view episode transcript
The concept always the same, I have great deal flow, but I don’t have the investor relationships. And so, in my mind, it’s easy for them to say, I want to go to Angel list because they already have all of those angels there. But that sometimes can cut them off at the knees because they’re not actually developing direct relationships with their investors.
Jay Clouse 0:21
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.
Hello, hello, hello, and welcome to the Upside podcast, the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse, and I’m accompanied as always, by my co host, Mr. New Faces of finance himself, Eric Hornung.
Eric Hornung 1:01
Hey, I got a new show Capiche.
Jay Clouse 1:06
That was really well done for not knowing I was going to completed that.
Eric Hornung 1:09
Thank you. We are experimenting with a new platform will I am experimenting with a new platform. It’s called Capiche and it’s like a mix of clubhouse, radio and podcasting all kind of smashed into one. Very bullish on it very excited about it. It launched in November. So it is quite a new platform. But I think it has some real upside potential for people who want to do podcasting like experiences without the increasingly high bar that it’s attributed to podcasts.
With some upside potential. Are we doing something with upside on it?
Well, I mean, it’s Capiche is going to fall under the upside network. So technically, that was a double entendre, even though I didn’t plan for it.
Jay Clouse 1:54
So does this work? Do I subscribe to your show? Just like I would any other podcast?
Eric Hornung 1:58
Yeah, you’d go to Capiche.fm/EkHornung, and you’d subscribe to my show using your phone number, which is something that I think is very understated a feature that they came up with. When I go live, you get a text message, you can click in and listen live to the show, you can enter, you can interact, you can request to call in just like you could on like a old school sports show. You want to call in and comment or ask a question, we’ll let you in, we’ll take some calls. Or you can leave some notes in the chat. And we can respond to those. So it’s also kind of like streaming, I guess, in a way there’s, it’s really a lot of the kind of trends that we’re seeing in this space all smashed into one.
Jay Clouse 2:35
So what is what is your show going to be about The New Faces of Finances, the name of it.Tell me more about that.
Eric Hornung 2:39
For the last three years, Jay, you and I have been living at this intersection of finance, media and technology. And quite frankly, I think there’s a lot going on there that outside of our little Twitter bubbles, not a lot of people are paying attention to. So I want to talk about those trends that I’m seeing how finance is changing because of the acceleration in technology, which is leading to accessibility to everybody creating their own media. We see this like audience first, community first different types of trends that are emerging. And I just want to talk about those and I want to talk to the people who are doing those. So I’m going to have guests on we’re gonna talk for 20 minutes and then we’ll do audience kind of Q&A dial in after that for up to an hour.
Jay Clouse 2:41
We’ll put a link in the show notes. But speaking of New Faces of Finance people at this exciting intersection. Today we’re talking with Landon Ainge, the managing director of Assure Syndicates, Assure Syndicates, crease spvs to help simplify the deal process and fund administration. So you can focus on what you do best finding deals and building relationships. Eric, you’ve been talking about Assure Syndicates for months now and finally got landed on the show. I think he’s gonna be on Capiche soon. Also, what turned you on to Assure Syndicates?
Eric Hornung 3:52
Well, this is one of those trends syndicates in general spvs being able to consolidate a bunch of angels I first got turned on to it by Angel list. And as tends to be the case on this podcast, Jason Calacanis somehow snuck his way into my thinking here. So I found Landon or he found us I’m not really sure how it actually happened. But we connected over the summer. And then I learned about Assure and it’s kind of this white label solution versus Angeles, which is this front facing solution. And there’s some differences there. And I want to talk about both of those. But I really want to talk about more generally, SPV syndicates, they’re kind of used interchangeably, and it is on this trend what I’m talking about Capiche.
Jay Clouse 4:32
Assure Syndicates, which is part of a Assure. Assure has 912 clients, according their website, over 5000, closed spvs and $4.8 billion of assets under management again, all this from their website. That’s a lot of money.
Eric Hornung 4:47
Yes, that’s a lot of money. That’s our go to hardcore hard hitting analysis right there. That’s a lot of money.
Jay Clouse 4:54
Well, this is something that you’ve you’ve thought about a lot more than I have. I’m going to be asking a lot of questions about spvs because I’m not I was familiar with them. But it’s something that I want to learn more about in this life.
Eric Hornung 5:04
In this life, specifically, Jake, because you only have one life. And if you want to live that life the best way you can, you should go to our friends at Ethos Wealth Management. If you want to learn more about Ethos, go to upside.fm/ethos.
Jay Clouse 5:18
And we will get to that conversation right after this. Hey, listener, have you ever wanted to get a message in front of the Upside audience but weren’t sure how to sponsor the show or weren’t able to do a long term sponsorship? Well, now you can just go to upside.fm/classifieds. And let our audience know anything that’s going on in your world, whether it’s an event, an application, a special coupon, or deal, or just letting them know who you are, what your company does, all you have to do is go to upside.fm/classifieds. And you can place an ad on this show. That’s upside.fm/classifieds.
Eric Hornung 6:02
Landon, welcome to the show.
Landon Ainge 6:04
Great to be here.
Eric Hornung 6:05
On Upside, we like to start with a little background of the guests. So can you take us on a rocketship through the Landon Ainge experience?
