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The Role of a Syndicate-lead Investor

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After much debate, Bee Partners has opened its AngelList Syndicate and will experiment with this exciting new tool available to both investors as well as entrepreneurs.  Here at Bee Partners, we take the concept of ‘Investor’ very seriously, and  personal responsibility is an attribute that we look for in the founders we invest with.  For us, that responsibility takes many shapes: Continuing to support founders who haven’t found product-market fit and now face capital constraints; Being quick, direct and honest with founders when we pass on the opportunity; Following up after pledging introductions and capital support; and being serious about the trust placed into us by our Limited Partners in the Fund.   We think these should be the expectations that all founders should have with their angel/Seed investors.

Being a Syndicate Lead brings with it additional responsibilities, so much so that we recommend that Founders diligence a potential Syndicate lead as much as they would a potential VC lead.  Here’s how we Bee sees those responsibilities:

  • A Syndicate lead should have sufficient bandwidth to be constantly thinking about how to help mitigate a Company’s risk, and improve the likelihood of Company success

  • A Syndicate lead should always be available to the company, its founders and its underlying investors, regardless of the stage and pace of progress

  • A Syndicate lead should advise, evangelize and advocate on behalf of the company, especially so when the progress is not yet headed up and to the right

  • A Syndicate lead should be in the business of serving to company build, rather than investing.  More on this in future blog posts.

  • A Syndicate lead should have sufficient depth to replace capital if, in a sideways or bridge round, the underlying investors elect not to participate

  • A Syndicate lead should be experienced and professional enough to accept the reporting requirements that the underlying investors should expect

Bee Partners is still a young firm, and we do not anticipate that our syndicate will ever grow as large as other brand-name angels.  That’s not our intention.  We see Syndicates as an extension of our current fund, a way to further support our Companies by providing additional capital.   Please note that our Syndicate terms are set to ensure alignment with our underlying LPs in the Funds.

At Bee, we are opening up Syndicates for the following reasons:

  • It’s an opportunity to accelerate a financing with pockets beyond our own.  We’ve been doing this for years, and AngelList expands that distribution

  • It’s a way for us to expand our investor network and meet more angels who share our passion for venture creation and company building

  • It’s a learning experience for us, especially so in light of new SEC regulations

We will continue to build syndicates intelligently, as we have done for over a dozen companies in the portfolio, and we will continue to nurture those existing co-investor relationships.  I welcome the opportunity to discuss this exciting tool with fellow investors, so please reach out if you’d like to discuss further.

Quick notes:

* We’re going to be selective about which angels join the syndicate
* We may never use the Syndicate feature, and instead bring co-investors alongside us
* We know that many fantastic investment opportunities never even hit Angellist; joining the Bee Partners syndicate will never be a substitution for being an investor in our Fund
* While we would love to be able to Syndicate every investment made by Bee Partners, we know that various limitations will never allow that to happen.   We will be as transparent as possible here.

Is The Facebook Fallout a Y Combinator Fallout too?

So today, Paul Graham of Y Combinator sent a letter to all the YC businesses, telling them that, as a result of the Facebook IPO, they should hunker down and reset expectations on the ease of capital and company valuations.

All I can say is, FINALLY!

It’s ironic that the very person to raise founders onto a pedestal and allow them to become starstruck within Silicon Valley is also the same person to warn them of disaster.  Is it unfair for seed investors like Bee Partners to expect some moderation from YC counselors and advisors of company valuations and financing structures?

All due respect to PG – he’s masterfully encouraged venture creation and has pooled extremely valuable resources towards major talent.  At the same time, I fear that many YC companies will falter as a result of under-representing the challenges that companies face post-seed funding.

I’ve seen YC convertible note caps rise 30+% year over year.  And I’ve heard the responses from entrepreneurs as to why their caps were so high (That’s the market, Michael.  Get onboard…FOMO!).  Perhaps to my detriment, I’ve passed, and instead decided to be valuation sensitive.

At the same time, non-YC companies with similar risk attributes and similar ‘early wins’ continue to raise on more realistic initial valuations.  They are equivalent seed investment opportunities in my mind, and the YC badge doesn’t deserve a 2-5x valuation.

Now what?

  • For other seed investors, let’s not let a little down round get in the way of funding some great businesses.

  • For lawyers, dust off your Conversion Amendments so companies can get a fresh start without the burden of a heavy note.

  • For vintage YC businesses returning to the market, come talk with me, I’m looking forward to hearing the story.

  • For new YC startups, please enter your fundraising phase with a more practical view to valuation.

Yes, the Facebook IPO will probably mark a blip in valuations, especially consumer plays.  New financings may dip for some time, but that has more to do with macroeconomic conditions than Facebook.

But good companies will continue to get funded.  So for all you founders out there, keep at it!

(Side note:  I’m a big fan of what YC and other accelerators offer to young founding teams.  Perhaps a topic for another post…)