might need it, might not need it, but—

Well said. Yeah, no, because you don't want to fill up with too much gas, but you got to get gas somewhere.

Yeah. And you kind of make me think of Facebook in some sense, right? Where they didn't monetize for like, I don't know, it seems like 10 years, right? They didn't make any money or they probably made some somehow. But the point being is their whole business model is predicated on someone else funding the next round of it to get scale, right? I think that's a pretty interesting insight of like, just overall for any venture business is like, yeah, is this one that is going to require capital just because it needs capital scale? Like a hardware thing? Is it a true like kind of A certain amount of capital needed to just get it out versus a lot of business, like a SaaS business doesn't necessarily work that way. They could probably be more efficient, things like that. So, oh, interesting insight.

Absolutely.

All right, well, let's talk a bit more about the syndicate side of it because I think we've done a deal together and so I feel like I can speak a little bit about what it's like working with you, but ask you some real questions on it. And I think we can talk about the deal. It was a company called Autopilot. But the, I think the interesting thing there that I learned working with you on it, one, every deal I've said to you and that you've said no to on, you're so good at saying no. You just do it quickly and nice way. And I just appreciate, not that I'm the founder, but it's also, you know, when you like bring people deal flow to you, you like that about it. But I always feel like you've got a good insight on the why. And, you know, I think for the deal we ended up doing together, we had a great name investor, Kraft, and like people really wanted You know, it was like it hit like a psychological moment of what people were thinking about on Twitter and things like that. And so as I think about SPVs and what makes them successful, you know, to me it was like a good lead investor, topical, and good like unit economics and revenue. Those were kind of like all those things come together and you can actually fill a deal pretty quickly.

Yeah.

If you had to put it what way of like what makes an SPV work versus like you said, you have your own fund, you can do primary investment based on what you think, right? Not based on LP, you know, 100 LPs coming in and investing. Maybe talk me through that, like what makes for a successful SPV?

So, so let me take one step back, and then I'll jump into that. And I guess, yeah, not sure kind of how informed listeners are on SPVs. But it's kind of like this funky backward process to a traditional venture fund, right? So traditional venture funds, they'll raise capital from LPs on a specific thesis, and they'll deploy it over a specific period of time, you know, across a certain number of portfolio companies. So they'll have that capital ready to deploy across a number of different companies. Why I say SPVs are backwards is because we're really looking to invest in a specific deal, secure an allocation in that deal, and then go to our LPs who most of them have done deals with us. But, you know, there's new LPs that come come on board in real time, and then fill that allocation for that specific deal. So when we work with our LPs outside my microfund, you know, they're getting the look on a specific deal. So just want to explain that process. But to your point about, you know, what makes it a good deal, I think there's a lot of factors, some of the ones that stick out most to me. So because I invest mainly in pre-seed and seed, so early-stage investments, I always think the founder Founder market fit is the most important thing, right? Why is this founder well positioned to run this company? What experience did they have previously that leads them to either understand this space or show that they can scale a business? So that's always, I think, going to be super important. Also because, right, like I think the way we invest, we're, you know, we're kind of in between this angel investor and institutional fund, right? We're kind of in the middle. I think we sometimes err more toward angel investors. And for that reason, I think it's nice for a lot of our LPs to see a more traditional institutional lead participate in the round, price the round, and just kind of have that stamp of approval. You know, in reality, I'm not sure how meaningful that is or is not. But I can understand from the LP perspective, it's nice to see that other well-respected folks in the ecosystem have Yeah, put their stamp of approval on the deal. And then I think, you know, the other things that are always going to be important, regardless of being an angel or VC or whatever, is just understanding that market, right? Like, what does that market size look like? How is it growing? You know, what is this product really touching on in terms of problem and solution? However, you know, I'm always going to go back to founder here, because I have plenty examples of very early stage companies that what they were solving for did not make sense, and they were able to pivot and turn it into a really good business. So I've, yeah, literally, I think 2 of my top 5, you know, markups that are both in the, I don't know, 40, 50x plus, you know, luckily they were, I backed the right people. And I don't know if I'd say the wrong idea, or I just backed the right, right person. So yeah, those are a handful of the things that I think are always super important as it pertains to early stage companies.