Landon Ainge 6:14
The Landon Ainge experience has very little to explain a lot to explain, but very little rhyme or reason. Statistics undergrad, Goldman Sachs, M&A, Corp Dev, product manager of a publicly traded mobile app, VC fund startup now doing spvs. Basically, high level summaries, I keep going back and forth between investing and operating, functioning in between.
Eric Hornung 6:42
We’ve asked that rocket ship question quite a lot on the show that was easily the best, like quickest high level summary we’ve had.
Jay Clouse 6:48
So synced, tell me about this, this tension you feel between investing and operating? What leads you to bounce from one to the other?
Landon Ainge 6:57
I think that investing is what it’s a specific skill set that you have to learn. And it comes through repetition. But operating allows you to actually understand how the people on the other side of the table are doing what they do. And you get that sense of you’re actually building something. And so those two things, there’s a poll every time and I think many investors will tell you that they feel that poll at times. But what I see is that oftentimes people don’t feel comfortable switching back and forth.
Eric Hornung 7:26
So we’re gonna throw you right into some controversy off the off the bat.
Landon Ainge 7:31
Eric Hornung 7:31
There’s kind of a go to debate in VC of whether or not venture capitalists need to have been operators in a former life. On one hand, you have probably a majority who ran startups, on the other some of the best of all time, like Bill Gurley never did. So what do you what do you think? Do you need to be a operator to be a great VC? No, I
Landon Ainge 7:56
don’t think you need to be an operator, I think the best VCs have the ability to do two things. One is to be able to empathize with what it’s like to operate. And you talk about the VCs that do really well, their ability to understand and to remove themselves from the situation, right? The VCs job is not to be the one day to day, it’s to remove themselves from the situation and provide an external perspective. So that’s really valuable to portfolio companies as a board member. The other is the insatiable kind of desire to learn. That desire, as long as that continues on, that tends to be really the skill set necessary. Now entrepreneurs happen to have been operating. So they had experienced a specific, you know, need to learn because otherwise their companies wouldn’t survive. And so those two things, I think, are what you need. And now how those are demonstrated. It doesn’t matter. But that’s my personal perspective, I think both will be successful. The ones that I don’t think will be successful are the operators that seek to come into venture and want to be they can’t leave behind that need to build. And so they need to be more involved. And I see a lot of people trying to enter venture when really their true desires to build and that I don’t see working well.
Jay Clouse 9:18
Talk to me about spvs. I don’t actually know what SPV stands for. Can we start there?
Landon Ainge 9:24
Yeah, let’s start I, I get this question a lot. It’s basically a special purpose vehicle. If you break that down. What that means is is just a legal entity, where you consolidate a group of investors. Well, when you hear that it sounds a lot like a fund. And it really is the same thing as a fund, except for It’s a deal by deal. It’s a flexible fund. So you have two types of SPV, there is an SPV, where you create it for one specific investment and you’re consolidating a bunch of individual investors or entities into that legal entity and you invest in one deal. There’s also a multi asset SPV, where you’re collecting a bunch of money from multiple parties, and you invest it in multiple different businesses. Generally, there are reasons why you might do an SPV versus doing a formalized fund, and usually has to do with flexibility, the cheque size, the formality of it.
Jay Clouse 10:24
And I lied a little bit, I’ve heard the term SPV. But I mostly heard it, like recently within the last year or two, yeah, how long has special purpose vehicles been around as a medium for investment?
Landon Ainge 10:37
Yeah, special purpose vehicles have been around for a long time. Most prevalently, initially used in the real estate world, where you had a bunch of people putting money into behind commercial property, or residential homes or things of that nature. And when it really started changes about five years ago, when you break it down, you look at who was doing this, who is doing it differently. The SEC came out with a few specific regulations that change this, and Angel list and Assure or kind of the foremost in utilizing spvs. In this venture asset class, they partnered together and basically were able to grow that how to execute an SPV. And specifically assured who I work for, really focused on making it more affordable. In that process. To make an SPV, it used to be that you’d have to go to a lawyer, you have to go to accountant, you have to go to a tax professional. And you’d have, you know, $20,000, $30,000, $40,000 of cost to do this. And so it just wasn’t feasible in the venture asset class. Well, as Assure started to grow and focus more on the volume, they were able to make the price per SPV go down significantly, to where now you start to see it over the last two or three years, everyone is talking about special purpose vehicles, because now they’re more flexible.
Jay Clouse 12:03
So is Assure software?
Landon Ainge 12:05
Assure is actually more professional services, I would consider them the SPV experts, when it comes to entity set up, bank accounts. transactional, we have created a software to handle that process to make it easier for our customers. But we give that for free just because, you know, that makes their lives easier.
Jay Clouse 12:23
And as this regulation was changing, or as this policy was changing, and you said Angel list and Assure was kind of leading on the edge of this. Was it something that the you and the folks behind Assure had to have been tracking on for months or years ahead of that? Or was it kind of reactionary to that policy change?
