📈 Economics of $200M AUM as a Venture Capital Syndicate GP

Between Alex and I, we have deployed ~$200m into 250+ startups across stages via syndicates for companies including Alto Pharmacy, Pair, Snackpass, Axiom Space, Sandbox VR, AngelList, Equi and other companies.

That is a lot of capital and most LPs I gather believe we are likely very, very rich as a result of this. But let me tell you – WE ARE NOT. And from all of this effort, I’ve only made mid-six figures directly from Calm Ventures over ~3.5 years of work, and this despite our firm alone deploying ~$140M of capital into startups.

Let us break down why most syndicate leads – even the largest ones – haven’t made any meaningful sums of liquid wealth off of their syndicates. Some of it is likely obvious – some of it, not so much.

📚 Let’s quickly define some terms:

• General Partners (GP) – these are fund managers

• Limited Partner (LP) – these are investors in our syndicates

• SPV – a fundraising structure that allows VCs to collectively invest in a single company

• Syndicate – large group of investors that join together to invest in a large transaction and make up the SPV

• AngelList – an infrastructure platform that makes it easy to run and operate SPVs

• Carry - the percentage of a private fund's investment profits that a GP receives

• Management Fee - a charge levied by an investment manager or GP for managing an investment vehicle

First – let’s break down how General Partners generate income via syndicates.

💸These are the economics of the syndicate model today across most of the AngelList ecosystem:

• Approximately 20% carry on each SPV a GP puts together

That’s it.

For very select deals, some AngelList Syndicate GPs charge management fees of 1-10%, but if you connect with most of the GPs on AngelList, they will tell you investors in this specific ecosystem do not want to pay management fees on deals. Why is that? It’s primarily two fold – 1) LPs are accustomed to not paying management fees within this ecosystem; 2) LPs on AngelList have to pay other SPV fees (typically 1-10% of their invested capital) to our fund administrator for their services to us including legal, compliance, SPV setup, operations support, tax assistance and more.

Okay, so our economics are 20% carry on $200m in invested capital. A lot, yeah?

Let’s see the economics:

• Let’s say across our investments, we double our capital deployed i.e., we turn our $200m into $400m

• As mentioned, the GP deal economics are 20% carry i.e. 20% of the profit

• Based on this math, if our collective portfolio of $200M in capital deployed doubles in value, we should receive 20% of $200M in profit or $40M dollars! Right?

Well no.

• While the deal economics to a GP are 20% carry, my personal carry on a deal is probably half of that or less

• You see, I (and many other GPs) get a lot of help on the backend on putting together these investments/SPVs and we also work with a lot of partners on finding the best deals. For this help and other value add services, we end up giving up around half of our deal economics to other partners

• Okay, so 10% carry on $200m in profit is still pretty freaking good – 10% x $200M = $20m in profit if we double our invested capital. Well, that’s true….

• But one thing to keep in mind is that dilution is a huge component of early stage investing – many are aware it exists, but not aware of its massive impact. If we invest in a Seed stage company, we expect our ownership to actually be cut in half (or more) by the time a company exits (via M&A, IPO, etc.). This is because companies dilute their stock via future financings e.g. companies will have to raise more capital to grow, invest and operate, and create new equity to incentivize employees. So if a company in our portfolio doubles its valuation at exit, we actually may see zero profit because of the dilution it takes on

But okay – getting back to our economics…

• As stated and to recap, I net ~10% carry. If we 2x our invested capital, we get 10% x $200m in profit or $20m. If we 3x our $200m invested capital, we get 10% x $400M in profit or $40m.

Let me say, if this ends up happening and we 3x our collective $200m and get $40m back, I will retract any criticsim of the syndicate model and you can send me a bunch of emails to fk off with my nonsense contemplating the tradeoffs of syndicate economics….

🧐But it is extremely “to be determined” if that will happen and I’m incurring meaningful real costs for all of this effort and unknown in the interim.

• Because most of the companies we invest in are often early stage in nature, I won’t see much of any carry for 7-10 years as it takes on average 7-10 years from founding for a company to reach an IPO (I’m 3.5 years into my syndicate journey)

• Meanwhile I’m acutely aware that I entered the venture capital ecosystem during peak valuations with a nice portion of our capital deployed in 2021, meaning getting that 2x to 3x return will be harder

• For context, top quartile funds historically have only distributed almost 2x (or nearly 100%) back to investors over the lifetime of the fund… so if we can even get back 2x on the 2021 vintage, that would arguably be good

• And all the while, amidst 🙏“praying for exits” and grinding out 60-80+ hour weeks on SPVs, we are paying six figure out of pocket costs annually

• To run an SPV, AngelList requires we invest a minimum of $1,000 into each of our deals. I’ve personally run over 350 SPVs, so that’s $350,000 out of the Calm GPs pocket to close these SPVs. Yes, this $350k is technically an investment in our deals, but it is a very real cash outflow

• And expense accounts to travel to meet founders, LPs, etc. – yeah those don’t exist for us and it’s all out of our pockets

(TVPI refers to total value — both distributed profits and undistributed future profits— that a fund has produced; DPI refers to money actually returned by a fund to its investors)

😶‍🌫️So this is the reality – we are deploying an enormous amount of capital (over $200m in aggregate), receiving very little actual income from this in the short term as we’re receiving $0 in fees on ~99% of our SPVs and have realized very little carry yet as the average deal to exit is 7-10 years, AND we’re actually having to invest our own capital into every deal we invest in, depleting our salaryless pockets further. If it isn’t obvious there is no parent company paying syndicate GPs to operate their syndicates typically. So yes, the VC idiom of “praying for exits” rains extremely true and even more so in our syndicate ecosystem….!

💰 Now for me personally – We have had a couple modest exits despite only existing for three and half years, and have returned around $6 million in capital that netted me personally around $600,000. So the personal economics for my syndicate over 3.5 years are as follows (of note, this is rough math):

• $600,000 in inflows for my carry portion on exited investments

• Subtract ~$350,000 in capital required in our ~350 SPVs

• Net $250,000 for 3.5 years of work

I will say there’s some nuance to these figures. We have collected some small management fees and I have other Calm Ventures General Partners that also contribute to our GP commitments, but even accounting for that I’ve only netted mid six figures for almost four years of effort. I can live happy, but I am definitely nowhere near very rich from this - at least not yet.

🔥Yes – there’s the potential for mega upside on the backend, but I think the upside is still to be determined. A number of Uber’s early investors were able to turn just $5k investments into an estimated $25m with Jason Calacanis famously turning his $25k Uber investment into an estimated $100m+. We have a number of syndicate and personal investments that are already up 5x-150x+ on paper with our unrealized carry portions in the many, many millions of dollars. Additionally, my recent tax forms showed that I had exposure to almost 700 startups via Calm & personal investments. This is all to say that despite the questionable short-term economics for synidcate GPs, we see a path to compelling upside over the next 3-5 years, and if I stopped working altogether, there’s an outside possibility I could retire with the potential passive income. Thankfully, I am not rich enough and I absolutely love what I do, and so we continue to build…

Needless to say, we’re tracking our economics extremely closely and I intend to send an update every year on how our economics are changing to keep readers in the loop. Hopefully, at this same time next year, I’ll have some good news to share!

That’s all for this week. We’ll be back in your inbox next Wednesday on our next topic. Thanks for tuning in!

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What got left out of this post? 

It’s important to note that while this post focused on how GP syndicate economics work, there are a number of subtopics that we did not dive into, like deal by deal carry and how this is different from a traditional fund, and how it can really benefit a GP. We look forward to diving into this and other GP economic topics in the near future!