🤷How do VC Syndicate Leads Source Deals?

This week we’re going to deep dive on the following areas:

1. How we source deals as Syndicate leads

2. Highlight the unique sourcing opportunities available to syndicate GPs (atypical from traditional venture funds)

3. Why my (Alex’s) background lends itself well to sourcing and uncovering quality deals

Before we jump in, it’s important to understand why sourcing is so critical to any venture capital fund, syndicate, and angel investor. Sourcing is the lifeblood of venture capital – while as a venture capital investor you need to be able to evaluate founders and businesses, without being able to consistently source high quality opportunities, those deal evaluation skills are difficult to put to good use. This is in stark contrast to public market investors, who are more or less all offered access to the same opportunities.

Accessing deals is 🔑. On that note, let’s get into sourcing…

How do Syndicate GPs source deals? Part 1

There are 5 main ways I (Alex/Riverside Ventures) typically source deals.

1 → Existing Syndicate LP’s

I currently run Riverside Ventures – we have grown to an LP base of 4,000+ strong. The LPs in our syndicate make up a robust network of individuals, including founders, investment professionals (VC/PE/HF), operators, engineers, creators, product people and technology enthusiasts. All of whom are accredited investors – meaning they are “sophisticated” as defined by wealth or by certification typically. But irrespective of their background, all of these individuals have an area of expertise and are well-networked in their area of focus, and sometimes beyond.

So how do we access deals from LPs?

Syndicates often operate like communities. GPs, over time, prove their ability to source, deal execute, manage relationships with all stakeholders and overall run an efficient syndicate/investment process. Over time, this turns into credibility and a brand for GPs. As mentioned, each LP has access to a unique network with a large number of them plugged into some vertical of the startup ecosystem.

Now on how to get LPs engaged. LP’s usually reach out to GPs for two reasons 1) GP’s proactively announce and offer what’s referred to as scout programs – these scout programs offer LPs carry for deals they source and other value add services. Quite often, once LPs become aware that they can receive economics (or carry) into startups that are ALREADY within their network, and with minimal additional effort, they start to scout for GPs and become a great source of deal flow for us. 2) Othertimes, LPs reach out intrinsically with sourcing opportunities with no expectation of economics and just want to be helpful to both GPs and the founders they work with; however, the financial incentive here can be quite attractive for folks who have strong and unique deal flow (this is how I started).

In my opinion, there’s a ton of value in syndicate leads treating their LP-base like a community. Those LPs can serve as a flywheel to uncover some of the best deals that GPs would otherwise not see.

2 → Co-Syndicating

We discussed the power of co-syndicating last week (post here: https://lastmoneyin.beehiiv.com/p/playbook-launching-syndicate). The syndicate ecosystem in general is far more collaborative amongst GPs than traditional venture capital funds, given we as VC syndicate Leads (mostly) care more about accessing the best deals and less about our ownership percentage in those companies.

Co-syndicating provides one of the best sources of deal flow because you essentially get to leverage other GP deal flow. Syndicate GPs often have a larger allocation than they can take down themselves, and will look to other GPs in the syndicate ecosystem to help fill their allocation.

While these deals may not always be a fit for the receiving GP, these companies have all been vetted by the originating syndicate lead, who has committed to investing in the round – in other words, they have skin in the game. This is in stark contrast to a VC sending us a deal to evaluate despite that originating VC passing because “it is too early” or “there was not enough allocation for our ownership target” or “we are tracking for the next round after they hit certain milestones”.

3 → Portfolio Founders

Riverside Ventures portfolio founders have consistently been an excellent source of deal flow. Founders meet other early-stage founders all the time to network, provide advice, explain how they raised their round, discuss GTM strategy, refer an agency they used for XYZ etc. For that reason, founders are an amazing source of deal flow.

At Riverside Ventures, we very likely have 350+ portfolio founders, and many of them have sourced some of the best deals we’ve been able to get into. This is quite similar to many venture funds as well.

Here is the thing. I wouldn’t say we are very proactive in reaching out to founders about deals. Rather, it’s more of a constant relationship exercise of being founder-friendly in which you want them to keep you top of mind for dealflow/referals. If you constantly do right by your founders, many organically pay it forward.

We’ve experienced many scenarios in which we ask an existing investor to do a referral call with a prospective portfolio founder, and to no surprise, someone else saying you are great carries significantly more weight than you saying you are great. It’s kind of like a customer referral call when a portfolio founder explains why they like or don’t like working with their investors. Remember VC is a long-term game, and maintaining a great relationship with founders and reputation in the ecosystem can go a long way with sourcing.

In summary, building meaningful relationships with your portfolio founders will no doubt be an astounding sourcing tool.