Landon Ainge 12:42
It was a bit of both there was this need. It’s kind of similar to what we see in crowdfunding right now. Like there, there was a push, and it started, but there wasn’t much success being had in the market. And then the most recent regulation allows $5 million to be raised and crowdfunding. Now all of a sudden, there’s a need to solve that solution. It was very similar with spvs. There were stps were around they were there. But the change in regulation forced it that the market said, Now there’s a demand here. So who’s going to solve that problem? And that’s where Assure and Angels came to solve it.
Eric Hornung 13:17
When did you first run into SPVs as a concept?
Landon Ainge 13:21
I only ran into it three years ago, which is crazy. Now considering that everything I do is associated with spvs.
Jay Clouse 13:29
In oay, so you remember specifically how or when you ran into it. So how did that happen? And why did that become something that you were interested in, like throwing yourself into?
Landon Ainge 13:39
At first I wasn’t when I came across it, it was just, you know, everyone knows those connectors, those deal guys, those people that are their movers and shakers are the ones that make things happen. And I ran into it as someone who, you know, wasn’t even that deep into venture when when it first initially started. But I, I said I wasn’t interested in investing in a deal, just because of the that current time or that current opportunity. But I started to learn that this person was actively in the investment world despite being not being a formal fund. And they say, Oh, I just have connections and relationships. And when the deal makes sense, or seems really attractive, that’s when I bring in people that I think could add value to the company.
Eric Hornung 14:25
So these deal guys, is this like the same as syndicate leads on angellist.
Landon Ainge 14:30
Yeah I mean, the one difference I would say Angel list is, like I said, they were one of the foremost experts in creating this asset class. But what they did is change the world they created a location where they would try, they have syndicate leads, like you said, these are kind of these are the types that were deal guys, but they’re trying to consolidate all of the angels into one location. So that the deal guys come and just kind of spread it to all these angels. The deal guys I’m talking about which is more of a Assure’s model is more of an individual has an exclusive deal that they only show to an exclusive audience. And they may be open to others joining in that deal. But a lot of these people don’t want to broadcast these deals to everyone. And the founders or companies don’t want information to be widely spread about their company. Those are kind of the two different models.
Jay Clouse 15:23
As I’m hearing that it sounds like you’re saying, for sure, in Angel list are both serving this syndicate type lead Angel list is more of a marketplace that can be much more broad assure, can serve both but typically serves an individual who has his own network to bring to the deal.
Landon Ainge 15:40
Jay Clouse 15:41
Is there a network or a marketplace side to Assure.
Landon Ainge 15:44
That’s where I come in. Assure Syndicates is that marketplace where it says, you know, if you’re an angel that’s interested, but maybe you don’t have access to those deals, that’s where sure syndicates is doing deals. And basically, how I differ from our customers or assures most Fisher’s customers is, I’m friendly with the whole ecosystem. I’m helping founders and VCs for free, trying to connect them to the right opportunities. I send custom deal flow to VCs, about 86 different VCs across the US and I met with like 120 founders last month, and I’m just trying to match make in that world. And then what I get out of that is the right to go invest. And I share that with the people and angels, accredited individuals that want to invest in those deals. And so I say, Hey, here’s the deal that I helped. You can invest in this deal on zero and 10 terms, varying cheque sizes, we have a little bit higher minimums than most of the deals you see on Angel list, generally, like five to $10,000, minimums, and that’s the group that I run, and division.
Eric Hornung 16:52
So you’ve mentioned kind of three groups that you run and work with, which are VCs, founders and angels. How do you balance all of the relationships and outreach there? Because it’s kind of like creating your own mini marketplace?
Landon Ainge 17:07
Yeah, I think I think that there are some unique market insights that I have for my own startup and VC, which is essentially how I view Assure Syndicates, it’s a start up in the venture capital space, I think marketplaces don’t solve that need, and they never will, for a few key reasons, I’m probably not going to go into why that’s my secret sauce, that I’ll call it. But managing that process is really hard. And I’m, I’m gonna be honest, I started it, I joined Assure eight months ago by myself being the only person doing it. And they just said, Go. And the benefit that I had is I had Assure backing me, so I didn’t have to have my hand up. So I could just start helping, right now I’m still building those processes openly. It’s moved really quickly, way faster than I thought it would. And it’s been a huge blessing. But I, I know that this can be huge. And I’m looking to compound grow myself expand other regions to duplicate other individuals doing what I’m doing, because this ecosystem is not the most efficient when it comes to can finding the right capital providers and the right businesses, and connecting them.
Eric Hornung 18:18
We’ve had a few syndicate leads on mostly on the angel list platform.
Landon Ainge 18:22
Eric Hornung 18:23
And one thing that seems to be consistent between all syndicate leads on the Angel list platform is that they are either independently wealthy and can support themselves or their job is tangential to VC or in VC. And that is the thing that is paying them with Assure it sounds like you’re kind of in the same situation Assure’s paying your salary I assume, if you would have had a salary or would have been independently wealthy? Would you have done angel list or Assure.
