Peter Livingston of Unpopular Ventures // early stage investing through a syndicate [CC058]

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Peter Livingston 0:00
The biggest thing is that when you actually raise a fund all those LPs that you raise a fund from are they become your bosses and you’re beholden to them if one of them’s not happy or if you deviate from strategy that you promised them in the beginning, you end up with conflict and friction. And what’s really cool about the syndicate model is that I’m more of like a professional blogger than I am a venture capitalist.

Jay Clouse 0:24
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 by my co host, Mr. Studying all the time Eric Hornung.

Eric Hornung 1:04
Jay you know that I love to hit the books.

Jay Clouse 1:06
Love hitting the books, love reading the books, love talking about the books, love writing summaries of the books.

Eric Hornung 1:11
Books about the books. That would have been nice if I actually had written a book about a book, but I haven’t. Yeah, I’m back on the study wagon, which is the least fun wagon in any caravan. Yeah, every every night just studying Jay.

Jay Clouse 1:24
What are you studying for?

Eric Hornung 1:25
Right now? I’m studying for a FINRA exam, which have to have to do my job.

Jay Clouse 1:31
So we’re talking flashcards.

Eric Hornung 1:34
You know, when there’s a lot of formulas, I do flashcards but for concepts, I prefer to just do practice questions. So there’s this bank of 2600 questions that may or may not be like the questions that are on the exam, and you just go through those until your eyes glaze over.

Jay Clouse 1:50
I am thankful that I did not choose a career path that required me to continue taking tests.

Eric Hornung 1:55
Yeah, I’m not the biggest fan of the tests in the studying. I don’t really have anything interesting to say about them there because they are so boring?

Jay Clouse 2:03
I don’t remember what it’s like to study. I don’t remember what it’s like to convince yourself that you know something. I don’t know, I just forget what it’s like to even study. memorization has not been my strong suit since I was probably a kid. But definitely not since college, which I feel like studying is mostly memorization.

Eric Hornung 2:20
Yeah, that’s fair. It’s do you know these facts? It’s definitely different than the act of learning of launching a podcast or working with some software or actually building something. So the dichotomy between building the podcast and studying for legacy finance exams, just makes me feel like why do we have entrepreneurship majors in college.

Jay Clouse 2:42
But that’s the price of admission for getting into the world of finance. And speaking of the world of finance, today, we’re talking with Peter Livingston, the founder and general partner of Unpopular ventures. Unpopular ventures is a new VC firm dedicated to the entrepreneurs who are proud to be unpopular. They love it. opportunities that are off the beaten path, particularly when they’re led by outstanding teams who have discovered something surprising. But Eric, I wouldn’t even have described Unpopular ventures as a VC firm the way that it’s described in their in their bio, because this is a syndicate, which is something that you taught me that exists, how you how do you Venn diagram syndicates with VC firms.

Eric Hornung 3:22
Okay, so a syndicate is just a model for gaining investment and a fund is another model for gaining investment. In the fund model you have LPs, they commit a bunch of capital upfront and you invest in a portfolio of deals over the course of usually 10 years. In a syndicate, you go deal by deal so instead of saying, Hey, Mr. or Mrs. LP give me 100 million dollars, and I will do 100 deals with that. You say, Mr. & Mrs. LP here is one deal. Do you want to give me a million dollars and they say yes or no,

Jay Clouse 3:57
And syndicates in Unpopular ventures in particular is operated on Angel list where they have over 1000 LPs who have invested more than $10 million across more than 30 companies since starting in just early 2019. Sounds like a lot of LPs.

Eric Hornung 4:13
Yeah, but you’re not dealing without all of them all the time. You’re only dealing with them on each deal that they’re in.

Jay Clouse 4:19
It’s a new model. I’m excited to learn more about it. I’m excited to talk with Peter. We’d love to hear your thoughts on this syndicate conversation as we go through it. You can tweet at us @upsideFM or email us Hello@upside.FM. And we’ll get to that interview with Peter 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 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 And you can place an ad on this show. That’s upside.FM/classifieds.

Peter, welcome to the show.

Peter Livingston 5:16
Thank you. Great to be here.

Eric Hornung 5:18
Peter. Great to have you on after meeting via Twitter. Gotta love that. Can you take us on a quick rocketship through your career up until you’re at unpopular ventures now?

