With Q3 officially in the books, Sydecar is proud to announce significant enhancements across our platform, from refining compliance processes to launching our innovative Syndicate platform. These updates reflect our ongoing commitment to innovation and our dedication to meeting the evolving needs of fund managers, syndicate leads, and investors. Read on to discover how these new features can transform your investment management experience with Sydecar.

Compliance

Improving UBO Workflows

What It Is: We've made it easier to manage information about Ultimate Beneficial Owners (UBOs) during the setup of entity profiles on Sydecar. Key updates include:

• Allowing a designated person to input UBO details without replacing existing UBO profiles, even when using the same email address, provided they have permission from the UBOs.

• Providing the ability for designated individuals to update or delete UBO information directly within the entity profile, with the necessary approvals from the UBOs involved.

Why It's Important: These improvements streamline the setup process for entity profiles with UBOs, reducing the time and effort required to comply with legal requirements. With these changes, managing and updating UBO information is more straightforward for entities with complex ownership structures.

Corporate Transparency Act Update

What It Is: Sydecar has enhanced its SPV and Fund+ products in response to the Corporate Transparency Act (CTA). This update allows organizers to opt in or out of partnering with Sydecar for CTA compliance and includes provisions for collecting information from individual users for Beneficial Owner Information (BOI) reporting. 

Why It's Important: This update streamlines the collection of ownership information, enabling fund managers and investors to meet reporting requirements quickly and with less administrative effort.

Syndicate

Syndicate Platform Launch

What It Is: Sydecar's new Syndicate platform offers robust tools to enhance the operations and effectiveness of syndicate leads:

• Centralized Communication: Enables direct communication with all members through the platform, allowing updates on syndicate activities, deal flow, and successes to be shared efficiently to keep everyone informed and engaged.

• Member Portal: Provides investors with a dedicated portal where they can view deal flow and communicate directly with the syndicate lead, ensuring their information remains confidential and under the control of the syndicate lead.

• Deal Tracking: Leverages analytics to monitor member participation and engagement, allowing syndicate leads to focus on investors who are most active and likely to participate in future opportunities.

Why It's Important: Sydecar’s new syndicate platform addresses the specific needs of syndicate leads who have historically had to manage their activities across multiple, disjointed tools. By centralizing these functions, the platform not only saves time but also reduces the likelihood of errors, enhances communication, and improves decision-making processes. This new product simplifies complexities, ensuring that they can focus more on strategy and less on administrative tasks.

As we continue to enhance our platform, we remain focused on providing the most robust and compliant solutions in the market. These latest updates are designed to meet the specific needs of our clients, ensuring they can manage their syndicates, SPVs, and funds with greater ease and security. We thank our dedicated community of venture managers for their feedback, which has directly informed these updates. Stay tuned for further developments as we continue advancing our platform to support your venture operations effectively.

Today, we’re thrilled to introduce a new tool that will transform the way syndicate leads manage deals and engage investors. Sydecar’s Syndicate platform is designed to empower syndicate leads and their investors by combining all essential tools into a single, intuitive platform. This platform simplifies member communications, tracks deal participation, and supports syndicate growth—all in one place.

Managing a syndicate has historically been cumbersome and time-consuming. Syndicate leads have had to rely on a patchwork of tools to manage their operations. This fragmented approach not only wastes time but also increases the risk of miscommunication and missed opportunities.

Sydecar’s Syndicate platform offers a unified solution: a platform where all syndicate activities are centralized, making it easier than ever to keep your members informed, engaged, and ready to act. Our platform ensures that you can focus on what matters most—sourcing deals and building relationships—while we handle the rest.

Key Features 

Centralized Communication: Say goodbye to juggling multiple communication channels. With Sydecar, you can streamline all member communications directly within the platform. Effortlessly share updates on syndicate activities, deal flow, and past successes, ensuring everyone stays informed and engaged.

Member Portal: Maintain full ownership and control of your contacts. Investors have a dedicated portal where they can view deal flow and communicate directly with you. Best of all, their information remains between them and you, private from other syndicate leads.

Deal Tracking: Get insights into member participation. With our analytics tools, you can easily identify and target engaged LPs for future opportunities, optimizing your syndicate’s success.

We developed the Syndicate platform with the unique needs of syndicate leads in mind. Our goal is to eliminate the inefficiencies that have long plagued syndicate operations and to provide a seamless experience that scales with your growth.

We’re excited to continue supporting the next generation of syndicate leads and venture investors who are looking for more efficient, transparent, and scalable solutions. With the launch of our Syndicate platform, we’re taking another step toward transforming the way private markets operate, and we’re excited to have you with us on this journey.

Experience the impact of our Syndicate platform firsthand. Visit our website to explore an interactive demo that will show you firsthand how our platform can streamline your syndicate operations and help you achieve more with less effort.

We're excited to share that Sydecar has surpassed $1 billion in assets under administration (AUA). Here's a snapshot of how we’re doing currently:

As we celebrate surpassing this mark, we're not just signaling a financial milestone; we're showcasing a shift towards a more standardized, transparent, and efficient approach to private investing. This achievement underscores our platform's credibility and the trust the market places in our mission to streamline venture fund and SPV management.

Reaching $1 billion in administering assets reflects the growing confidence that fund managers and investors place in Sydecar. It's a testament to our platform's ability to manage deal execution seamlessly. Our journey from reaching $350 million in AUA just two years ago to now administering over $1 billion illustrates our capability to scale and adapt to the evolving needs of the venture capital ecosystem.

Embracing Standardization in Private Investing

This milestone is significant not just for Sydecar but for the entire venture ecosystem. It signals a shift towards embracing a standardized approach to structuring and managing investment vehicles. Standardization brings numerous benefits, including reduced complexities, lower costs, and improved accessibility for new entrants in the venture capital space. By pioneering a product-driven approach, Sydecar has established an industry standard to simplify the investment process, making it more transparent and accessible.

Advancing Our Mission for a More Transparent and Efficient Market

Achieving $1 billion in assets under administration brings us closer to realizing our mission of enhancing transparency, efficiency, and liquidity in private markets. This milestone demonstrates our capability to provide clear and accessible processes, streamline complex operations, and facilitate quicker transactions, increasing market liquidity.

A Look Back: The Road to $1 Billion

Sydecar was born out of a necessity to solve the inefficiencies and high barriers to entry in private investing. Our founders experienced first-hand the challenges of setting up and managing investment vehicles. This understanding drove our commitment to creating a platform that not only meets the compliance and operational needs of today's investors but also anticipates the demands of tomorrow's market dynamics.

Our SPV product was just the beginning. Today, Sydecar supports a wide array of investment activities with tools that ensure compliance, streamline operations, and enhance investor communication. These tools have been crucial in achieving the milestone we celebrate today.

Looking Forward

As we continue to grow, our focus remains on expanding our platform to support the next wave of innovations in venture investing. The introduction of new products designed to remove regulatory barriers and enhance capital formation is on the horizon. We are excited about the future and committed to supporting our clients in unlocking more opportunities in private markets.

We are incredibly grateful to our clients, partners, and the entire Sydecar team for being part of this journey. Here's to continuing our mission of transforming private market investing together.

Interested in joining the growing number of fund managers and investors who trust Sydecar to support their success? Book a demo with us today and explore how our platform can streamline your venture fund and SPV management:

Emerging VCs are facing rising pressure to generate returns for their investors after several years of sub-par performance. As a result, demand has concentrated around certain deal types, specifically AI and pre-IPO companies. However, fundraising challenges have made it difficult for emerging managers to gather the substantial capital required for these opportunities.

