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Deal Sheet = The.Best(& investable).Deals.Period.

Deal Sheet is a paid weekly newsletter that delivers the best startup investment opportunities weekly. These deals are being syndicated by 20+ of the best and most active syndicate leads we’ve worked with. All Deal Sheet deals include discounted carry (10% carry versus standard 20%).

In March, 17 deals were shared via Deal Sheet. On Monday we shared 3 new opportunities for paid subscribers. Pricing will be going up at the end of the month! Want to learn more? Reply to this email to schedule a call.

This week, Deal Sheet subscribers received the following deals:

1. GenAI creative platform backed by a16z (Seed)

2. Secondary ticket marketplace backed by Accel (Secondary)

3. Biotech platform backed by Insight Partners led by CEO with multiple exits (Growth)

Why You Should Discount a Syndicate Lead’s Performance

Let’s start with the obvious: SPVs are different from traditional venture capital funds. 

• Traditional venture capital funds are investment vehicles that pool money from various sources, such as institutional investors, wealthy individuals, and fund managers themselves, to invest in a basket of startups. These vehicles are raised up front by the Fund’s Manager/Manager’s typically with a specific thesis and/or investment criteria (e.g. Seed stage fintech). The GP’s role is to optimize the fund capital into the best startups that meet their fund’s criteria to deliver the best returns for LPs. The VC managers are in full control of capital deployment. 

• In venture capital, an SPV (Special Purpose Vehicle) is a distinct legal entity created for a specific investment purpose, typically one company. Syndicate Leads have few to none of the constraints of a traditional fund. A Syndicate GP can syndicate 100-200 deals a year if he/she can raise money for them. These deals theoretically don’t have to meet any criteria other than “is this a compelling investment opportunity” and “will our LPs invest in this deal.” In SPVs, while GP’s choose the deals (an unlimited number of SPVs theoretically), the LP’s are in control of capital deployment. If LP’s don’t like a deal, the GP may have to cancel the SPV; if LPs love a deal, the GP may be able to raise many, many millions for it. LPs essentially act as their own fund managers in the syndicate/SPV model picking and choosing which deals they want to invest in and how much into each. 

The Unique Incentives and Constraints of Syndicate Leads

This is the reality of many (not all) syndicate GPs. Deals have to meet two broad based criteria to syndicate it. 1) the deal is a good investment opportunity; 2) LPs will invest in the deal. 

If it doesn’t meet both, the deal typically won’t fill and we’ll have to cancel the SPV. There are often some good deals (those that may be too early to have marketable signals for LPs) we don’t syndicate because we won’t get LP interest. Most Syndicate GPs I know understand this problem all too well. And it’s part of the reason why sometimes my job feels like a blend of an investment banker and VC - ultimately Syndicate Leads are not allocating capital. They’re selecting and diligencing interesting opportunities and marketing them. It’s a weird place to live in VC…  

This means it’s difficult to judge syndicate GPs singularly for performance if 1) GPs can’t syndicate some good deals just because they aren't “marketable”, 2) LPs control the capital into each deal and 3) Syndicate GPs have relatively minimal say in portfolio construction. 

LPs Driving Capital Deployment in SPV Model

As mentioned, if a good deal isn’t marketable (perhaps the investment is at the pre-seed with no external signals), we likely will try to run the deal but won’t be able to fill it because of a lack of LP interest. These are the rules of the game - LPs are opting to invest in a Syndicate GP’s deals and not in their Fund because they want the optionality to pick/choose the investments they like. If LPs are ultimately influencing deal allocations by deciding which deals get filled and determining (in aggregate) how much capital can go into each deal a Syndicate Lead puts forth then how are any traditional metrics fair to evaluate a Syndicate GP. 

One of our strong performing investments out of our syndicate, we struggled to even get enough commitments to close the SPV as one example (we did but barely). Alternatively one of our largest SPVs to date ended up being one of our worst performing investments. As the Syndicate Lead, I have minimal to no control over how much goes into each - it’s dictated by how much the LPs decide to put into them. 