Landon Ainge 18:50
I think the basic question would be, what are my goals? If my goals are to build a track, record and build up relationships and do those things, that’s where I see Assure being the benefit. You’re building of development relation developed relationships of trust, long standing relationships, as you repeat those situations. If I, you know, I meet a lot of young up and coming syndicators that have the desire to build that track record. And they the concept always the same, I have great deal flow, but I don’t have the investor relationships. And so in my mind, it’s easy for them to say, I want to go to Angel list because they already have all of those angels there. But that sometimes can cut them off at the knees because they’re not actually developing direct relationships with their investors. And therefore, they’re not actually building LP relationships. And if you want to be in the venture asset class, that’s, that’s a skill set. There are three skill sets in being in venture. If you want to succeed at a long term. It’s the ability to have, you know, relationships with investors and LPs is the ability to find a great deal flow and a suitability to really have the succeed help those companies that you invest succeed in, those are the three skill sets. So I see a lot of people try to focus on one of those skill sets, but not the others.
Jay Clouse 20:12
Why can’t I form relationships with the investors on angel list.
Landon Ainge 20:16
That’s kind of the platform is generally built that way, to where, you know, the captive relationship is there not to mention that if an angel is specifically on it on Angel list, they’re being shown multiple deals across all different other syndicators and assure that’s not the case. If you bring in an LP there, they your LP, you’re the only one interfacing with them. It’s we it’s a little bit more of direct touch, utilizing email or slack or other channels that you want to build your own kind of way that you run or process.
Jay Clouse 20:48
So it’s not that it’s completely prohibitive to form those relationships on angel list. It’s that the way that people are incentivized to use the platform, they’re diversifying across a bunch of deals, they’re just not investing in the relationship with you to the same degree.
Landon Ainge 21:02
Yeah, I mean, consistency of relationships. But also, you don’t actually have that direct relationship. In many cases, they follow you, but they don’t, you know, your communication is not a one on one. Tell me what you like to invest in? How can I best help you? Are there certain types of deals that you want to see that maybe I’m not doing that that really doesn’t exist?
Eric Hornung 21:23
Talk to me a little bit about the VC side of this kind of we mentioned these three prongs? Yeah, we didn’t really touch much on VC. How does your model incorporate and use venture capitalists? You mentioned 86 of them?
Landon Ainge 21:37
Yeah, I think my thesis is one, which is when you can couple institutional lead investors, with the right value add individuals, that’s where you get the most value for the founder. And the founder should think of that, the way I work with VCs is I only send deals that I’m willing to invest in, at whatever terms, the lead sets, and I work with the VC and, and send them the deals that I think fit their thesis. So I’m validating the deal that I think it’s good enough to put my own, put my money in along with my other angels and family offices that are evaluating the seals, then I send that deal flow, I only send you know, two to three deals, maybe a month to specific funds, and they get the chance to opt in. And so I say here are the three deals of the 120 I reviewed last month that I’m committed to that I think you should lead because of this reason, right? Your portfolio, you’re really strong and marketplaces or this founder has a sales go to market need, where you have a demonstrated experience there. And so that’s really helpful. Because I don’t have a dog in the fight. I’m, I’m just saying I’m investing, I’m not an angel that’s trying to write up my own investment, hey, you should really, you know, invest in this deal. Because I need a write up. I’m investing in whatever terms, the VC set. And I’m not asking for carry like a venture scout. I’m not asking for anything from them, I’m just saying, based on what I see, and based on our relationship, and me getting to know what you like to invest in, this is valuable to you. And the benefit to founders is that if I’m committing to their round, I’m usually bringing, you know, a cup two to three funds that I think would be the right potential leads in addition to their own fundraising efforts. And so VCs have, you know, been pretty receptive to that. Because if I bring value investors, I’m helping their own investment. I just did a deal hasn’t officially closed yet. But I’ll be investing alongside Harlem Capital. And I’m bringing strategic channel partners in to that deal. And so the founders super excited because they are baking in revenue and customers, with the investors that I’m bringing, they were strategically hand picked for the skill set that had and for the relationships that they had. And that’s even though my check size was super small, I’m a little bit SPV is comparatively small on the cap table. I think I’ve probably added more incremental value within the first six months of that business scaling.
Jay Clouse 24:18
Let’s say hypothetically, I host a podcast that talks to founders and investors. So I have both sides of this table.
Landon Ainge 24:25
Jay Clouse 24:26
How What should I be thinking about? Should I be thinking about building a syndicate with Assure or on Angel list? Like with that formula? What do you think is the opportunity?
Landon Ainge 24:35
Well, I think the opportunity for you is, you know, or anyone in that situation, is you have to be able to validate the idea. openly, the VCs aren’t super open to that many new relationships. It’s hard to qualify that. There are lots of people trying to do something similar, but not very many are proven to be successful. And there’s all sorts of various reasons for that. But that’s a hard question. I think it’s really custom to either way your answer is, do you have the ability to demonstrate that you can validate ideas investment, that these investment opportunities are viable? Do you understand the regulatory conditions to be able to do that? Because if you’re raising in a public environment, like a podcast that changes some of the regulatory requirements, and then the final one is, can you build enough of an audience of investors? I think for you, it probably be best to create a captive audience of individuals that like to do best and use the podcasts like Jason Calacanis does, as a way to recruit your own captive audience. Jason, we shared those all with Jason Calacanis is spvs on the back end, and he’s done. He’s probably one of the foremost in doing this and building a successful pipeline of new ages.