***Important to note - as a syndicate lead having invested in over 200 companies, it is not possible to have a strong relationship with every portfolio founder. While I wish that was the case, it’s important to navigate relationship-building with this in mind.

4 → Venture Capital Funds

In my experience, sharing deals with traditional venture funds is really a “give and take model”, meaning the more deals that I share with them, the more I am bound to receive from the same VC’s. A hot take of mine is that meeting VCs in-person really supports more deal flow as we end up having longer conversations and both share deals we’re interested in, are currently exploring, or recently invested in.

I am not sure how common deal flow from VC’s is for other syndicate leads, but for me, it’s always been a great source of quality deals.

This is something I started leaning into early on in my venture days in 2017-2018. At the time, I was writing tiny personal checks, and wanted to help founders access capital from VC’s, so I ended up allocating a ton of time and effort to network with venture funds and kind of market myself as this “deal flow guy”. It provided a great opportunity to build a ton of VC relationships, source deals, and start to open the doors to getting deal flow in return from VCs. This was especially beneficial when the deals VC’s were sharing were ones they were either leading or participating in.

I strongly believe in the pay-it-forward mentality and networking exercise of sharing deals over time leads to more and more deal flow. However, you have to constantly work at it and keep your VC contacts top of mind to consistently share relevant deals.

You can't really ever just sit back and expect the best deals to hit your desk…you have to constantly earn it!

Lastly, it can also be important to position your syndicate as an investor who can move efficiently, round out the fundraise (if needed), and be easy to work with e.g. founder/partner friendly, and be okay with being THE LAST MONEY IN. If there are other ways you can add value to the company, then yes, highlight that as well, but surprisingly at this stage, the VC is most likely looking for smart people around the table who can move quickly to fill out the round so the founder can go back to putting 100% of his/her focus on the business. In other words, moving quickly without eating anyone else’s allocation is of value to the VC.

5 → Desk Research + Cold Outreach

This is definitely the coldest approach and the least likely to lead to an actual sourcing of a deal from my personal experience…But, I do have multiple cases where this has worked, and for high quality deals.

Let’s break this down.

There are many forms of content early-stage investors can read to learn about new and exciting tech companies. There are tech media companies, newsletters/blogs, funding announcements, podcasts, info on Twitter & LinkedIn etc.

When I identify a company that could be a good fit for Riverside Ventures and I am curious to learn more, there are typically 2 paths forward to get in touch:

1. Find a mutual connection to the founder/company and request an intro – this is referred to as a “warm introduction”. This can work but it also depends on who the mutual connection is and how much they care to help you. This is the preferred method to connect.

2. If there is not a good mutual connection, then I will cold outreach to a company. I almost always use LinkedIn to either add them as a connection and/or message them to highlight where I learned about the company from and that I invest out of Riverside Ventures and would welcome an opportunity to connect to learn more and share more details on Riverside and myself. Depending on the scenario, like if it’s a fast moving round, I can highlight our ability to move efficiently and not slow down the process. Another way to grab their attention is to highlight your experience as an investor or operator in the space, so the founder feels that there’s additional value in having you on the cap table, leading to a more likely opportunity to get a reply.

Cold outreach is not for everyone. In my opinion, the worst case scenario is they do not respond or decline to meet. Given that I've had cases of success here, it’s easy for me to try and not worry about getting turned down.

A Final Note:

Above, I explained the main ways that I source deals, however I think there are different ways to source based on each GP’s unique network and experience.

I’ve spent 10 years in Business Development, Partnerships, and Sales for early stage startups. That’s where I’ve spent my time as an operator and that’s the skill set I have shaped over the past decade.

Selling, doing deals, outreaching prospective customers, navigating referrals are things that I am comfortable doing and are all skills that have been applied to sourcing deals in venture capital. The great part about VC is that there are many ways to do it right – many are prior operators and within being an operator, have had different core responsibilities. Mine is sales, but others are engineers who have built strong technical communities and who can add value on that side. Some are growth marketers, where they can help companies scale. Others don’t have operator backgrounds at all and rather come from traditional finance. In general, I’ve learned to lean into my skillset to help source and help founders, and strongly believe irrespective of your “type” of background, there’s an opportunity for each emerging or established VC/GP to do the same.

As Naval says: “No one in the world is going to beat you at being you. You’re never going to be as good at being me as I am. I’m never going to be as good at being you as you are. Certainly, listen and absorb, but don’t try to emulate. It’s a fool’s errand. Instead, each person is uniquely qualified at something. They have some specific knowledge, capability, and desire nobody else in the world does, purely from the combinatorics of human DNA and development.” This certainly rains true in VC, and while the above is my personal approach based on my skill sets, I’d suggest each VC/GP find an approach that works best with their skills and background.

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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✍️ Written by Alex and Zachary