Pre-IPO Profits

Syndicate Leads Should Have Skin in the Game

Syndicate Leads Should Have Skin in the Game
By Adam Sharp
Date May 18, 2021

About a third of the deals I’ve seen on AngelList recently share a disappointing trait — the syndicate lead has only invested $1,000-to-$2,000. This is almost always a red flag, because it’s a sign that the lead has a low amount of conviction in the deal. And that small investment amount doesn’t affect the carry percentage the lead will receive on any upside.

If the overall syndicate raises $300,000, the lead gets 15% of the upside on the investment as carry. So if the lead only invests $1,000, they effectively invested $45,000 due to the carry.

Flight.VC is one of the largest syndicates on AngelList. And I see these “no skin in the game” deals from them most often. I think the quality of their deals is usually subpar these days. I haven’t invested in a Flight deal for years now.

However, there are times when a lack of skin from the syndicate lead doesn’t bother me. For example, when Zach Coelius was starting out, he would sometimes only invest $1,000-to-$5,000 in a deal. BUT he would explain that he was “cash poor, equity rich.” His wealth wasn’t liquid, and he was still getting started. When the lead explains their small investment, I can overlook the red flag. I’ve been there, and I understand having limited capital. But it’s important to know that’s the reason — otherwise, I assume the lead doesn’t fully believe in the deal.

Most of the time, when I see a deal where the lead is only investing $1,000-to-$3,000 I steer well clear. I recommend you do the same.

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