Late-stage companies, particularly AI startups like OpenAI and Anthropic, have attracted significant investment, but gaining direct cap table access to these companies is very difficult due to their high valuations and popularity. To overcome this, investors are turning to “pass-through” SPVs. 

What is a Pass-Through SPV?

The term “pass-through SPV” typically refers to an SPV that is used by VCs to pool funds and invest in another pass-through entity (i.e. SPV), which has a direct allocation in a target company. These structures involve multiple pass-through entities that form the layers. Each SPV contributes funds up the chain until reaching the final investment.

Since these SPVs allow multiple investors to pool their resources, this approach makes it possible for investors to join high-value deals that would otherwise be out of reach.

Pass-through SPVs offer access to valuable investments and help emerging managers build stronger relationships with their investors by providing stakes in top companies. However, while this strategy opens up new opportunities, it also brings significant operational challenges, especially around transparency and tax reporting. 

Why this is Happening

Access

Emerging managers struggle to meet the high minimum check sizes required for these coveted deals. By sourcing allocations through larger firms' SPVs, which might have $10-50M already secured, they can participate without needing to secure massive capital commitments or get a direct cap table allocation.

Investor Demand for Later Stage/More Liquid Deals

Investors are pushing for later-stage investments with higher liquidity potential due to recent record-low returns in venture capital.

Fund Size & Portfolio Construction

Pass-through SPVs allow emerging managers to participate in larger funding rounds without coming up against certain portfolio construction limitations. Standard operating agreements often limit the amount of capital from a fund that can be invested in a single portfolio company. However, SPVs allow managers to raise substantial capital through a sidecar vehicle, avoiding limitations that exist for their flagship fund. 

Prominent Pass-Through SPV Deals

Recently, investors have used pass-through SPVs to secure stakes in high-demand AI startups like OpenAI and Anthropic. These structures pool funds from multiple parties, allowing smaller investors to participate in substantial deals they would otherwise miss. This trend has gained momentum as demand for AI startup shares has surged.

Thrive Capital's OpenAI SPV

Earlier this year, Thrive Capital led a significant purchase of existing OpenAI shares, estimated to be worth hundreds of millions of dollars. Thrive also created a smaller SPV, under $10 million, to give its investors additional exposure to the ChatGPT developer. Similarly, Soul Ventures and SparkLabs Global Ventures used SPVs to buy shares in OpenAI during a sale that valued the company at $86 billion. These SPVs provide a flexible way to increase holdings in coveted AI startups.

Menlo Ventures' Anthropic SPV

Menlo Ventures employed a pass-through SPV to take a prominent position in Anthropic. Menlo raised $750 million through an SPV, allowing it to invest heavily in the AI startup, which saw its valuation soar to $18.4 billion. This strategic move enabled Menlo to increase its stake without overextending its main venture fund. The SPV also included contributions from insiders and other key partners, maximizing the investment's impact.

Emerging Manager Perspective

Sydecar spoke directly with several emerging managers who identified the potential benefits and challenges when considering pass-through SPVs. 

One major concern is the “look-through” rules. If an SPV invests in another SPV that qualifies for an exemption pursuant to Section 3(c)(1) of the Investment Company Act of 1940, the manager of the underlying SPV might have to count all the SPV’s investors towards the 100/250 investor limit. 

For example, taking a $100K check that counts as 20 investors is less attractive than a $100K check that counts as one. This issue can manifest in two main ways:

1. Statutory Issues: According to 15 U.S. Code § 80a–3(c)(1)(A), when counting the beneficial owners of a 3(c)(1) fund, if the SPV owns 10% or more of the underlying fund, all entity investors in the SPV will count towards the 3(c)(1) limit. This is a clear rule but can be avoided by ensuring no entity investor in a 3(c)(1) fund owns more than 10% of the underlying fund.

2. Regulatory Issues: The SEC has stated through a series of no-action letters that if an SPV invests more than 40% of its assets into another 3(c)(1) or 3(c)(7) fund, there is a presumption that the SPV was formed for the purpose of investing in the underlying fund, and all the SPV investors would count towards the underlying fund's investor limit. This gray area requires careful consideration, although some precedents, like the Cornish & Carey letter, suggest that intent plays a role in the SEC’s determination. Specifically, funds should not be structured to circumvent regulatory provisions. 

Additionally, an SPV that invests in another pass-through entity, rather than directly into a target company, is generally required to have a higher investor accreditation status than the standard accredited investor (i.e. qualified client or qualified purchaser). 

Fiduciary duties also pose a challenge: 

From a practical standpoint, managers must also consider the logistical complexities. Different SPVs might have varying advisors, structures, and requirements, complicating integration and management.

In an interview, one manager explained their cautious approach to pass-through SPVs: 

Another manager noted that while they have not yet organized an SPV that accepted investment from another SPV, they have had discussions about potential structures. These include co-GP relationships where two GPs manage an SPV together, optimizing logistics and sharing economics. 

Overall, while pass-through SPVs offer access to high-demand deals, emerging managers must navigate regulatory, fiduciary, and logistical challenges. Sydecar's platform helps mitigate some of these issues by providing compliance and administrative support, making the process more efficient and transparent. 

Investor Perspective

Investors have mixed views on pass-through SPVs due to the potential for stacked fees. When fees from multiple layers of SPVs are combined, the overall cost eats into the investment amount, reducing the investor's exposure to the company and making these deals less attractive. Some managers address this by reducing fees or waiving them altogether, focusing instead on the value of access to high-demand opportunities. This strategy helps strengthen relationships with LPs, who may be more willing to invest in other vehicles where fees are charged.

SPVs often include preferential terms for a VC’s own backers. For instance, in the recent Anthropic round, fund LPs were expected to benefit from reduced or waived fees, making the investment more appealing to existing LPs. 

Overall, while the prospect of stacked fees in pass-through SPVs can be a deterrent, transparent communication and strategic fee structures can enhance the attractiveness of these deals for LPs. By focusing on the value of access and maintaining strong LP relationships, managers can alleviate investor concerns and encourage them to continue investing.

Complexity of these Deals

Operational Complexities

Investing in pass-through SPVs can introduce operational challenges. Managers must ensure they raise enough money to cover fees for both the investing SPV and the underlying entity, which might require holding back some funds if not all fees are paid upfront. Transparency is crucial; managers must inform investors that their SPV is investing in another SPV, not directly in the target company. If the underlying SPV doesn't secure an investment in the company, the investors' funds might not be used as intended. This could result in returning the capital to investors, potentially reduced by fees, even though the deal didn't go through. Additionally, even if the investment doesn’t proceed, investors will receive a distribution, which may have tax consequences, and they will be issued a Schedule K-1 for their tax reporting.

Tax Complexities

Tax reporting for pass-through SPVs can be intricate, requiring waiting for underlying K-1s which can trigger filing extensions. As mentioned earlier, SPVs are typically formed as pass-through entities. This means that all income and deduction items pass through to each investor, retaining their tax characteristics. This information is communicated to each investor through a Schedule K-1. Each entity must first receive a K-1 from the underlying ‘layer’ (SPV) before it can file its tax return. The more layers there are, the longer the chain of K-1s. Depending on an SPV’s position within the chain, investors may need to wait significantly longer for their K-1s, requiring investors to extend the filing date of their own tax returns.

Importance of a Reliable Admin Partner

Given the complexities of managing pass-through SPVs, having a dependable admin partner like Sydecar is paramount. Sydecar ensures transparency, accurate tax reporting, and compliance, enabling emerging managers to navigate these pass-through investments effectively. Check out our Pass-Through SPVs page for more information about how we support these investments:

Sources:

1. VCs are selling shares of hot AI companies like Anthropic and xAI to small investors in a wild SPV market

2. Inside AI Unicorn Anthropic’s Unusual $750 Million Fundraise

3. How Investors are Using SPVs to Buy Stakes in OpenAI and Anthropic

4. LinkedIn – Chris Harvey

5. Private Fund Adviser Rules

We’ve been hard at work in Q1, launching several new features focused on improving the investment process for deal leads, fund managers, and investors. These updates address key areas of our business, including fund management, compliance, syndicate management, and financial operations. Our aim is to make your experience smoother, from easing ownership changes and automating tax document delivery to ensuring compliance and enhancing syndicate operations.