Eric Hornung 25:55
Jason started on angellist, if I’m not mistaken, is am I correct there?
Landon Ainge 26:01
You are correct.
Eric Hornung 26:02
So a lot of what you’re kind of talking about when we were talking earlier about angel list. And Assure is kind of these two different models, kind of felt a lot like people talk about platform risk. If we look at eSports, you know, you you’re either on Facebook gaming, you’re on Twitch, you don’t move between the two, you’re either on YouTube or whatever, you don’t move between the two and your followers don’t follow you. Is that as large of an issue here? And why don’t we see more people moving between the two?
Landon Ainge 26:29
I think what you see is the deals on Assure, you’re not gonna see externally. So you don’t know if people are on Assure. And Assure is fine with that. The whole point of Assure the main difference is assures not trying to take carry in these deals. They’re not trying to, you know, harvest, whatever your individual investors are. That’s all I kind of want to say. I guess I’m not really trying to compare us. But I think that there is there is a lot of crossover between it.
Eric Hornung 26:59
Switching to a new topic. I think we’ve seen a trend lately of founder syndicating deals in the last year and a half, two years. Do you think that’s a good trend or more of a fad?
Landon Ainge 27:09
I think it’s an awesome trend. And I’ll tell you why. founders that run their process or run their fundraise. They’re thinking about the same thing I just talked about earlier, how do I bring the most value on investors alongside? Or how do I align interests with the people that I know will be advocates, there’s a reason we did this initially with advise that founders do this with advisors, they give up equity to the people that they know will help them the best. And what they’re learning is that customers, channel partners, individuals that have been in this industry, if you can get them on board, then they can add a lot of value. And so if you align the interests through investment, you already have a baked in advisory board that’s ready to help you because they’re invested in your success. So one of the things that I do is actually help founders do this for free, because I don’t want the founder to be the one representing the angels, because there’s obviously a complex there were founders are, even if they’re not the manager, if they’re the organizer of the SPV, then they are technically representing all of the investors. And that’s not a very good relationship. So what I will do is I will actually waive, I will not charge any carry, I will represent the angels and assure will be the manager. And I’m helping these founders utilize spvs to consolidate these strategic value add individuals. Now you’re probably not going to accept, you know, one or two k checks, but you could accept a 510 k check from these individuals in those spvs. And the value is the investors get, you know, consolidated rights, right, they get information rights, they maybe get pro rata rights. And they can even through an SPV, the benefit is, hypothetically in a future situation, you could actually sell your equity or your ownership in that SPV to another holder of that SPV without getting board approval from the company. Because the SPV still owns that equity and no ownership has changed. So that transfer right is actually a really big advantage to individuals investing through an SPV. Now, what the founder gets is, you know, there’s either some costs that they either pass on to the angels to set up that SPV, it’s relatively low cost assures the lowest cost SPV administrator, we have for smaller spvs with really advantageous pricing. But what the founder gets is a clean cap table. And maybe the willingness to open it up to individuals that could be small checks, but could be adding significant value to their company.
Eric Hornung 29:48
Where do you see spvs expanding to you said they started with real estate now they’re kind of In venture. Do you see them in private equity? Do you see them in alternative assets like we’re kind of seeing with the rally road style boom, do you see them expanding to anywhere that wouldn’t maybe be or feel logical right now,
Landon Ainge 30:07
We’re seeing, we’re having a lot of conversations around this, I don’t know that we’ve identified the core markets where it will go, that’s one of the things I’m looking at. But I think there’s so much more room to expand spvs in the venture space, that I think that we will see a compounded growth in that sector first, before we start to see other unique assets.
Jay Clouse 30:31
You mentioned that this is this is your full time job now for the last couple of years. And you’re given a lot of flexibility to kind of just go and run at this. Did you create that role for yourself? or How did you find this opportunity?
Landon Ainge 30:44
Yeah, I did. So I, I pitched the CEO of Assure. And I said, This is what I want to do. I want to help founders for free. And I want to help VCs for free, because they both have problems and, and connecting the right to each other in the right way. And the markets, not super efficient, and I don’t believe technology will solve it. And so I went to, you know, the Jeremy the CEO, and, you know, he was really surprisingly open to the conversation. And he said, we’ll write me up a business plan. Tell me what you want to do. And I think guys surprised him in the fact that he was looking at me like a relief fun experiment. And like I said, I only started this eight months ago. And I’ll just say that I, we did we closed five deals in December utilizing this, which is pretty expensive when you think about how walking in the door with not that many individual Angel relationships or founder or VC. So like in my back pocket,
Eric Hornung 31:46
If the markets large and inefficient? How many Landon’s Do we need to.
Landon Ainge 31:51
Eric Hornung 31:51
Make it efficient?
Landon Ainge 31:54
That’s a good question. How many other people like me, I think it’s really regional based? I’ve really struggled with the debate of do we expand this based upon industry? Or do we expand this based upon stage. And so I think first off conversations like this educating that there are solutions, or that a founder could run their own SPV is really helpful, or that I could help them run an SV, that kind of conversation is really helpful. But I, I’m never going to solve the problem. But you know, like that story of the starfish on the beach, you know, I can help that one, I can help that one. And overall, as I continue to scale, I want to have 10 of me in this ecosystem, providing this value and therefore providing efficiency. To those people that do truly believe in partnership.