So an interesting question just on scaling overall. the syndicate and kind of getting to consistency of being able to fund deals. Because I think, like you pointed out, it's like a little bit of a reverse way of doing this where you don't necessarily have funds allocated to just give them right away. You got to go essentially pitch, get the money, and then give it to the company. So, you know, for— it always seems like syndicates kind of like roughly somewhere in the like close to $100K range seems to be kind of like a lot of like the average size of syndicates.

Yeah.

Or SPVs coming out of syndicates. Like, What size LP base did you feel like you had to get to, to kind of like consistently do that over time, or at least what you've seen from others too?

Yeah, that's a good question. I mean, I think you— I think it's going to vary quite a bit, right? For us, we have a pretty high-volume syndicate and LP base. So I think what's nice about that is a lot of our investors will put in as little as $1K in a deal, right? So we'll see a lot of $1K, $5K, $10K checks. We certainly have higher checks, but I think less than— I guess in this environment, seeing fewer checks that are the, you know, the $25K, $50K, $100K plus. So to answer your question head on, you definitely need hundreds of LPs, right, that are participating in deals. If I think back, I mean, I think once we got to maybe 1,000, 2,000 LPs, That was like a pretty healthy position to successfully do and put together a number of SPVs into a healthy amount of companies that we were investing in. So, so that's how it works for us and RLP-based. But, you know, there's probably folks I know who have 20 LPs, and those LPs are actually, you know, family offices or ultra-high net worth individuals, and, you know, getting to 5, 7 LPs to come into a deal could amount to $250K, $1 million plus. So I think it certainly varies in kind of the ecosystem where I play and the folks who I typically co-syndicate deals with for the most part. Yeah, it requires a lot of LPs, but luckily that market's growing and the interest to participate in deals seems to certainly be there. So I think anybody who's going to consistently do deals and do SPVs will have a decent time at least acquiring more LPs and get them to back your syndicate.

Yeah, no, that makes a lot of sense. I think that, you know, as I've built a bit of my own, just kind of LP base around stuff, I don't do nearly the volume you do, but as I just try and, you know, build very specific area around marketplaces, you know, it's for me, it's what I found is difficult is to find people that would consistently invest like over time. And that's why necessarily you have to have a large, you know, base and not every deal is attracted to every person, right? Some people—

Yeah.

They may not like fashion, but they may like, you know, whatever other thing over here. So no, it's just interesting to think through that. And I do think as I kind of hit the couple hundred mark, it was like your confidence interval of how much you could raise goes up quite a bit, right? You're like, okay, like I've got a floor at least of, you know, that I'm going to hit. So anyway, just fun to think about.

Definitely.

So I think, you know, maybe talking about how you get LPs, I think maybe your newsletter hopefully is a part of that. Like, how are you, you know, how do you get these LPs? I know you're on, you know, Riverside's on AngelList. And obviously, there's a huge network of investors on there. Maybe talk to us a little bit about that.

Yeah, a couple things. First off, like, the way AngelList operates, I joke about this, it's kind of like social media, right? If I'm gonna, if I'm gonna post more Instagram photos, I'm gonna have more followers on Instagram. And I think that's somewhat true in terms of doing deals, right? Like, the more deals you do, the more natural exposure you're going to get from folks to want to participate in future deals going forward. I don't know if that's the best strategy, but I think that is true on AngelList platform. And then the other thing is, I think just being smart about kind of leveraging existing LPs, and having them refer friends, colleagues, other LPs, right. And I think it's less of an ask and more of a consistently share high-quality deals. And just be a good like SPV manager, quick to respond, get the information necessary, and be truthful, right? Like I think like there's people who maybe sell too hard on specific deal opportunities where I think the transparency on you know the challenges, the risks, you know highlighting that you know XYZ fund is is not following on this round, but we are because we're excited about ABC. So I think, yeah, it's like the selling the deal is very short-minded. Being more just truthful about the opportunity, why you're excited, is going to lead to stronger relationships with LPs, better word-of-mouth kind of opportunity to have delighted LPs that are excited and interested to share the awesome deal flow with some of their friends. So those are 2 things that stick out. And then the other that's kind of strategic that I think is relatively new, like Frankly, I don't think it existed more than 2, 3 years ago, is this co-syndicate model. So partnering with other syndicates to collaborate on deals together, which of course is helpful if you're having a challenge in getting the allocation done from your LP base. But it's kind of a nice cross-pollination opportunity where if you're bringing high-quality deals, there's other syndicates that want to participate. They've got a larger LP base that they'll share the deal with, and you'll kind of get credit because it is your deal. And I think that's a nice little hack that a lot of folks who are running syndicates or want to grow them can really lean into as a way to work with others, build relationships, but get more exposure from LPs out there.