These product updates are in direct response to customer feedback, and they’re designed to streamline your workflow and support your investment goals. 

Syndicate Contacts List

What it is:
The Syndicate Contacts List is designed to empower syndicate leads and angel groups by providing a centralized place to manage all of your investor contacts. This functionality allows syndicate leads to easily manage members, export contacts to a CSV, track investment activity, and streamline communications.

Why it's important:
These updates transform our platform into a powerful tool for syndicate management and communication, giving syndicate leads the ability to more effectively target, communicate, and close investors. Furthermore, the export functionality ensures syndicate leads can leverage their investor data flexibly, extending the utility of our platform beyond its native environment. This update signifies our commitment to evolving our platform to meet the sophisticated needs of our clients, enabling them to manage, analyze, and grow their investor networks more efficiently.

K-1 Delivery Update

What it is:
Sydecar delivered 100% of K-1s to SPV investors for the 2023 year (with the exception of vehicles that invested into a pass-through entity) ahead of the tax deadline for the second consecutive year. This success is largely due to our standardized approach to creating SPV and fund structures and their integration with our tax software. 

Why it's important: 
Our approach to delivering K-1 tax documents brings efficiency and accuracy to the forefront for both fund managers and investors. By automating the preparation process and directly integrating our systems with tax software, we've significantly cut down on manual work that fund managers need to complete and reduced the possibility of errors. This means we deliver K-1 documents well before the tax deadline, making tax season less stressful for fund managers and investors and eliminating the hassle of filing for extensions.

CTA Compliance 

What it is:
In response to the Corporate Transparency Act (CTA) requirements, Sydecar has updated its SPV and Fund+ products to include a comprehensive compliance workflow. This involves collecting essential identification documents, such as driver’s licenses or passports, from investors. This move ensures a unified approach to document collection and compliance, streamlining the process for both new and existing investors.

Why it's important:
The CTA aims to combat financial crimes by enhancing transparency around company ownership, requiring detailed reporting of beneficial owners to the Financial Crimes Enforcement Network (FinCEN). By integrating CTA compliance with our KYC/EDD processes, Sydecar ensures that our clients are ahead of regulatory requirements without added hassle. This approach not only prepares our platform and its users for current compliance demands but also anticipates future regulations (including those that are state-specific), ensuring that your investment processes remain uninterrupted and secure. Our commitment to embedding these requirements into our platform reflects our dedication to your peace of mind and focus on building relationships and securing deals while we handle the complexities of compliance and data security.

For more information on the CTA, check out our blog post here. 

Enhanced Due Diligence

What it is:
Enhanced Due Diligence (EDD) is a critical update to Sydecar’s compliance processes, focusing on in-depth verification and information gathering for investors with complex investment profiles. This update includes a comprehensive approach to collecting EDD information for deal leads and investors of SPVs. By integrating EDD requirements into the investor profile creation and updating processes, including a detailed EDD form for approval, Sydecar ensures rigorous adherence to regulatory requirements and enhances the security and integrity of investments.

Why it's important:
EDD is vital for maintaining compliance with global anti-money laundering (AML) regulations and safeguarding against financial crimes. By verifying the identities of investors with intricate investment portfolios, especially those from or banking in restricted countries, Sydecar provides a secure and compliant platform for venture investments. This process not only mitigates potential legal and financial risks but also reinforces trust among deal leads and their investors by demonstrating a commitment to thorough due diligence. Automating the collection and verification of EDD information streamlines compliance, reduces the administrative burden for deal leads, and ensures that all investments on the Sydecar platform meet the highest standards of regulatory compliance and financial security.

Now that these features are available, we're eager to see their impact on your operations. We believe that they will make a significant difference in your investment activities. Thank you to our customers for your continued support and trust in us.

As we move into 2024, the venture capital landscape continues to evolve, influenced by a range of factors from an abundance of unallocated capital in firms to a hot secondaries market. This year promises to bring changes, opportunities, and challenges for investors and startups alike. Here's an in-depth look at the key trends and predictions shaping the venture climate in 2024.

1. A Surge in Dry Powder
Dry powder, which refers to capital that has not been allocated or deployed by firms, has increased 385% since 2015 and created a situation where firms are now competing to deploy this capital. With more capital vying for the same number of quality investment opportunities, the pressure on investment returns has intensified. The abundance of capital means that firms may have to pay more for the same ownership, potentially leading to lower returns. Given the competitive landscape and pressure on returns, firms will need to deploy more strategically in 2024.

2. Rise in IPO Activity
There is growing optimism around IPOs for 2024. This optimism is buoyed by a more favorable economic outlook, including expected interest rate cuts and cooling inflation. The anticipated resurgence of IPOs is partly attributed to the bleak outlook for M&A, after regulators have slowed or blocked several significant deals. As a result, IPOs are a more attractive exit strategy for late-stage startups in 2024 as compared to the past decade. 

3. Governance Structures Under Scrutiny
The importance of corporate governance is taking center stage. Several high-profile venture capital-backed companies have faced public scrutiny due to unconventional governance structures, such as founder board control and super-voting rights. This heightened attention is prompting discussions among VCs and their LPs about the importance of robust governance. It's clear that founders and investors will continue to prioritize corporate governance issues as they evaluate traditional venture capital growth models in light of other factors, such as "public benefit" considerations.

4. Down-Rounds and Funding Challenges Ahead
In an attempt to avoid down-rounds and recapitalizations, many companies had to cut expenses and raise bridge convertible notes, hoping for a more favorable funding landscape by the end of 2023. Unfortunately, it seems that such a shift is not coming anytime soon. As of late 2023, venture debt lenders were less willing to refinance existing venture debt facilities without an infusion of additional equity from existing or new investors, so investors may have to make tough decisions about which companies to fund and which ones to write off, shut down, or sell at a loss. Consequently, investors are more likely to support their existing portfolio companies through bridge rounds and similar mechanisms. Often, these are executed using Special Purpose Vehicles (SPVs) because the firm may not have reserves in its main fund to invest further into existing portfolio companies. Investors are likely to scrutinize companies carefully to determine their real viability and differentiate them from those that may only continue to operate for a while without gaining significant traction. While down-rounds and recapitalizations will likely continue throughout 2024, even for viable companies, the bright side is that this can lead to more deals and transactions taking place.

5. Emerging Markets Gaining Momentum
2024 is witnessing a significant shift towards emerging markets. There's a growing recognition of the untapped potential in these regions, leading to the establishment of regionally-focused funds. Markets like Latin America, Southeast Asia, and Sub-Saharan Africa are attracting attention for their maturing entrepreneurial ecosystems and high-quality growth-stage startups. This shift represents a global diversification of venture capital investments, highlighting the potential for high returns in these previously underrepresented markets​​.

6. Venture Capital Secondaries Market
The secondary market in venture capital is poised for a robust 2024, building on the momentum from an active 2023. Despite some challenges, the market has seen a recovery with deal volumes remaining higher than pre-2021 levels and the gap between what buyers want to pay and what sellers want to receive in the secondary market is shrinking. This, along with a continued demand for liquidity, will drive activity. Looking ahead, aggressive fundraising for secondaries-focused funds, including Blackstone's record $22.2 billion Strategic Partners IX fund, indicates a strong pipeline of secondary deals in 2024. SPV platforms like Sydecar offer an efficient and flexible way for managers to participate in secondary transactions and create much-needed liquidity for their investors.