Jay Clouse 32:47
You said that you you bounced between operating and investing, this kind of seems like you’re doing both in this role, because you’ve created this new wing of the company, and you’re building that out yourself. But also you’re you’re very much in the investment realm. Do you feel that way?
Landon Ainge 33:01
Yeah, I do. But it’s also one of the things that I’m concerned about with my growth, right. Every VC investor will tell you, what’s the scalability of your solution? Well, that’s the thing that I’m working at every day, how do I still maintain the customization to provide that value without removing, but but at the same time trying to provide some efficiency to the market? Like I said, my understanding thesis is that I don’t believe marketplaces will solve this problem. And we’ve seen probably 100 different marketplaces. In fact, a lot of those marketplaces come to Assure to solve the problem, the regulatory problem, because one thing that we haven’t talked about is, it’s pretty easy to try to find a way to connect individuals or fish. A systemized technology marketplace. It’s really difficult to understand the regulatory requirements, the creation of the entities, the banking side of things, the tax side of things, the SEC filings, what are known as blue sky fees. That’s the thing that people are really struggling with. And that’s the reason why I went to Assure anytime I looked at who was doing this well, venture university Jason Calacanis, I saw Assure in the background. So yeah, I mean, sorry for the little tangent there. But I just, that’s the reason I came I probably talked with 15 different marketplaces or businesses doing or syndicators that I felt were doing as well. And every time I would find behind the scenes, Assure was doing the actual requirements there.
Jay Clouse 34:39
Is there anything we’re not asking that is understated that people need to understand if they’re trying to get into this space that they absolutely need to know that we didn’t even know well enough to ask.
Landon Ainge 34:49
I think what you’re not asking is, why aren’t more people doing this? And the answer kind of to your point that you brought up earlier, the reason I’m able to do this is because I’m not worried about salary. And to be honest, I’m passing up a lot of money that I could be making at a fund with much higher salary and doing those things. Because I believe in two things that I actually wanted to build a business model to help founders for free. And two, I believe in the companies that I’m backing, the biggest question that you want to ask yourself as an investor investing into syndicates, and also as a future syndicators? What’s my alignment? What, what do I care about, I don’t care about closing a deal. I care about closing the right deals. And I care about that if my angels win, that’s the only time that I ever win. So I can look them in the eye and say, you know, we’re going to this deal together, I want to give you the opportunity. But I just want you to know that I’m not taking money for this deal. I’m not getting a commission on this deal. This is, this is what I believe in doing. And this is what I believe in this thesis. And here’s how I think about it. Now, you should make that decision for yourself if you want to invest, but I’m not trying to sell you, I just want you to have the options because this asset class like most people don’t get the access to co invest alongside a VC lead. That is like unheard of, and to be able to open the door to people to say you can invest 5k or 10k, 25k, right alongside some of the VCs that you look up to, that changes the world.
Eric Hornung 36:28
How do you we started with a controversial question. So I guess we’ll end with him as well. How do you think about the people who say, the high net worth people who say, I would never give my money to a syndicate or a SPV lead, because, you know, all they have really is a set of options, they can never lose, they can only win. Whereas in a fund, there’s the ability to lose?
Landon Ainge 36:53
I’m just trying to make sure I understand your question, apologize. When you say in a fund, they can never they can lose? Can you? Are you talking about because funds charge management fees? Or are you just saying, Oh,
Eric Hornung 37:05
Yeah, so you have a GP commit, and you have to return the entire fund. So there’s an I’ve heard this directly, people who say that syndicates are effectively for a syndicate lead, you’re putting very little capital at stake and in return, you receive a call option on the upside of an entire portfolio. Whereas a fund, you have to think about fund construction, so you only have a certain amount of bets to make. And because of that, if you don’t do a good job, you’re out of business.
Landon Ainge 37:33
You know, that’s a that’s a great point, I think, I think it’s fair, I think every good thing about spvs is every deal has a different structure. So understanding that structure is really key. But the counter argument to that is the ability to retain more of the upside in the deals that you want to do. And the ability and flexibility you have to do to pick and choose which deals you want to participate in as an LP and pick and choose your check size in each of those. You know, I think some people look at that as an opportunity. There are some family offices that I work with that basically utilize me to build their own fund, because they can pick and choose that they want to put in 50,000 into this deal. And 10,000 this deal because they want greater exposure for their personal preferences, while, retaining more of the upside with zero management fees, increasing the amount of their potential loss if the company doesn’t, you know, increase in valuation. So I agree with you, though, that it’s important to understand what those incentives are for each individual deal. But I also think that the flexibility allows for greater what I would say for people that have a true thesis, to execute on their thesis. And rather than simply commit to this fund, this fund and this fund, you can actually start to build your own thesis. In fact, some people utilize spvs to just get the option or the right for pro rata rights in the next round, because they understand that many angels won’t take those pro rata rights. And so if they’re invested in that first round, and they get pro rata rights, they can basically, like you said, get a call option on the series A and so really, they’re putting small bets as a opportunity to get into the next round. I think that’s really interesting.