Got it. So it's like invite another syndicate, they bring their friends, and hopefully they join you as well. Right. And so do you think there's any, like, do people get concerned about, like, having, like, considering their LPs as having limited capital and not wanting to share them with other people? Is that a concern that you hit on at all?

Yeah, I mean, I think as a syndicate lead, it's your call on if you want to participate in the deal, right? So I think, yeah, there's probably some people who are highly sensitive about that. And they deserve to be, right? They've built up that syndicate. It's their call whether they want to participate or not. And there's others who might look at it as, hey, this is like a really awesome opportunity. It's a deal we want to be in. And for that reason, I'd love to loop in my LPs and provide them the access and exposure to the deal. And certainly in return, that's helpful to the syndicate GP who brought it to me or whoever they're co-syndicating with.

Got it. And I guess one question is like, you know, I like you, you're a nice guy. Like how many of your, like how much of your LP base is like Because of you? You know, like they're following Alex and they like what you do, you know?

Yeah, that's a good question. I think it's a decent amount. Early on, I did spend a lot more time, like the one-on-one calls, get to know each other, share like who I am, why I'm here, what types of deals I like, things like that. I think as I gained some momentum, I've been more focused on deals and was able to get kind of good organic LP growth. I think I want to start building more and stronger relationships going forward. But I guess also the one thing that might be different, I love that you think I'm nice and like working together. I feel the same way about you. But I think what's over the past 5 years, I've been super quiet, just find the right deal, do the right deal, not really talk about it. And it's not on purpose that I haven't talked about it. I've just been focused on like building a portfolio. And I think in just the past 2 months, I've really leaned into talking about it, opening it up. I kind of feel like, great, I've got this awesome experience of running SPVs over the past now 5 years. And I think there's a cool opportunity to kind of lean into personal brand, but also just share what I've learned and ideally grow this syndicate ecosystem for LPs who are credit investors, have no idea how to participate in venture capital. I think this is a great avenue. Folks who want to start syndicates and they've been angel investors or they've been founders or operators and they have good deal flow and are unsure how to do this without being a full-time gig. And then also folks who want to make their way into venture either for a fund or raising their own fund. I think there's a lot of awesome ways to get involved in the SPV ecosystem and That's something I'm clearly leaning into over the past 2 months and being a lot more vocal about.

Yeah, I honestly, I think it's the right time. You know, from my experience, just building marketplaces over the last 10 years, I was kind of like you. I was like rarely posted on LinkedIn and just, you know, I mean, like I was a social guy, but not, I wasn't talking about it much. And then I kind of popped out and was like, oh, I actually have something to talk about that people find useful. And I've felt that way about the Your guys' newsletter, Elast Money. And I'm on the newer side of building up into the space and just understanding how to do it well consistently. And so I've kind of gotten a lot of value out of that, what you guys are writing. Maybe you can kind of talk to us a little bit about who you're targeting and what problems you're trying to tackle with the newsletter.

Yeah.

