Follow the leader?
Whenever First Round Capital holds a party, we sometimes get emails from a few of our guests asking if they can bring another person with them. Maybe a VC friend of ours wants to bring another partner with him. Maybe it’s an entrepreneur who wants to bring a new executive hire. Maybe it’s someone who works at Facebook and wants to bring a co-worker. Unless we’re dealing with a venue that has a limited space, we typically are fine with the extra guests. It’s a great way to expand our network – and meet new, interesting people. The few times we weren’t able to accommodate those requests typically were due to hard constraints (either budgetary or the size of the venue). And when we don’t have room, we tell that to the person who asked – and they typically are very understanding.
I just read my friend, Roger Ehrenberg’s, latest blog post on syndicating seed rounds – and totally agree with his main conclusion (that rounds tend to work best if there is a lead investor to represent the interests of the syndicate). But the most meaningful part of Roger’s post, in my opinion, is when he writes about how a syndicate gets chosen. Specifically, he writes: ‘One can have a reasoned discussion concerning capacity, etc., but fundamentally if an entrepreneur wants a particular investor in I am going to make room – period.’ I could not agree more. I think that the entrepreneur should be the “decider” on the syndicate – not the lead investor. The lead investor should help establish terms, provide feedback and input on potential co-investors, and bring other investors to the table if asked/needed – but the lead investor should not force a syndicate on the entrepreneur.
If I’d react badly to a guest trying to force me to let another guest into my party for a few hours (ie, “the only way I’ll come is if you let this stranger in”), I can only imagine how badly I’d react if I was an entrepreneur that was forced to spend the next 5+ years with someone I don’t want. In my view the lead investor should offer feedback and offer introductions – but ultimately should follow the founder’s lead on syndicate composition. If the founder wants certain angels to participate – done. If the founder thinks that a certain fund could add value – done.Just like I think that financing rounds should be based on company math (as opposed to venture math), I think the syndication decision belongs with the founder (as opposed to the investor). The founder should be free to choose the investors that increase the company’s odds of success. And building a syndicate is the entrepreneur’s opportunity to figure out who the founder wants to spend time with, who the founder respects, and who the founder thinks can help the company the most.
Oftentimes the first strategic discussion that a lead investor gets to collaborate with a founder on is the discussion around the syndicate. And while I'd clearly expect a reasoned conversation to occur, I believe that an early stage investor is funding a company because they believe in the entrepreneur's ability to make strategic decisions and to optimize for success. And ultimately, it should be the investor who follows the founder's lead when it comes to syndicate composition (and not the other way around).