Yes, the Syndicate GP is putting together materials, but what I’ve found (and was confirmed by our annual survey) is that more often than not LPs are relying on other signals (who’s the co-investing VC, pedigree of the founder, traction, etc.) over the Syndicate GPs personal conviction. That may be a “me” problem, but from chatting and working with 50+ SPVs over the years, this behavior is very similar across many LP bases as well. 

In the example referenced above, if LPs put an equal amount of capital into both of these deals, they would be up almost 7x in ~3x, fantastic. But that’s not what happened. The failed SPV had 50x the capital (in aggregate) versus the high performing one. My blended TVPI on those two investments is about zero because of it. So on paper, a Syndicate GP will show a horrible track record in this situation but that is not at all reflective of picking performance. 

The Syndicate GP is ultimately picking the companies, but the LPs are choosing which deals get done and how much they want to invest, so it massively can skew the data of a GPs performance. This is again to underscore, using the traditional VC benchmarks aren’t satisfactory for a syndicate.                           

And this example isn’t an extreme example; it’s actually quite common for LPs in Syndicates to be most interested in the “hottest” names, which may not the best performing names as referenced in our article “🚀The Biggest VC Markups come BEFORE the “Signal.”                         

There are definitely exceptions to this; some GPs have built strong brands as picking winners before the signal is there, but this takes a long time to prove (and build trust in the GP) and even those deals tend to have lower dollar amounts raised versus the buzzy high profile names. 

Additionally, even those that have built trust have opted to leave the syndicate market for a Rolling Fund or Traditional Fund for this very reason - now in this ecosystem as an LP/GP since 2018, I’ve seen it a lot. Notably, there are also some Syndicate GPs who avoid the buzzy/hot names for the exact reason I mentioned - they believe the big alpha gain is already gone and won’t even syndicate them, but from what I’ve seen there syndicates are fairly inactive and they’ve opted for a Rolling Fund / Trad Fund. 

Evaluating Syndicate GPs Beyond Traditional Metrics

So while I don’t feel the typical metrics (TVPI, DPI, MOIC, etc.) are always an accurate or fair reflection of a syndicate GPs ability to run a top decile venture fund, that doesn’t mean LPs can’t get a gauge of a GP’s venture ability.

• Track record: Is the Syndicate GP generally selecting high quality deals to syndicate that perform well and what evidence is there of that (e.g. consistent markups, breakout winners, strong overall performance, etc.) 

• Portfolio quality: Examine the quality of the companies in the Syndicate’s portfolio and when they entered that investment 

• Reputation and experience: Consider the reputation and experience of the Syndicate lead - does the Syndicate Lead have a deep understanding of specific industries or technologies and a strong network can be more successful in identifying and supporting promising startups. Generally, does the GP show a strong knowledge of the deals they’re syndicating in materials or elsewhere 

• Syndicate Thesis: Does the syndicate lead have a thesis that is compelling and that lends itself to a strong performance. Has that been proven over time

• Traditional VC Metrics: While this article is primarily about discounting track records of syndicates leads, some Syndicate GPs do publish performance, and if they’re good, that may signal they’re a high performing VC 

• Integrity & Communication: Has the GP generally showed high integrity in his information shared and communication 

If you’re an LP in syndicates long enough (I’ve been in well over 50 syndicates as an LP for many years now), you’ll get a pretty sense if a GP is worth backing in spite of some of the drawbacks of the SPV model. 

The big takeaway here for LPs is that by investing in syndicates, 1) you’re fully in control of your portfolio construction, so have a tight gameplan on how you plan to manage and deploy your capital (e.g. total $ outlay, $ per deal, stage/criteria, etc.) and 2) you may be adversely selecting yourself out of interesting opportunities that syndicate LPs don’t want. So if your personal target deal is a <$8M valuation, first money into a pre-seed moon shot business then either find a syndicate who offers this or invest in a fund that meets your personal strategy. We talk about this in our LP strategy article below. 

If you agree or disagree with us, please let us know - we are curious to hear your feedback. 

If you liked this article, feel free to check out our other on SPV strategy

• 📊LP Strategy – Why You Should Take an Index Approach to Startup Investing

• 🚀The Biggest VC Markups come BEFORE the “Signal”

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✍️ Written by Zachary and Alex