Part I: Learnings from pioneering LP syndicates
Part I: Learnings from pioneering LP syndicates
(i) Community first, (ii) regular updates, (iii) positive biases, (iv) nothing beats direct, (v) fear of saying no, (vi) good’ol Pareto Principle and (vii) closing vs opening
On a personal level, I have a very slim track record of angel investing. Even though I can boast about having a DPI of 5x as an angel, the total amount of committed capital is so ridiculously low that most angels would make a laughing stock of me. Let’s face it, I’m just not that wealthy, nor do I come from wealthy families, to be able to invest myself.
Joining Andreas in building The European VC and, particularly, being given the chance to really focus on raising our LP syndicates (while he hypes the shit out of our partner GPs & LPs, thus earning the ✌️ LP hypeman title) has been one of the coolest and greatest opportunities I’ve ever had. For our origin story listen to episode #100 👇
Here are my core learnings from raising the first official EUVC LP syndicate, of which a few are transferable for emerging GPs:
🤫pssst… sometimes we have some stealth LP syndicate fundraises happening over the counter; drop me dm if interested. They are hot, quick & dirty.
Community first
Regular updates
Positive biases
Nothing beats direct
Fear of saying no
Good’ol Pareto Principle
Closing vs Opening
What brings us together?
🤝 Building network and relationships across Europe.
📖 Gain insights, access to best practices & develop skills.
🤑 To get exposure & access to the asset class that we all love
Seems that the opportunity to get connected to the best European venture investors while reaping LP returns is a pretty good combination 💡
1. Community first
This one goes almost without saying. Content is a great way to build relationships with GPs, LPs and potential syndicate investors. That’s basically the underlying strategy we have here at EUVC.
We make it easier for everyone in the venture ecosystem to participate and have a vested interested in the industry. Our content and pods democratise access to information, best practices and insights, whilst our syndicates provide unique access to a vetted and curated deal flow of amazing GPs and VC funds.
But, coming back to the lesson learned here, it’s all about building trust with your investors. If they trust you, they will commit. If they don’t… well you can expect long hours of answering questions behind your screen 😑.
2. Regular updates
Alternative title for this section: “engineer FOMO”
This is probably one area that we didn’t get 100% right. So we’ll build on this future syndicates.
Sending regular updates to syndicate members is super important to nurture the relationship with potential investors, but specially to avoid them from getting cold feet. In our syndicates we run a double commit process. Meaning investors soft commit, and only after reviewing the final data room do they hard commit. So sending regular updates is really important to educate and inform the community. It’s really important investors understand.
Same goes for our content (see section above). The way we see it, it’s all about sharing our views on what’s happening in the market and what it means. But it’s also about sharing the small successes; whether that’s announcing first close, commitment of new important LP, announcement of a new deal, etc (keep in mind this is specific to LP investing, but the exact same thing applies direct startup investing).
All in all, send investor updates. Anywhere from monthly to quarterly. And do it directly to their inbox. Oh, and by the way, we’re planning on doing this with a boilerplate/template.
EUVC is investing into Startup Wise Guys!
Startup Wise Guys is the largest New Europe accelerator and on a strong path to become the Y Combinator of Europe. Challenger Fund II is the flagship fund that gives LPs exposure to the 200+ pre-seed startups that the team accelerates across SaaS, Fintech, Cyber and Sustainability and the Baltics, CEE, CIS & Turkey. We are investing into Startup Wise Guys’ Challenger II.
3. Positive biases
As a syndicate lead I believe part of the art of closing an investment is to avoid giving investors opportunities to drop off. In other words, syndicate leads should create positive biases towards investing.
One learning, which was passed on to us by another syndicate leads, was that by writing in all our material “committing as little as 1k€” we were anchoring our investors to do smaller tickets.
We were like: “WHAAAAT???”.
Apparently, this specific syndicate lead, by shifting his copy from “invest as little as x” to a commit button and using an example of commit (not the minimum commit of course), managed to increase the average commit with the same investor base.
This is just one example among many others. Another fun example is what I jokingly would call the Parkinson’s Law of Syndicates. Not sure if the term is technically correct but the more time you give investors to commit, the longer they will take. So learning here is to set a clear due date for the closing of the syndicate and make sure everyone feels the time pressure.
4. Nothing beats direct
Scratch that: WhatsApp, texts and phone calls are king. It's easy for an investor to ignore asks sent to your broad investor list with them on BCC or through. It's much harder to ignore your specific ask only sent to them. Generally speaking, we’ve learned that to drive quick action from our investors we need to reach out to them directly.
It’s quite obvious, but it comes with a challenge for syndicate leads. Achieving scale or professionalizing the investment activity thus becomes a huge challenges.
5. Fear of saying no
Simply put, when someone comes back to us saying they aren’t as liquid as they hoped to be when they initially committed (bear in mind this is specific to our double commit process at EUVC), we bring up the fact that they can commit as little as 1k€ and that we are happy to take in a smaller ticket. Oh, and by the way, I always find a way to incept the “whatever you commit, you’ll only regret not putting more into the deal” sentence.
Result: most investors ended up committing the same amount or as little as 20% of their initial commit. A few did obviously end up pulling out. But hey, look at the bright side: if we had said “sure, ok” we would have lost most of the capital.
6. Good’ol Pareto Principle
This one is quite well described across different fundraising resources for founders, GPs, etc. Our finding is very much in line with what we were expecting.
Investors who ask a lot of question, tend to not commit.
Investors who commit smaller tickets, ask a lot of questions.
But, on the other hand, investors who commit bigger tickets tend to need very little hand holding. And we love that.
Conclusion: focus on the big tickets.
7. Closing vs Opening
This one actually came to mind after I had drafted this article. I guess it’s kind of a bringing together of everything.
When we started we cared a lot about the planing of the opening of new syndicates. In other words, we didn’t want to announce several deals simultaneously nor have syndicates that would compete with each other open simultaneously. We still believe that is very important.
HOWEVER, we’ve learned that planing for the closing of these syndicates is as important, if not more.
We found ourselves having to manage pressure around closing several syndicates simultaneously. Considering our investor base is the same for all syndicates, and that a third of our investors commit to several deals, calling capital for several deals in the same week, or even month, is not really feasible.
Hopefully, we’ll be able to mange the timelines. But, moving forward, we’ll put some extra focus on planning for the closings better.
What brings us together?
🤝 Building network and relationships across Europe.
📖 Gain insights, access to best practices & develop skills.
🤑 To get exposure & access to the asset class that we all love
Seems that the opportunity to get connected to the best European venture investors while reaping LP returns is a pretty good combination 💡