The Strategy Used By 93% of Top Investors

By Matthew Milner, on Wednesday, March 19, 2014

93% of the best-performing professional investors share a common strategy.

It’s called “The Syndicate Strategy.”

Today we’re going to tell you why the pros rely on it – and show you how to join them.

The “Syndicate Strategy”

The Syndicate Strategy is about leveraging the wisdom – and dollars – of others.

Simply put, it involves investing alongside successful, well-connected and well-informed investors.

It makes a lot of sense for any investor – including you.

Think about it:

Given the challenges of start-up investing, it’s smart to have some “pros” on your side…

People with proven track records to do the due diligence and negotiate the deal.

People with skin in the game.

People who can validate that you’re not flushing your money down the toilet.

But here’s the shocking thing:

The pros use the same strategy…

That’s right. Even top-tier venture capitalists. Even the “smartest guys in the room.”



Because it works.

The Numbers Prove It

CB Insights, a research company focused on private companies, recently looked at the 100 largest venture capital-backed technology exits since 2009. (An “exit” is a good thing: it’s when a start-up gets acquired or goes public.)

They looked at how often the pros invested alongside other professionals in successful deals, and how many investors were typically involved in each deal.

As it turns out, 44 of the exits had between two and five investors.

28 of them had between six and nine investors.

And just 7 of the companies – a measly 7% – had only ONE venture capital firm as an investor.

In other words, 93% of the most successful early-stage investments over the last 4 years involved syndicates of top-tier investors backing the same company.

Why such a high number?

Too Much Conviction Is Crazy

There are a few main reasons why VCs tend to use the Syndicate Strategy.

First of all, they like to share financial risk in case things don’t go as planned. It’s nice having a few deep-pocketed allies who can chip in if more capital is needed.

Secondly, more pros around the table means more connections and intellectual capital that can help the company succeed.

And thirdly, everyone – even a pro – likes getting affirmation that they’re not nuts.

3 Ways to Use the “Strategy”

The Syndicate Strategy has proven to be a smart approach for professionals – and we think it would be a smart approach for you, too.

Here are three ways to play it:

1. AngelLlist “Syndicates”

The origin of “investment syndicates” comes from professional investors. It describes a situation where one investor (the “Lead”) takes charge of a deal, negotiates the terms, and commits capital — and then shares, or “syndicates,” the deal with others.

AngelList, a high-quality funding platform, has a Syndicate program you can join.

Let’s use an investor named Kevin Rose to explain how it works. (Kevin’s a successful entrepreneur, and has a strong track record as an investor – he’s invested in Facebook and Twitter, among others, and currently works at Google’s venture fund.)

Kevin sets up a “Syndicate” on AngelList. He takes the lead in looking for deals and commits to investing his own money — let’s say $100,000 — into each one.

Investors like us think Kevin would be a good “Lead” investor. Let’s say 15 of us agree to each invest $10,000 into any of Kevin’s deals. Kevin now has $250,000 to invest into numerous deals: $100,000 from his own pocket, and $150,000 from us, his syndicate.

To find Syndicates you’re interested in, click here >>

2. Informal Syndicates

You can also use AngelList to take part in informal syndicates:

To start, go to AngelList and look at the profiles of investors like Mark Cuban(successful entrepreneur, owner of the Dallas Mavericks, and a “shark” on “Shark Tank,” the popular TV show about angel investing), or Dave McClure (formerly of PayPal and Facebook, an investor in, and now a professional investor).

As you’ll see, an AngelList profile provides insight into whether a certain investor would be a good resource – and a good “fit” – for you. For example:

•    Which companies have they invested in? Do you respect their investments?

•    How many investments do they make each year? The more investments they make, the more investment opportunities you’ll see.

•    Are they an Advisor or Board Member at any companies? If so, that shows they’re an active investor, the type who keeps a close eye on the company.

When you find an investor you respect, see what deals they’re investing in now. See if any of their deals have several well-respected investors involved.

That could be a good syndicate…

Consider investing alongside them!

3. A “Mutual Fund” for Start-Ups

Another way to leverage the wisdom and capital of others is to invest in a “mutual fund for start-ups.”

This type of deal has two syndicates you’re investing alongside.

The first is the syndicate of professionals who helped “launch” the individual start-ups.

You see, the start-ups selected for these funds got their start at prestigious “accelerator” programs. These programs allow start-ups to trade a small equity stake in their company for mentoring and capital. The investment professionals and mentors for these programs are top-notch.

The second is the syndicate of well-connected venture capitalists that chooses which start-ups from the accelerators belong in the “mutual fund.”

You can find one such fund here »

Strength In Numbers

The Syndicate Strategy works for the pros – and it’s a smart path for individuals, too.

Whether you leverage one of the “formal” syndicates we mentioned above, or join an “informal” one, if you see several successful investors putting their money into an investment, consider investing alongside them.

As CB Insights’ research proves, there’s strength in numbers.

Happy Investing!

Best Regards,
Matthew Milner
Matthew Milner


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Tags: Equity Crowdfunding Angel Investing Venture Capitalists Angel List Mutual Fund For Startups CB Insights

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