Jay Clouse 39:25
It’s kind of a follow up to what Eric just asked, one of my last questions was basically I don’t know if I’m thinking about this correctly. But let’s say that I’m a future syndicator. I want to build my own syndicate. How do I portray to my LPs in the beginning, that they’ve made good choices and that they’ll continue to invest in future deals that button for them? Because like Eric said, I don’t have the constraint of a fund that will definitively tell 10 years from now, if I did a good job of picking, how do I show that as a first time syndicator that I’m making good picks and you should continue to consider deals I’m sending your way.
Landon Ainge 39:57
I’ve seen a couple different strategies utilize. A few strategies that I see are one, providing your diligence materials and thoughts to show the rigor which you go through and evaluate each company and to the ability to co invest and see who your co investors are. And then three, which is kind of just a wait and see model to say, hey, look, you’re, you’re banking on, you know, your own decision. And so, if you want to participate, that’s fine. But here’s an option to participate, and then utilizing that trajectory of that individual company. But any LP if you’re about if you’re a first time LP, evaluating whether you should invest in a syndicate, you should not just invest in one or two, and determine whether this is right, it right asset class for you. You need to be thoughtful about how many deals what I hope to do over the next five years. And that’s how you’re evaluating it. Because just the same argument for any fund, they don’t really demonstrate whether they’re any good picking either for 5, 6, 10 years in reality, until you actually have the money in the bank and on your returns. So it’s the same level of trust.
Jay Clouse 41:13
It has been awesome, Landon, if people want to learn more about you or get involved with Assure Syndicates, where should they go?
Landon Ainge 41:18
You know, we have a website, syndicates.assure.co. It’s pretty new, and it’s not that great. So LinkedIn, Twitter, these are ways to kind of get involved. I love talking to future syndicators and figuring out how to best help them. That’s a passion of mine. I’ve helped about five people so far start their first spvs and get going. And that’s, I love that.
Eric Hornung 41:42
We almost got you to 2000 followers on Twitter.
Landon Ainge 41:44
Eric Hornung 41:45
We’re getting there.
Landon Ainge 41:47
Yeah, it’s tough to keep up. I’m not gonna lie. I mean, people have a hard time investors have a hard time keeping up with the amount of outreach. It’s not, it’s not an easy problem to solve.
Jay Clouse 42:02
Well, Eric, I feel a lot smarter and a lot better prepared to talk to other people about spvs and syndicates. And I feel like I understand the difference between Angel list and assure syndicates a lot better than I did. Initially, I kind of thought they were one in the same as if maybe the angel list product was even backed by the ashore product. But now I understand a lot more the differences. I
Eric Hornung 42:23
think this was really helpful to clear up probably some of the conversations we’ve had on this podcast already. You know, we’ve talked to Peter Livingston and Ashley Lucas, and they’re running angellist syndicates, we haven’t talked to anyone running an assure syndicate outside of Landon. Maybe that’ll be our next kind of foray into the world of syndicates.
Jay Clouse 42:42
It seems like a really smart tool. I mean, we’ve talked off air, I really like the model of people who have some sort of network, just being able to leverage that in new and interesting ways. Like I think back to Peters quote all the time about he feels more like a blogger than an investor A lot of times, and having a product like this can really help actual finance bloggers are actual people who just have relationships and people tuned in to their thoughts, start to leverage that and build an interesting alternative investment vehicle.
Eric Hornung 43:10
I think if Angel list is you feel like a finance blogger a share is you feel like a relationship manager.
Jay Clouse 43:18
What did this conversation tell you? or How did this change your thinking about syndicates? Or deepened it?
Eric Hornung 43:24
Yeah, I would say it deepened it, more than changed it. I had a general idea behind this on both the Angel list style and the Assure style. I am super bullish on syndicates. I think from a founders perspective, having one entity on your cap table is just a massive benefit. It also, if we have more and more syndicate leads, we asked Landon, that question about how many landmines do we need? There’s also not enough Angeles syndicate leads, right there’s just not enough of these people pulling together angels to do rounds. In the more angels we have, the more syndicates we have, the more companies we’re going to be able to fund because we don’t need a founder doesn’t need to have 400 conversations, they need to have one with a lead who has relationships to 400 conversations. And if that one likes them, then they’re good. And it doesn’t mean it’s exclusive, where that founder can’t still go to all those 400 if they need to. So it’s less of a gatekeeping role, which I think is better for innovation and better for people starting companies in the long run. So made me more bullish on syndicates, generally, also, from it always reaffirms, whenever I talked to Landon, or anyone who’s doing this. One thing we kind of glossed over in the interview and there’s a reason we glossed over it because it’s super boring, is all of the paperwork that’s necessary to run a syndicate, all of the filings, all of the tax work, all of the K ones. Everything that has to be done to bring on investors onboard them. Investor accreditation, Assure and Angel list do all of that. So that makes your job as that’s why Peter can feel like he’s a blogger. And why I think people who use Assure can feel like relationship managers, because that’s what they can focus on. They don’t have to be focused on all the paperwork on the back end. So one thing not related to your question, but tangential, is, it kind of got me thinking about how hard this is something we talked about early on how hard it is to innovate on structure. Because the syndicate model, as I brought up with Landon on on the chat is different. It’s inherently a different structure, people look at it differently. And when you have legacy players with a lot of money, who want to invest, they’re going to look at funds as the standard and you as having to prove that you can do something with outsized returns to a fund from an LP perspective. So you’re climbing up a ladder. And it’s not the easiest ladder to climb when you’re going against what is standard in the industry today. And maybe it just takes a lot of time for this to become normal. And it’s not going to be a one year thing. Maybe the people who have been investing in venture funds for the last 40 years aren’t going to be the people who also invest in syndicates. And maybe that just means that more new money pours into syndicates, where old money stays in funds. I don’t know.