So I think that VC syndicates, the syndicates that we've participated in have been running over the past couple years, It's an amazing on-ramp into venture capital, but it's not really talked about much, right? Like you can consume all sorts of different VC startup content through podcasts, through newsletters, and it's endless out there. But I just didn't feel that it was great if you were an insider and you understand that world and you have access to deals. But if you're an outsider, I don't like— it can be educational, but I don't view it as an on-ramp to the venture capital ecosystem, whereas These, I thought, are a great on-ramp here. And yeah, as I looked around, I just didn't see anybody really talking about them much. I saw a lot of people that maybe made their way into the world of venture capital through them. So yeah, ended up partnering with Zach Ginsberg, who runs Comm Ventures, and he's essentially been my favorite person to work with and co-syndicate with over the years. And we had been talking about doing some sort of content play. Originally thought we were going to do a podcast and decided to lean into a newsletter. And really what the newsletter is about is explaining the ins and outs of syndicates, special purpose vehicles, how they work, how they're different from traditional venture capital, who they're for, right? So accredited investors who are interested to get their feet wet in venture capital and participate in deals but don't necessarily have deal flow, I think that's a target audience. And then also folks who have ambition to launch a syndicate, be a GP, a general partner of a syndicate, because they've got deal flow, and they've got access, and they've got experience that is well positioned to do this. But, you know, maybe don't necessarily want to do this full time, or need to build a track record to get to a position where they can do this full time as an employee of a fund, or starting their own fund. I think that's like the target market we want to hit. And then also those who are LPs and RGPs and just want to hear more about what Zach and I have learned over the past 5 years, what we've done that's worked, what doesn't work, why we do things a certain way. And again, like the nuances between SPVs within the world of venture capital versus the more traditional venture capital funds that we've all known and have seen quite a bit of content about.

No, totally. Well, one question for you, you know, I think founders is, I, you know, I've talked to a lot of founders, and I'll be like, hey, have you checked out XYZ syndicate as like potential for funding you? Right? Who is a good fit for a syndicate from like a founder perspective, like, in terms of like where they are with funding, things like that? Turns out a lot of our angel investors and listeners are actually also founders. Yeah, early stage companies. And I get this question a lot is they like the, they like to hear the other side of like, you know, what do you look, you know, what would you recommend?

It's funny, because I've spent, I feel like I've spent so much time over the years, breaking down what an SPV is and how it works to founders that we've invested in or haven't invested in. So it's actually been fun to kind of hear what they do or do not know on that side. But yeah, I think there's a couple things, right? Like, as a founder, I think most of the time, you know, you're going to want to get your whatever round you're raising led and priced by a traditional institutional venture capital fund, they're more positioned to do that. We're not, right? We typically come in alongside. So I think, right, let's say it's before you actually have a lead. An area where we like to be helpful is if we're excited about the founder, and we're excited about the company, we kind of come in as this partner who's going to be somewhat hands-on and help make some intros to awesome VCs in our network that we think could be well positioned to lead that round. So I think that's actually a great way syndicate leads can be helpful before we even invest or do anything. Now, when you've got that lead, and you're looking to kind of round out the round that you're raising, I think there's a couple of ways to leverage syndicates, right? So one, it might just be because the GP is a really good fit for your cap table. He or she is an awesome operator. They've got the right contacts in fintech or D2C companies. You know, they've been a founder before. So that's one use. The other is, who are the LPs, right? Are there— when you take a check from Riverside Ventures, right, who else is coming in that one line? Line item on the cap table that can be helpful. So, you know, can you get at the very least, you know, walking, talking brand/company advocates, but also similar to what I said on like the GP, do you get individuals who have experience operating, have, you know, contacts for early customers or partnership opportunities, folks that have scaled, you know, companies through Series B, Series C, have taken them public, So I think the personnel that comes in through that syndicate can be quite valuable and helpful there. And then also a funny one that I come across here and there is, you know, going back to my, like, founders don't really understand how SPVs work. A lot of times we're actually a great funnel for all of their, you know, friends, family who have small checks, and they want them on the cap table, but they don't want them directly on the cap table. We can be a nice little avenue where we're like, okay, great. Like, you know, we're happy to work with you funneling all those people who are meaningful to you and you want on the cap table to come through a syndicate. So I think those are the couple of ways that founders can and should think about where and when to utilize syndicates.

Yeah, I've seen a lot of use cases where I've helped people and they've like, let's say a $2 million round, they've filled like $1.9 million of it and they're like, I have $100K, I need to move on. Like, can someone just take care of this for me? You know?

Right.

I think that, that's always another use case. All right. Well, thank you for talking through all that. I mean, this was like the crash course on being the last money in as a, as an SPV. So thank you for that. So in the last little bit of time we have, the tradition Harry and I always have is try to do some trending Twitter threads and get your hot take on them. So I'm gonna pop a few up on the screen, read it, and then just your unvarnished opinion of what you think. All right. So the first one here is from a former guest, Gail Wilkinson of Vitalize. It says, just heard from a founder whose latest investor asked for their money back. I think this is a product of the tough LP environment. It's hard for GPs to raise right now. Are others seeing crazy stuff like this happen?