As we can see, the venture capital environment is changing. From the increase in dry powder to the shift towards secondary markets and everything in between, the venture capital world is poised for an exciting year filled with many changes. For venture investors, navigating these changes requires a platform that simplifies and improves the deal execution process.

Sydecar offers a solution tailored to these needs. Our platform is designed to help emerging fund managers manage venture funds and SPVs efficiently. To see how Sydecar can assist you, book a demo today.

In a venture capital landscape teeming with new players from various backgrounds, emerging VCs face a challenge in distinguishing themselves. Lacking the resources of established funds, they can't always compete with large investments or extensive networks. Recognizing this, savvy new investors are turning to brand building as a crucial strategy.

A strong brand helps in various ways: it provides social proof, establishes credibility as an expert, and keeps a VC's name at the forefront for founders and fellow investors. As capital is increasingly commoditized, building a brand alongside a portfolio is more important than ever.

Raising Capital 

Brand building extends beyond traditional methods. Engaging on Twitter, publishing newsletters, and contributing thought leadership in media are effective ways to stand out. These efforts not only distinguish an investor but also attract capital, especially with the popularity of 506(c) funds which allow public marketing of fundraising. 

As you start to build your LP network, you’re competing for investor attention as well as dollars. Building trust and owning the relationship with your LPs can be a huge competitive advantage. This is why Sydecar has chosen to make our customers’ deals and syndicates private, rather than creating a marketplace that draws your investors away to other opportunities. 

Winning Deals 

Building a brand around your investment thesis and sharing details of that thesis through public channels will increase your inbound deal flow. You’ll become the first investor others think of when meeting a company that matches your thesis. This increases both the quantity and quality of your deal flow. A strong brand will also help to secure allocation in the most competitive deals as founders will have an understanding of the value you bring. 

Supporting Founders 

Your brand immediately demonstrates how you support your portfolio founders. In positioning yourself as an expert in an area, such as growth, product, or fundraising, your founders know they can turn to you for resources and connections on that topic. They can also ask you to utilize your reach for further advice. Lolita Taub, a VC who recently launched her own fund, frequently tweets questions on behalf of founders to crowdsource advice, creating a concise resource for founders to turn to. 

Build your brand 

How can emerging VCs start building their brand? The lowest barrier to entry is social media. Experiment with LinkedIn, Twitter, or even TikTok content to find where you can shine. As you engage with others, you may find podcasts, newsletters, events, or blogs are valuable for building your brand. Here are some low-cost, high-value brand-building activities that new investors can focus on: 

• Identify your voice and who you want to connect with

• Use your areas of expertise to create educational content

• Launch a newsletter for LPs to demonstrate your investment thesis and portfolio wins

• Ask questions or run polls on Twitter to get a better understanding of your audience

• Personify your brand by including pictures of yourself or telling stories in investor updates

• “Build in public” by using social media to share updates on your fundraising journey

• Host networking events in collaboration with other emerging VCs 

• Record conversations you have with founders, LPs, or investors and turn them into a podcast 

• Develop an engaging, informative YouTube channel to visually showcase your insights and investment philosophy

• Offer mentorship or advisory sessions to early-stage startups, building relationships and demonstrating expertise

The surge of new entrants into venture capital has intensified the race for top deals and LPs, challenging newcomers to carve out their niche. By harnessing the power of social media, thought leadership, and targeted content, savvy managers are establishing themselves as experts and reliable partners in the eyes of founders and fellow VCs.  This brand-building journey is not just about visibility; it's an essential strategy for success in today's VC world.

Emerging managers are historically a great bet. As Heather Hartnett points out in her Forbes piece entitled “When Public Markets Experience Volatility, Experts Say To Invest In Emerging Managers” the data is clear:

Data from Cambridge Associates shows that new and developing firms are consistently among the top 10 performers in the asset class, accounting for 72% of the top returning firms between 2004–2016. (article source / data source).

So why is raising as an emerging manager so hard?

To get more insight on this topic,we spoke with three emerging managers who have first-hand experience raising funds over the past few years. First, some introductions:

Al Bsharah is the Managing Partner at Interlock Capital, a unique community-driven startup fund. After starting his career in Detroit's auto industry he set out for the San Diego startup scene in 1998. From there Al embarked on a 20+ year entrepreneurial journey, during which he founded three companies and invested in over 100 startups.

Carey Ransom is the Founder and President of Operate Studios, which focuses on building innovative companies from the earliest stages. Carey is also the Managing Director of BankTech Ventures, which invests in early-stage technology to transform community banking. With experience taking multiple startups from launch to exit as well as managing two funds, Carey knows quite a bit about what it takes to raise from both VCs and LPs.

Hem Suri is the Founder & Managing Partner of Spark Growth Ventures, where he’s democratizing access to venture investing through an innovative, community-driven model  Hem has two decades of experience across various industries as an entrepreneur, investor, board member, and executive leader. Hem's extensive career includes serving on over 20 boards, and executing 50+ venture and M&A transactions. 

Al, Carey, and Hem joined us for a live panel to discuss their experiences fundraising as emerging managers, during which they shared invaluable insight and tactics. Check out the live recording here, or read on for a rich summary of the conversation.

Winning LP Trust Is Key

By definition, emerging managers come with limited track records. Although a new manager may have some successful angel investments, they will not have a significant history of showing differentiated returns. When a manager goes out to raise their first fund, they are largely selling themselves to potential investors rather than their portfolio. Because of this, building trust with LPs is key.

This is not unlike the fundraising process for first-time founders. LPs are betting on the manager’s ability to source exciting investment opportunities in the same way a VC is betting on a founder’s ability to stand up a team, build a new product, and bring it to market. In both situations, there is limited data early on and the investment decision hinges on the confidence in an individual.

Trust Doesn’t Just Happen – It Takes Work

The managers we interviewed each had their own approach to building trust with LPs, but a couple of themes emerged:

1. Bring active and prospective LPs into your process. Share opportunities, discuss deals, and be collaborative. This gives you an opportunity to show prospective LPs how you think, which can help to build trust independently of demonstrated returns.

2. Leverage Special Purpose Vehicles (SPVs) as a tool to expand your network and create value for LPs. Give prospective LPs the opportunity to co-invest through SPVs so they can choose investments a-la-carte before they make the bigger decision to get involved in the fund. Use SPVs to give active LPs the chance to increase their exposure to companies that excite them the most.

You Can’t Rush Trust

Trust takes time and any attempt to rush the process is risky. All three of the managers we spoke to have spent decades building trust with LPs. This can be hard to hear as a prospective emerging manager who has the itch today, but is a great lesson in taking the long view –something that is required for any successful venture investor.

Differentiated Deal Flow

The last (and maybe most obvious) theme is that emerging managers need to have differentiated access to deals. You might be able to earn trust from LPs, but if you can’t get access to the best founders, it’s going to be hard to put that money to work. Showing off a unique ability to access the best opportunities is a key part of the process.

In summary, why is raising as an emerging manager so hard?

As you may have noted, three of the four sections in this article talk about building trust, while only one mentions the logistics of operating a fund. Trust is what makes raising as an emerging manager hard. If the best way to build trust is to have a track record of success, but you can’t have a track record without trust, where does that leave emerging managers?

On the LP side, the data tells a different story. For established funds, past performance is not a predictor of future success. Historically, almost three-fourths of top-returning funds are led by emerging managers. But, raising as an emerging manager is still hard. That’s because - ironically - most LPs aren’t making data-driven decisions. The decision to invest behind a manager is often more emotionally driven than one might imagine.

