Building Your Investor Syndicate

Behind every successful fundraise is a carefully constructed consortium of investors. Known as a syndicate, this group of financial backers plays an outsized role in the realization of a climate entrepreneur’s vision, so it is critical that founders recruit the right people.

To identify the best strategies for forming a top-tier syndicate, Enduring Planet sat down with growth-stage VC Monica Varman, Partner at G2 Venture Partners.

The basics: Syndicate structure

A syndicate is composed of a lead investor and a collection of follower investors. The lead will set the terms of the financing and typically constitute 50%+ of the total round size. They will also often take a board seat, and play a meaningful role in the future of the company (unless they’re Tiger Global, but that’s a whole other story). Followers, who put up smaller stakes, can take a variety of forms. However, the best bring value beyond their financial contributions: insights, connections, and/or content expertise. Together, lead and follower investors provide a climate entrepreneur with a community of champions and advisors to help them grow and succeed.

Setting your terms: equity vs. non-VC financing

Before you start your search for lead and follower investors, it is crucial that you determine the amount and type of financing you will need. Founders should take a sequential approach:

• First, build a comprehensive understanding of your burn over the next 18-24 months, considering various scenarios for potential revenue growth, fundraising, etc. As part of this process, identify your key expenses over the period (these will also inform what capital you should raise and when). Make sure you build in a buffer of 25% or so, because…well, your assumptions about growth and spend will likely be wrong.
• Remember, ideally you should be raising to give yourself 18 months of operating runway. Build a few scenarios and shoot for a number that covers the base and worst cases.
• Equity often unlocks other financing, so it’s a good idea to prioritize there. The equity raise doesn’t absolutely have to come first, but many lenders have runway/cash requirements. If you only have a few months of runway remaining, you’ll have to raise equity first before those lenders will work with you. There are exceptions, like bridge lenders, however their terms will often be more aggressive to reflect the added risk of short runway.
• Debt can come in the form of term loans, revenue-based financing, inventory financing, etc. Your current investors can be a great resource for identifying which type of debt is best for your venture. Resources like Climate Tech VCs Capital Stack are also a great starting point, as well as our pieces on this subject here and here.
• You can engage lenders and VCs in parallel, just keep in mind some of the commentary above. It can help to have early conversations about process with all prospective investors (equity or debt) so you can have clarity on timing and sequencing as you enter your raise.

Finding your 🏆 investor

To identify the ideal lead investor for a round, founders should consider two key factors: (1) the amount/timing/complexity of a lead’s financial contribution and (b) their additional value add. Don’t need a lot of strategic insights? Target a solitary big spender that is hands-off and moves quickly. Looking to get a foothold in a hard-to-access sector of the climate ecosystem? Consider a backer with industry LPs, deep market connections, industry expertise, and an appetite to be operationally involved (board seat, etc). Whichever approach you take, be sure that your lead investor can catalyze follower investors and help you reach your fundraising goal.

Building a base of followers

A lot of advice around fundraising suggests that lead investors need to be secured prior to securing non-lead commitments. While functionally this is often true (followers don’t sign docs without a lead), founders should try to build a base of fast-moving followers in parallel to securing the lead. This will enable a fast close once the lead term sheet is in hand.

Note: building this network should actually be done in advance of your fundraise by building relationships with investors, including them in your monthly communications, etc. This kind of long-term engagement allows for much faster closing timelines.

Once you have your list, start selling. To mitigate the risk of a delayed close, start by targeting the follower investors that are most likely to cut the largest checks. Next, zero in on follower investors that would be strategic value adds. They may be former founders, savvy operators, well-connected industry experts, or diverse voices that offer new perspectives. Be aware, however, that there is always a risk of overcrowding your cap table. Before welcoming a new investor aboard, determine if the value they will add justifies the new dilution and overhead that they will introduce.

Closing ⏰

As you approach the close of a round, you will inevitably be at the mercy of the timeline of each investor in your syndicate. Founders should expect to encounter onerous due diligence processes, complex governance requirements, and other delays that could jeopardize their ability to close the round in one go. Combat this by prioritizing fast-moving investors and leaving room for a second close, which can be populated by high value, slower-moving investors.

Building and managing syndicate relationships

Once your round closes, it’s critical to build a good process for investor engagement and management. Lean in to regular communication, asking for help, and take full advantage of the LP and industry networks your investors bring. Welcome the diversity of opinions that your investors offer, use them to push your thinking, and be transparent about the rationale behind your key decisions. That said, it is critical that climate entrepreneurs retain a strong voice and clarity of vision; ultimately, it is your leadership — not an investor’s point of view — that will move your venture forward.

Monica Varman is a Partner at G2 Venture Partners, a venture and growth equity firm focused on technologies that are digitizing and decarbonizing traditional industries. She invests in companies across circular economy, grid resilience, and food/agriculture sectors. Monica was previously part of the business operations and FP&A team at Tesla, where she helped scale Model S manufacturing. She was a core member of McKinsey's sustainability practice and worked on scaling solar in India, Tanzania, and Rwanda.

G2 Venture Partners invests in exceptional teams applying emerging technologies to industries like energy, manufacturing, food & agriculture, and logistics.The firm spun out of Kleiner Perkins in 2017 and has $850M in AUM across 20+ companies, including Arcadia, Proterra, Luminar, and Pivot Bio.