So to clarify, this was a Oh, here we go. This is an investor who's asking their money back from a founder.

Yes.

I think that's bullshit. Fucking deal with it as an investor and you're an investor in the company. You know, you already invested. Like if you want to explore secondaries or working with the founder to do something that's kind of helpful to you as the investor and as the founder, sure. But that seems like a bullshit ask to me.

Yeah, I'm kind of with you. It's like once you're in and there's no real, like, I guess, you know, framework or legal premise to get it back other than goodwill, or you don't want that person to be super annoying on your cap table for the rest of your life. So I don't know. It's like the investor does have some sway.

I mean, if it works for the founder, I think they're incentivized to do that. I don't think it works for a lot of founders in this environment. And I, of course, I get your point. So it depends on the financial situation, but I think that's pretty bullshit.

Yeah. I mean, I think categorically, I think once you're in, right, and you're along for the ride at that point, to the extent that the business is being managed well. All right. So onto the next one, we continue with all the fun. All right. So this one is, you're a founder that just raised a $1.5 million pre-seed from 2 great firms. A scout from a tier 1 fund offers you a $200K check. and a 50% higher cap. Do you take it?

Well, this is a good one. I'm gonna say, not knowing much about this, I'm gonna say you don't take it, right? I don't think scouts are nice, but if the scout missed out on the round, like, I see very— it's so like, I barely ever see where a scout, like a Sequoia scout, invests a Bane Scout invests, and then that company ends up or that firm ends up coming in later. So I don't think I think scouts are valuable, especially at pre-seed rounds, and like they're good names to have on the cap table, and ideally that individual is actually helpful. But I don't think it really I don't think it frequently will actually lead to that fund ever doing the deal. So the value isn't there, right? In this scenario, you've already raised the money you need. So you're kind of set there. I guess the exception would be, is this individual so amazing that it makes sense to have them come in? Like, I guess the 50% markup is— sure, that's great. That's nice on paper. I don't think it means all that much. It is a nice way for a founder to take in a little bit more capital and be less dilutive than whatever the round they just finished was. So I think generally speaking, no. But if that individual is so great and you really want them on the cap table, then yeah, it could make sense.

Yeah, it's funny. I have seen the Sequoia scout come in on like, or scouts come in on quite a few deals and things like that. And to your point, I've never seen the follow-on, like, or at least very little follow-on from that. Yeah.

I mean, it's just a comment, like, we actually did 2 deals out of our fund just last quarter. I wrote this update somewhat recently that did have pretty high demand and ended up taking in more capital at a— I don't think it was a 50% markup, maybe like a 30% markup. But these were— one scenario was a fund who wrote a check in the round we participated in but wanted to get additional ownership and had certain requirements. So they ended up also investing at a higher cap. I think that's a better example of where you see that used. And I'm not entirely sure the other one, I think just had excess demand, but I don't think it was from scouts.

Got it. That makes sense. I do. I'm seeing more of the people saying, hey, or founders saying, hey, I'm going to raise, like, here's the cap. It goes up next week or something like that. It's an interesting strategy. I'm not sure.

First $500K at this, next $500K at this. Yeah. It's a nice FOMO builder. I don't know how, how practical it is though.

I think my main concern is like in that framework, like how many safes do you want to layer on? Right. Cause I think there is some like negative signaling. Like once you get 3+ safes, it's like, I mean, you really understand the dilution that you're going to hit, what that means when you try to clean up a cap table with the priced round later. Like, you know, like there's a, there's some hair that gets, that comes up with that.

So yeah, definitely messier.

Yeah. All right, Alex, it's been wonderful having you on. Thank you for teaching us everything about SPVs and hopefully do another deal again soon.

Yeah, Collin, appreciate you having me. This was fun. Hope to do it again in the near future.

All right. And to find you, Alex, I think the best places are Riverside on AngelList is probably if you want to join as an LP in what Riverside's doing, that's where you can find Alex there. We'll be sure to put that in the show notes, a link. But if you want to stay up to date on everything that's happening in SPVs, sounds like Last Money In newsletter is also the place to go. So we'll put up links for everything for that, share with everyone. But thank you for coming on, Alex.

Awesome. Appreciate it. This was a blast.

All right. Bye.