So what can you do?

First, recognize that the LP’s decision will be 75% emotional (trust) and 25% logical (data). Second, build a strategy around this reality. Third, execute consistently over time. 

As an emerging manager, the highest impact activities to build trust are: 

1. Build a community of investors around you and communicate with them regularly.

2. Give investors the opportunity to make smaller commitments to your deal flow by way of SPVs.

Raising as an emerging manager is hard, but if you can execute in line with the strategy above, you may just have LPs knocking down your door asking you to launch a fund. 

Today, we’re excited to launch a new product that will empower emerging venture capitalists, syndicates, angel groups, and investor communities to spin up venture funds in a fraction of the time (and at a fraction of the cost). Sydecar's Fund+ was built for venture investors who want to put their capital to work supporting world-changing startups, not paying for exorbitant fund administration fees. 

Launching a venture fund has historically been expensive, complex, and time consuming. The costs and time involved with fund formation leaves capital allocators with two options: raise tens of millions of dollars to justify fees, or pay for fund expenses out of pocket. For most, both options are out of reach.  

Sydecar's Fund+ provides a third option: end-to-end fund formation and administration with reasonable fees that scale with fund size. Our standards-driven approach allows emerging fund managers to get into business quickly without forking over $50k+ to draft legal documents from scratch.  Our structure, illustrated below, combines the stability of a committed capital fund with the flexibility of deal by deal investing so that fund managers never have to turn away capital. Sydecar's Fund+ offers automated banking, compliance, contracts, tax, and reporting, all built on our proprietary general ledger software.

“Sydecar’s Fund structure allowed me to go all in on venture investing. I’ve been angel investing and running a syndicate for several years, but I never imagined being able to do this full time because of how expensive and time consuming running a fund typically is. Because of Sydecar's product-driven approach, I’ve been able to scale to a $10M fund in just a few months without the headache that comes with traditional fund admins.” - Nik Milanovic, GP of The Fintech Fund 

Learn more about the Sydecar Fund+ Product

After a decade-long bull market, the recent downturn presents a huge opportunity for anyone deploying reasonable amounts of capital into early stage companies.  While many institutional VCs appear “closed for business,” emerging fund managers, syndicates, and operator-investors are eager to back the exciting companies forming during this time. Sydecar’s approach enables these new stakeholders, making it possible to raise micro-funds as small as $1M.

“We are launching Fund+ at a pivotal moment in venture capital,” says Founder & CEO Nik Talreja. “As the bull market gives way to a downturn, traditional models for supporting capital allocators - from marketplaces to manual service providers - start to break down. The industry’s focus on short term growth has led to a proliferation of bespoke structures and custom legal agreements that require the support of lawyers, fund accountants, and tax advisors. All of this is costly and unscalable.” 

We developed the Fund+ structure to fit the unique needs of emerging venture fund managers. Our standardized legal documents limit the need for lengthy negotiations with investors. Emerging fund managers can get started raising capital in just a few days, so that they can get back to what they do best: building relationships and backing amazing companies. Our documents are informed by months of research into industry standard terms that provide appropriate protections to both fund managers and their investors.  

The Fund+ structure allows managers to: 

• Launch a fund and accept capital commitments in less than a week. 

• Offer customized terms and economics for each investor depending on your unique relationship.

• Streamline investor onboarding with mobile-friendly subscription agreements and fund and compliance documents.

• Invite third-party investors to an opportunity while maintaining a single line on a company’s cap table. 

• Remain in full control of your fund by leveraging a self-managed entity, while Sydecar acts solely as the administrator, taking direction directly from the manager.

• Avoid paying expensive service providers for fund formation, regulatory filings, tax, accounting, and reporting. 

“Sydecar gives us real time visibility into all of our capital commitments and capital call schedules. We love having a document center where every single deal and every single document is easily accessible. We’ve spent significantly less time managing spreadsheets and email threads as compared to our previous fundraises.” - Gary Raju, CFO of Prota Ventures

We’re excited to be growing with the next generation of venture investors who have already embraced our standards-driven approach to SPVs. With this launch, we are furthering our mission of bringing more efficiency, transparency, and liquidity to the private markets. Our journey to transform the way private markets operate is just beginning, and we’re grateful for all that choose to embark on it with us. 

“We wanted to work with smart people who would push the envelope a little bit on approaching things from a different angle, especially since we're navigating this entire journey as first time fund managers.”  - Daniel Ha, GP of Antigravity Capital 

Interested in launching a Fund+? Check out our product overview or schedule a demo today.

This week, we hosted a discussion with Eric Bahn of Hustle Fund and Chris Harvey of Harvey Esquire on the future of private market infrastructure and how standardization is critical to building a platform with staying power. Our conversation included predictions on private markets, unrealized expectations of the industry, and standardization’s power to lower barriers to entry. Here are the highlights!

If you would like to listen to the full discussion, you can find the event recording here. 

Where do you hope to create the biggest impact in VC over the next few years?

Nik Talreja (NT):  I hope to impact how individuals participate in the private markets so it is more like the public markets, where there are fewer gatekeepers. Through Sydecar and standardization, the private markets can reflect the public markets in transparency and liquidity.

Chris Harvey (CH): Over the past several years, there have been a lot of how-to guides for startups from venture capitalists. But, raising a fund is still opaque. My biggest impact will be creating educational pieces on starting a fund

Eric Bahn (EB): My first goal is to inspire more kindness in this industry. There’s this trope of the brilliant jerk. This is completely wrong. You can be a nice person and still be enormously successful. 

My second is bringing more voices into this community. Industry leaders tend to support those that look like them. This excludes a massive population of founders who may not look like the traditional archetype, but are building enormous businesses.

Is there a trend that you predicted to play out in VC that hasn't, or hasn't yet, played out? 

NT: Given this past year of economic compression, I worried we would see a decreased number of syndicates and emerging managers. However, these stakeholders did not stop playing the game. In fact, we still see a large cohort of emerging manners indicating they remain an active part of the ecosystem. 

CH: I was hoping that opening and running a fund would be as simple as touching a button. That has not fully played out yet.

EB: Supporting underrepresented founders was convenient during the good time. In the downturn, it's less convenient. From what I can tell on LP sentiment, they are retrenching towards what feels safe, for example the privileged white male from Stanford types. 

What does standardizing private markets mean to you?

NT: Public markets are easy to engage with. Trading happens in seconds. There is no reason private markets cannot be similar. Standardizing documents and information will make it easier to execute on deals, allowing private markets to be more liquid. 

CH: You can’t have standardization without transparency. As a lawyer, the forms, market data, and processes have historically been gated. There is no single standard, so executing on investments is currently done piecemeal with intermediaries. Releasing standards into the public will create transparency and a more efficient ecosystem. 

EB: There are no standard ways for how valuations are measured in the seed ecosystem. Standardization can bring consistency to understanding startup values and fund performance. This translates to a lower cost of entry, which will be enormously helpful for the industry. 

What are the push backs from investors against modernizing private markets?

NT: There are simple items from investors who insist on signing in blue ink that we can navigate. 

On the more complicated side, institutional investors may insist on having documents reviewed by their counsel, leading to markups and changes that prevent standardization. This is an opportunity to learn what their needs are. In engaging in conversation, we see the ultimate goal is a seamless transaction, and gatekeepers will insist on changes that do not actually hold value. When we get to this understanding, we see that even large deals can be standardized. 

There will never be a point where 100% of the market is using the standards, but eventually 80% will find that they can. This will create the transparency, liquidity, and lower cost that we are building toward. 

