Specialist Series: What is a “Venture Syndicate” ?

By Jay Knowles

An investor syndicate generally consists of three of four investors who have the funds to take the company from idea stage through to clinical proof of concept.  Investors may not put all of the investment in upfront (so that they have a little more control over the flow of funds), and they will often want to see that they are teamed up with other knowledgeable investors who can together fund a project through the requisite valuation steps (including overcoming the inevitable hurdles that are met along the way) and provide the necessary oversight to management at the board level.  There is a fear amongst investors that a project will end up being stopped for lack of a financial appetite from their fellow investors, even if the program may ultimately be successful, if only because there are unexpected challenges along the way.

Since research is by its nature often fitful, investors like to make sure that there are enough parties in the syndicate with deep enough pockets to allow for these stumbles to be overcome, and also to enable reaching out to other investors who may be needed to grow the company (such as mezzanine or crossover investors who will invest in a company a year away from an IPO, help to build the road through to an IPO, and to support the company when it goes public).  Other potential syndicate partners might be corporate venture investors such as pharmaceutical companies who could be eventual acquirers of the company.  Finally, geographic diversity in the investor pool may be helpful if that leads to potential business development opportunities in places outside the US such as Europe or Asia.  It would be great to know at the time of request for funding from BBIC if specific conversations have been had with potential venture investors and any feedback received.