Jay Clouse 46:11
Well, riddle me this Mr. Finance. We’ve been in this bull run of a market for a really long time frothy, right? Don’t we call this like frothy markets?
Eric Hornung 46:18
Oh, look at you finance blogger right there love it.
Jay Clouse 46:21
So in a world where the market becomes way less frothy, is the syndicate opportunity, one of the areas that goes away first.
Eric Hornung 46:29
You would think that this area would be more volatile, that’s fair, I would say similar to any area of like discretionary investment, anywhere where you don’t have a commitment, anywhere where you can’t pull money out. Yeah, of course, things are going to go away. First. It’s just like, when things get scary people pull out of volatile assets. That’s not anything new. Now, the difference here is that you can’t pull committed capital. So if you make an investment, a $10,000 investment into a company that’s locked up for 5, 6, 7, 10 years, whereas in the public markets, you can pull that capital. So maybe new investments kind of dry up a bit. But there’s always going to be angels who have ultra high net worths, we’re seeing it in Ohio right now, there was just another exit yesterday, of bold penguin to American family insurance, that’s going to create a bunch of angels who have net worth above and beyond what they need. So I think that as long as there’s liquidity coming from exits, and as long as there are people who have money above their means there’s going to be Angel networks.
Jay Clouse 47:31
And maybe by that logic, it would actually be easier to start a syndicate maybe difficult to get a bunch of investment in the syndicate, but easier to start the syndicate then to start a new fund in a market downturn, because people would be making beer commitments to a fund.
Eric Hornung 47:45
Potentially, it depends who you’re going after, right? So when you go after a syndicate, you’re going after most of the time you’re going after retail investors or individuals is what you know, a normal human would call them not a finance person. And or people who work at venture capital funds who want access to your deal flow, that’s tends to be a lot of the people who are investing. On the fun side depending on what type of fund you’re talking about. If you’re talking about like a microphone, yes, I would agree with you. But if you’re talking about a traditional fund, the vast majority of your money is going to come from institutions and family offices. And the big players who can write million plus dollar checks 100 million plus dollar checks if you’re talking really big. So those budgets are probably tied up in an endowment, and in some sort of investment portfolio thesis, which isn’t going to vary too, too much from bull market to bear market.
Jay Clouse 48:39
We’d love to hear your analysis of the syndicate opportunity to your listener, you can tweet at us @upsideFM or email us email@example.com. This is obviously an area that we’re more and more interested in and interested in talking to more people with differing opinions on. So if that’s you reach out to us, we’d love to hear from you. Otherwise, we’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at firstname.lastname@example.org. or find us on Twitter @upsideFM. We’ll be back here next week at the same time talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there are a couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording. We do not own equity or other financial interest in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duffin Phelps LLC and its affiliates under a collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions, we have not considered your specific financial situation nor provided any investment advice on this show. Thanks for listening and we’ll talk to you next week.
Interview begins: 6:02
Landon Ainge is the Managing Director of Assure Syndicates.
Assure Syndicates is a division of Assure. Assure is the pioneering leader in providing comprehensive structuring and administrative management services (specifically Special Purpose Vehicles) to the private investment ecosystem.
Assure Syndicates’ mission is to connect the right investors with the right businesses.
Assure Syndicates is a one-of-a-kind hybrid that aligns with fellow investors while advocating for the founder. We provide fundraising guidance to founders, then commit our own capital to the deal.
- Investing vs. Operating 6:48
- Being a great venture capitalist. 7:31
- Special Purpose Vehicles as Investment 9:18
- Assure as a SPV expert 12:03
- Assure Syndicate’s Purpose in the Marketplace 15:44
- 3 Skill sets in venture 18:23
- Assure Syndicate and VCs 21:23
- New trend of founder syndicating deals 26:59
- Landon Ainge getting on Assure 30:44
- Guide to build your own Syndicate 39:25
This episode of upside is sponsored by Ethos Wealth Management. Managing wealth with an eye toward the future demands vigilance and skill in today’s global economy. Over the years, Ethos Wealth Management has worked with clients and their other professional advisors – including attorneys and accountants – to create comprehensive wealth management plans designed to make the best use of their wealth today and help ensure its endurance for future generations.
They can do the same for you.
Visit upside.fm/ethos to learn more.
Want to share information about your company, or an opportunity with the upside audience?
Book a classified advertisement and your advertisement will be read in an upcoming episode of the show.
Classified ads are priced at $100, and are:
read by Jay and/or Eric on upside
linked from the show notes
linked from this website, upside.fm