Last week, Sydecar CEO Nik Talreja joined On Deck Angels to discuss the current investing climate, and how SPVs are the best tool for those looking to build a track record in 2022. As interest rates have soared and public company valuations have tanked over the past few months, there’s one question on everyone’s minds.

Is now a good time to invest in startups?

You’ll likely get a completely different answer depending on who you ask. Of course, there are many nuances to consider: What stage company? Which industry? Who’s deploying the capital? And what are their expectations for a return? 

While there may not be a clear path to “yes” or “no,” one thing is undeniable: investing in venture capital is a long term game, and betting on early stage companies requires seeing or intuiting something about the future that others might not see. A startup may have a low valuation today due to macroeconomic conditions, but still have a viable path towards a 10x or 100x return. The mere fact that startup valuations are significantly lower today than they were six or twelve months ago is just another reason why now is the ideal time to be investing in venture. Lower valuations, along with the slower pace of the market, allow newer investors to get into valuable deals that they may have otherwise missed a year ago – and allows them to diligence those deals on their own timeline.

A slower pace of the market gives emerging VCs more time to search for under-the-radar companies that may have otherwise been overlooked. The companies succeeding and showing traction today have to fight harder than ever to acquire customers, resource appropriately, make strategic hiring decisions, and raise capital. The teams that are fighting today will be better for it, and only the best will come out the other side. The opportunity for returns on startup investments made in 2022 are immense.

A look at the numbers

There’s no doubt that startup investing today looks very different than it did a year ago. But when you look at the numbers, the impact to early stage investing via SPVs is minimal. At Sydecar, we’re seeing that SPVs take 30% longer to close and are about 15% smaller on average. While the average number of investors in an SPV has decreased since last year, the average contribution per SPV investor has increased. With early stage startups being so far disconnected from the public markets, where valuations have dropped significantly, a macroeconomic downturn is less impactful (and less relevant) than one might think. 

Building a track record during a downturn

So if you’re an aspiring VC investor that believes that now is the right time to get started, where do you go from there? How do you convince others to trust you with their money? And how do you convince startups that they even want your money? Venture investors, and the limited partners who invest into venture funds, look for VCs who can get access to good deals and pick out the winners. Using SPVs to pool small amounts of capital to invest into companies one at a time is a great way to build a track record as an emerging VC. The deal-by-deal nature of SPVs allows individuals to opt in to a deal based on their own analysis of the target company.  As an emerging VC, keeping your SPV investors up to date on the progress of past investments through regular investor updates can help build trust in your approach and start to build a track record. 

As a newer VC, it’s best to focus on raising capital from people who you already know, and who already trust your judgment. This will help you generate momentum, get some initial “reps” in, and ultimately build a track record of success. On the flip side, attempting to raise from strangers during a downturn may be a challenge. At a minimum, you’ll likely have to spend more time explaining an investment opportunity and why you’re excited about it. The time you’ll spend convincing these investors to trust you will be a barrier to demonstrating your ability to generate returns.

As you think about ways to generate quality deal flow, consider finding ways to be helpful to founders even before an investment opportunity is on the table. Building good grace with founders before they are fundraising will put you top of mind when they do approach a funding round. It will also keep you informed of their incremental progress, which will make it easier to raise funds for an SPV when the time comes. Last but not least, being in a founder’s good graces will give you some leeway if it takes you longer to fill your allocation, given the market conditions.

Now what?

So where do we go from here? How will the changes we’ve seen over the past year impact the future of venture investing? There’s no way to know for sure, but here are a couple trends we’re watching at Sydecar:

• Trust and relationship-building will be a fundamental part of group investing.

• Syndicates and angel groups will form around existing communities across verticals – from creative agencies to sports teams to coworkers. New, flexible investment structures will emerge that allow VCs to aggregate and deploy capital more flexibly with lower transaction costs.

• Regulation may tighten (or at least, won’t loosen significantly in the near term).There will be an increased interest in (and demand for liquidity) within private markets, and infrastructure will emerge to enable more liquidity.

For those finishing up college or early in their careers, starting a career in venture capital may seem intimidating– or even impossible. Established venture firms rarely post their open roles online, and even when they do the prerequisites are aplenty. Historically, landing even an entry level role in venture capital has required industry experience and an MBA. The competition can be fierce, and the job itself is not always glamorous. Like many entry level jobs, working as an analyst or associate at a large venture firm often means you are far away from the action. 

And yet, the generation currently exiting their college years and joining the workforce is a powerful one. Today, Gen Z is closest to emerging trends and technologies, and soon to be one of the most significant factions of spending power. Brands (and the investors behind those brands) want to hear the Gen Z perspective. 

But how does someone from Gen Z – with little to no work experience – land a job in venture capital, one of the most exclusive and opaque industries out there? For those that don’t want to go down the MBA path, consider venture scouting. 

What is a venture capital scout?

A venture capital scout works part time with a VC firm to identify the best startups to invest in. Many venture firms run scout programs to help diversify deal flow and increase their chances of investing in the next unicorn. Venture scouts are typically individuals who work full time in the startup ecosystem (founder, operators, community builders, etc.) and have used their position to cultivate a community of entrepreneurs. Although scouting is usually part time, some firms hire internal scouts to support full time. 

What does a venture scout do?

The best venture scouts immerse themselves into the startup ecosystem in order to decipher which early stage companies their VC firm should invest in. Scout programs typically last anywhere from four to twelve months. During this period, scouts attend online and in-person events and workshops to expand their networks and meet one-on-one with founders to build relationships and understand business models. The scout may be assigned by the firm to focus on a specific stage of company (i.e. Series Seed), a specific industry (i.e. healthcare), or a specific geography (i.e. Midwest). Sometimes scouts are “given” a predetermined amount of capital to invest into companies at their own discretion, or sometimes they are simply responsible for identifying promising companies to introduce to a firm and handle the rest of the process. 

Why would someone participate in a scout program?

One of the primary benefits for VC scout is the opportunity to learn the craft of venture investing and get hands-on experience in the industry. Many scout programs provide an educational curriculum to participants, including notable speakers, workshops, content, and networking events. 

Being a scout is also a great way to build an investment track record. Young individuals who want to build a career in venture but don’t hold a full time role at a VC firm can participate in a scout program in order to refine their deal sourcing, due diligence, and relationship building skills. At the same time, they can track their scouted investments in order to demonstrate their ability to source good deals. For individuals who want to start their own fund or syndicate down the line, this is a great way to build a track record. 

Another benefit of being a scout program is the financial upside. Scouts typically receive carried interest (or “carry”) when a deal that they sourced turns a profit. This means they are only rewarded for successful deals (those that bring in a return higher than the investment made). Sometimes, scouts will also receive closing fees to compensate them for bringing in deal flow which helps to align incentives between the scouts and the firm. 

Finally, scouting for a VC firm is a great way to build a network in the startup and investor ecosystem. VC scouts typically don’t have exclusive relationships with the firms they support, so some individuals will scout for multiple firms at once in order to build their network and refine their craft. Since meeting new people (both founders and investors) is such a pivotal part of being a successful scout, it’s a great option for anyone looking to build a career in the investing or startup ecosystem. Many of today’s most celebrated investors and founders started their careers in scout programs as a way to build their networks.

Why should more Gen Zs become venture scouts?

Most Gen Z are not accredited investors, meaning they can't legally invest in startups. Scouting for VC firms is a great way for non-accredited Gen Zs to learn the mechanics of venture investing, establish relationships with investors and founders, and build a track record of success. Regardless of your career aspirations, scouting is a phenomenal way to build a network across the tech, venture, and startup ecosystems which will pay dividends as you continue to develop your career. Having more Gen Zs in scouting roles is also world-positive, as they largely prioritize topics like diversity and equity, climate change, education, and future of work. Having a Gen Z influence on which companies and founders get funded will have a net-positive impact on our society.

