The Value of Syndication

The other day Fred Wilson posted about syndicates.  Sometimes they break. With the rise of a lot of new funds over the past several years this situation is coming up more and more.

However, for entrepreneurs having a good thoughtfully assembled syndicate is a strategic advantage.

Just because a VC firm exists doesn’t mean it will exist forever.  In the past year, Social+Capital and Kleiner Perkins had big transitions.  If you had them in your syndicate and on your board, their transitions might have rippled the waters a little bit.  VCs have to raise funds every few years and there is no guarantee that they will be able to do that.  It all depends on the appetite of the market and the prior success of the firm.

You might be lucky and be able to start thinking about syndication at seed but usually it’s at Series A or Series B that the syndication happens.  Strategically, if you can get one of the very large firms in your deal that eliminates them from doing another deal in your vertical.

Often when we invest at seed, it’s our fund leading and a bunch of individual angels or funds that write smaller checks.  As soon as we invest, we begin thinking about which firms to target at Series A and start to try and help entrepreneurs build relationships with them.  That 12-18 month runway can get eaten up a lot faster than anyone thinks.

The CEO is never done fundraising, even when you are done.  Often, the best time to take money is when you don’t need it.

Putting together a good syndicate should give you access to diverse networks.  That’s what you really want with syndicates.  Diverse networks will give you access to different talent streams, different customer streams, different ideas around strategy, and different exit paths.

Syndicates certainly can break.  There are dangers when they do.  I think the benefits to a good syndicate are higher than the downsides. It’s important to think thoughtfully about it.