How can I become a scout? 

There are a number of scout programs that offer educational resources and compensation for folks looking to gain experience in VC. Here are a few recommendations crowdsourced from our community: 

1. GenZScouts is a 6-8 week fellowship that educates Gen Z students on the venture capital industry and gives them first-hand experience. Participants get access to educational content, weekly speaker sessions with top VCs, virtual office hours, and happy hours. While GenZScouts doesn’t directly compensate participants for sourcing companies, they do pair scouts with venture capital firms, accelerators, and angel investors to give them hands-on experience.

2. The BLCK VC Scout Network provides Black scouts and angel investors with the knowledge, network, and tools to make better investments. The goal is to empower Black scouts and angel investors to make more investments and become better investors by helping them expand their sourcing pipelines, increase their ability to efficiently diligence companies, and build networks to co-invest alongside other investors. 

3. Dorm Room Fund, spun out of First Round Capital starting in 2012, is where investors and entrepreneurs start their careers. The fund, which supports the strongest community of student entrepreneurs across the nation, backs student founders with a network of investors, mentors, and their first check.

4. Seed Scout helps founders build their network (online and in person) to make raising capital a more efficient use of time. Seed Scout pairs their founders with a network of venture partners to jam on their company, provide feedback, and increase the founder's luck surface area.

5. Contrary Capital Fellowship is a diverse and selective community of the top engineers, designers, and product minds. Fellows receive lifetime access to an exclusive network of highly talented peers, invite-only events, and so much more.

6. Susa VC Venture Fellows Program is a six-month training program for aspiring venture investors. Venture Fellows will receive 1:1 mentorship from the Susa partnership and participate in Susa’s sourcing, evaluation, and investment processes in order to gain hands-on experience and build a body of work. This program is an opportunity to see how our team and venture capital work from the inside. 

7. Undercover VC Fellows are curious, creative, and driven students across the country passionate about startups, investing, and problem-solving. Fellows will work with startups on their campus on behalf of UndercoverVC, connect with the UndercoverVC community, attend events, meet guest speakers, and learn skills core to VC.

While secondary sales present the greatest opportunity for liquidity in the private markets, they come with quite a bit of baggage. Understanding the regulatory nuances of secondary transactions can help create more opportunity for elegant transactions, and subsequently more opportunities for early liquidity.

Considerations for secondary investors

Despite their many benefits, some VCs chose not to participate in secondary transactions given the implications around reporting, tax, and SEC registration. In venture capital, secondaries are considered “non-qualifying” investments, and fund managers are currently limited to 20% non-qualifying investments per fund or SPV. VCs who surpass this 20% threshold in any single fund or SPV, and who manage $150M+ in investments overall (based on fair-market value), may no longer benefit from certain VC exemptions. These managers 1) may have to register as an investment advisor with the SEC, which is a burdensome process that comes with additional reporting and financial audit requirements, and 2) they can only raise money from “qualified clients,” defined as individuals who have a net worth over $2.2 million.

Opportunities to build an effective secondary market

Previous attempts at creating an efficient secondary market have been thwarted given the absence of four factors: 1) homogenous assets, 2) sufficient supply and demand, 3) limited gatekeepers, and 4) reasonable transaction costs.

Venture capital assets are generally homogeneous (common or preferred stock in Delaware corporations) and demand for secondaries is plentiful given the associated benefits. While volume may be sufficient for a functioning marketplace, access is fractured and gatekeepers abound. A transfer of shares in a secondary transaction typically requires consent from a number of stakeholders, including the company’s board. The board may choose to reject the transaction simply because they don’t have the adequate time to evaluate whether it’s in the company’s best interest. Most companies also have a “right of first refusal” which allows the company and often some of the company’s shareholders to block a secondary transaction. They may choose to do so because of the implications such a transaction could have on valuation. Secondary share prices are typically determined by the buying and selling parties without the company’s direct input. If the price becomes public knowledge, it could impact the company’s future efforts to fundraise at a substantially higher valuation. In a similar vein, secondary prices can impact a company’s employee incentive plans, thereby making it difficult to offer a reasonable strike price for future employees.

Private companies are not obligated to share detailed information on stock price or valuation with all investors. This lack of transparency has made it difficult to establish an efficient secondary market. Because of the implications on valuation, many companies will specifically decline to share information if they sense that a stockholder plans to use the info to solicit secondary interest. This results in information asymmetry between buyers and sellers, and means that subjective factors such as industry news or product trends may impact pricing in a secondary transaction.

Using SPVs to build an effective secondary market

As noted above, a secondary transfer of shares directly on a company cap table typically requires board approval, review of transfer restrictions, and waiver of investor rights. However, a transfer of shares within an investment vehicle itself (such as an SPV) is generally free of these burdens — especially if the transfer involves a minority interest of the SPV and both the buyer and seller are accredited. Thus, there is a legitimate opportunity to create an efficient secondary market in which fund or SPV investors transfer their ownership of a vehicle rather than transacting directly on a company’s cap table.

These intra-vehicle transfers require that accurate and up-to-date information on the underlying investment is shared with the buyer, so the lack of price transparency still presents a challenge. SPV investors do not typically receive regular updates about portfolio company valuation events (i.e. follow-on rounds), partially due to their lack of information rights. Given that the rise of SPVs via syndicates is still relatively recent, there have not yet been efficient communication and information sharing channels built between portfolio companies and SPV investors. SPV investors typically do not have full transparency into the value of their (indirect) stake in a company and, on the other side of the table, companies don’t have efficient channels to leverage the support of their full network of investors.

If investment vehicles are created and maintained in a standardized way, with data stored in a structured manner, it would be easier to share valuation and other portfolio company updates with SPV members. This would give each SPV investor transparency into their specific interest in a company, and make it easier for them to entertain secondary opportunities. In many ways, a standardized approach to creating and maintaining investment vehicles is a significant first step towards an efficient secondary market with reduced regulatory burdens.

It’s no secret that venture capital is being disrupted, in large part due to the influx of new entrants.  The bull market of the past decade, punctuated by massive tech exits, low interest rates, and stimulus checks, has made it viable for more individuals to invest in startups. This disruption has also been enabled by developments in investing infrastructure and technology. New structures for investing, including syndicates, investment clubs, and DAOs, have made it possible for individuals to build a diversified portfolio of venture investments via checks as low as $1k. Simultaneously, the technology supporting these investments has driven down transaction costs. Finally, there are more great companies being started than ever before, in large part due to the reduction in costs required to start a company. 

Venture investing has been on fire for the past several years. Records have been broken (and then broken again): more first-time funds have been launched, more SPVs have been created, and more dollars have been deployed into startups than ever before. The increasing participation in venture capital is good. VC has outperformed any other asset class over the past several years, and those returns shouldn’t be gate kept by a select few. Greater diversity amongst capital allocators will lead to higher levels of both innovation and representation. Individuals from under-estimated groups and non-traditional backgrounds have had an easier time (though not always an easy time) raising capital to invest. With so much liquidity in the market, and so many eyes turning towards VC, it’s been easy to be optimistic. 

But now we’re in a bear market. Wallets are tightening and due diligence is becoming more rigid. VCs who had an easy time raising millions of dollars last year are now wringing their hands with anxiety, asking: “Is the fun over?”

For some, yes. Emerging VCs who haven’t yet demonstrated success (via returns or markups) will have a harder time raising fresh capital to deploy. First time fund managers who plowed through their first fund in a 12 or 18 months will be thinking about raising fund II. Typically, this means talking to institutional investors, many of whom are pulling back, and who have higher expectations regardless of the macro-economic environment. Some fund managers will turn to SPVs to keep up their investing momentum without the burden of raising millions of dollars for a fund.

What about syndicate leads? During the bull market, every syndicate deal was oversubscribed, timelines were compressed, and money was thrown at deals with little to no diligence. Syndicate investors weren’t given the time to build relationships with the people they were entrusting with their money. Because of the compressed timelines, investors felt the pressure to make investment decisions before they had an opportunity to truly understand a syndicate lead’s approach and investment philosophy. The tradition of a “GP commit” – where a deal or syndicate lead is expected to contribute a meaningful amount of capital into their own investments – was often thrown out the window. In many cases, gaining an allocation into a “hot” deal was enough to gain the trust of hundreds of LPs. Relationship building was deprioritized while everyone had money signs in their eyes.

There’s an ongoing debate on VC Twitter about whether or not early-stage investing is (or should be) heavily impacted by the impending recession. While many investors are pausing due to uncertainty, others argue that a downturn is the prime opportunity to increase investment volume. Prices are more reasonable, slower timelines allow for true due diligence, and founders are more disciplined and determined. Regardless of where you stand on this topic, the data is clear: syndicate volume and pace have dropped significantly over the past several months. This is for the best, since the pace and valuations of the past few years were unsustainable. As wallets tighten, there’s more competition to capture the attention of LPs. And as investing pace slows, LPs will have the time to think twice before making an investment decision. They’ll be more inclined to allocate their capital to syndicate leads they understand and trust.

Capital allocators who spent the past few years using FOMO to drive activity, neglecting due diligence, and straying from their investment thesis did so at the expense of building trust and sustaining relationships with their investor community. On the other hand, those who stayed honest, diligent, and focused have earned the trust of their investor base. They took their time on investment decisions and gave community members a chance to hear directly from founders, ask questions, and voice their opinions. They brought in subject matter experts to vet opportunities and spark fruitful conversations. They syndicated deals based on genuine interest from their community, rather than following the hype. They might have even missed out on deals. But through it all, they built a community.

Communities are built on trust and conviction, which take time to develop. They are also built on shared interest and common understanding. The original form of a VC community, before the rise of syndicates, was angel groups. Angel groups commonly form around specific geographies and, before the pandemic, typically met in person on a regular basis. This structure and cadence allowed for that trust and shared understanding to develop over time.  Today, there are syndicates that form around business school classes or coworkers, but the vast majority are made of people who have only ever interacted on the internet. The relationships between syndicate leads and their investors are often brokered through marketplaces, making them feel impersonal and transactional. These relationships often lack the sense of responsibility, aligned incentives, and discipline that exists in a true community.

A year ago, we laughed at investors who missed deals because they took too long to poll their investors, or because they were too disciplined. Today, the tables have turned. The diligent fund managers still have capital on hand to deploy. The diligent syndicate leads have built a community built on trust, and can leverage that to maintain their investing activity. They can raise capital to do deals and take advantage of reasonable entry prices. 

So, if there’s anything we’ve learned from the past few years, it’s that, if you’re building a syndicate in a bear market, don’t neglect your community.

Today, we’re delighted to announce Sydecar, a frictionless deal execution platform for venture investors. By pioneering a standardized and product-driven approach to private investing, we enable thousands of new investors to identify and back entrepreneurs who are changing the world. Over the past year, we’ve been honored to serve more than 3,000 investors, participating in over 220 deals, leading to $350M+ assets under our administration.

We’re eternally grateful to our investors from Deciens Capital, Pipeline Capital Partners, Anthemis Group, and Hustle Fund VC. These investors have brought us to $8.3M raised to date, with support from angel investors and strategic operators from companies like Brex, Square, Venmo, Plaid, Remitly, Chime, and Allocate.

How did we get here?

As attorneys working in securities law and startup financing, we had a front row seat to both the opportunity and the challenges of investing in private companies. Equipped with this knowledge, we took steps to launch our own venture fund in late 2019. As we did, we looked to friends and peers for guidance. We asked for recommendations and best practices around setting up a bank account, drafting and delivering subscription documents, filing taxes… and everyone seemed to have a different answer. We found that there were no best practices — no standards — for investing in startups. At the outset, every single new venture investor is left to carve a path on their own. Many resourceful investors look to the Internet for guidance — from Twitter, to blogs, to Google search. They’re left to their own devices to determine whether the information they stumble across is credible and compliant.

• “Should I organize a deal under my own name or create an LLC?”

• “What is a registered investment advisor — and do I need to be one?”

• “Do I need to file Form ADV? Is this different from a Form D?”

• “Should I accept the provisions my LPs are asking to add to our subscription documents?”

• “What on earth are Blue Sky Fees?”

Fragmented, inefficient, and costly processes have been accepted as the status quo in venture capital, creating a barrier to entry for many passionate and creative investors. New investors are left to unpack the complexities of legal structures and tax implications, while juggling branding, operations, and investor relations across disparate systems — often with little to no guidance or support. As a result, some of the most promising investment opportunities go unfunded because of the pain associated with deploying capital. Even with the right education and experience, we struggled through every decision. It felt like there was no one looking out for our best interests as we set up our first investment vehicles.

The opportunity in venture capital continues to grow, with value creation increasingly moving towards private markets as companies wait longer and longer to IPO. Historically, only professional venture capitalists have been able to access this value by raising hundreds of millions of dollars from institutional investors and leveraging internal operations teams to support their deal execution.

Today, entrepreneurs realize the value of having former founders and operators on their cap table — individuals who have spent time in the trenches of company building and have gained tremendous expertise and empathy. All of this has led to the rise of new types of capital allocators, including operator-angels, solo capitalists, and emerging fund managers. But these new entrants to VC aren’t staffed with a personal team of lawyers, accountants, and bankers to support their deal execution. In the past, they’ve had to piece together a slew of service providers, consequently compromising on cost, speed, reliability, and compliance. They’ve frequently missed out on deals, stressed over lost wires, and waited on late tax documents as a result. We felt this pain firsthand, and that pain was our call to action.

Meet Sydecar

Sydecar is an onramp to venture capital, starting with an SPV product that allows you to create and onboard investors in minutes. Our intuitive platform guides new investors down industry-trusted paths that make capital formation and allocation effortless. While you’re focused on sourcing deals and building relationships, we’ll handle all of your back-office functions from banking and compliance to contracts, tax, and reporting.

Sydecar sits at the intersection of financial, legal, and technological innovation. Through our standards-driven, product-led approach, we provide access to tools typically housed within financial and legal institutions. By doing so, we remove the headache, cost, and uncertainty of back-office operations while establishing Sydecar as a bedrock for the next iteration of VC investing.

The road ahead

Sydecar is built to support the most exciting transformations in venture investing while reducing friction. Today, our core SPV product allows deal leads to:

• Configure investment vehicles with flexible terms and economics to produce signature-ready deal docs in minutes.

• Showcase opportunities to their network and onboard investors with a few clicks.

• Track interest, commitments, and funding progress in real-time and close in a matter of hours.

• Send deal updates and manage investor communications, while our suite of products handles the rest (from K-1s to distributions, interest transfers and secondaries).

Our SPV product is the first step of a journey towards an ever-expanding platform that seeks to accelerate shifts in private investing. By pioneering market standardization, Sydecar will enable high-quality deals, meaningful relationships, and smart, sustainable progress. In the coming months, we’ll release products that remove regulatory barriers from early stage venture investing, provide unparalleled flexibility to raise committed capital on your own terms, and offer liquidity opportunities with a fraction of the hassle.

Thanks for coming along for the ride! Here’s to a future of better venture investing.

Nik & Dave

P.S. If our mission resonates with you and you’re interested in joining our team or running a deal on Sydecar, please let us know. We’d love to hear from you!