Peter Livingston 5:30
Yeah, happy to. So I guess most of my background is in startups and investing in I studied engineering in college. And as I was graduating, I knew I want to kind of get the startup experience and I wanted to join as early as possible and see what that’s like. And the first thing people did a little bit of seed funding, and there was a founder the VCs help bring in a CEO and then I was the first person that hired fortunate to join this this brand new company called iRhythm that was a medical device company. Developed devices for diagnosing problems with your heart. I got really lucky. Basically, we ended up launching a few products successfully grew really fast, raised a lot of money. And I stayed with them for three years. And they grew to about 90 people in those three years from a lot of money. After I left many years later, they end up going public, about three and a half billion now I felt like within those three years, I kind of got got everything I was going to learn there. And I ended up being you know, I was right out of college, just kind of junior person within the company. Even though I was there. I really knew I wanted to do business school. So I went back to business school, wants to try to start something and ended up starting something over the summer between the two years of business school with a couple other grad students at Stanford. And at the end of summer, we ended up getting a term sheet from Kleiner Perkins. And we all thought, Hey, this is a good opportunity. Let’s go run with it. So we all dropped out of school. I lived that one CEO. And that one ended up being a complete disaster. Like, in every possible way, you know, made a ton of mistakes, lost all my investors money, fought with my co founders. It was really the hardest experience in my life. It didn’t go as smoothly as that that first one and the funny thing is, though, I have learned way more from the failed startup than I did with the successful one. You know, it wasn’t obvious at the time. But you know, as I’ve come through that and kind of digested those experiences and kind of compare them to what I hear from others, it just gives me so much more perspective and kind of gave me battlescars that I think has actually made me a much better startup person, both helper and investor. Just because I’ve had multiple experiences that went too complex and so anyway, we had to shut it down finished business school, and we’re working in venture briefly at GE ventures around the same time that as a GE ventures, I started kind of doing some tiny angel investments in friends companies, like very small like 10 K, in many cases, occasionally like 25 K or something like that. But did like 10 investments in a friend’s companies and a lot of them ended up working and you know, growing and raising more money at higher valuations. And I found I was really enjoying that. And I simultaneously discovered I hated corporate venture. I realized I don’t believe in that model. You know, there are a lot of great people at GE ventures. They’re all very smart and enjoyed working with them. But I discovered that I don’t actually believe in that model as like a legitimate part of the startup ecosystem. That is very frustrating. So so basically decided to leave that and focus on angel investing full time as an individual, and over the subsequent six years, just wanting to get out there and learn as much as I could. So did a ton of small investments. Interviewing, like, about 130, during during like five or six years, it was a mix of direct and through political Angel groups did some of them. And I was also a very early LP on AngelList. And so invested through a number of people syndicates as that was kind of starting out and feel very lucky that it went really well, like no lost money on ton of deals, but I was my big hungry terminals. I took a big position in Bitcoin, have some other good ones that are that are doing well, but it just got to the point where I kind of have more of a track record, you know, I don’t know if anyone ever actually knows what they’re doing. But at least it seemed like maybe I knew more than than the average person and Anyway, people start to ask they could invest behind me. And that’s what led to me creating this my syndicate now on AngelList. I should pause there I that’s probably a whole new chapter. Since you guys want to talk about syndication.

Jay Clouse 9:11
I do want to get to syndication here shortly. But I’ve got a double click on this, this position of not believing in corporate venture capital, and hear a little bit more why why you disagree with that model and why you don’t think it’s a legitimate part of the startup ecosystem.

Peter Livingston 9:27
Yeah, well, the simplest reason that I don’t believe it works is basically a double bottom line, where you’re kind of optimistic, optimizing for two things at the same time. And startups and venture capital as a whole is so hard to begin it like the statistics are crazy. Something like half of venture funds don’t even return when it’s the money. It might even be three quarters don’t even be public stock market benchmarks. Like it’s really hard to be a good venture capitalist. Now, if you take the position of corporate venture capital, where most corporates are not doing venture capital to make money they come in to do it for strategic reasons, so, like in the case of GE is one example. When I was there, I don’t remember what the numbers were. But you know, they make so much money every year from the main businesses, it’s like, I think revenue is like, hundreds of billions, or over 100 billion. And profit was like, I don’t remember what you know, probably like at least $10 billion of profit every year. And so let me think about that. And when you think about, okay, let’s say, this was the best corporate venture fund ever, and they got it on the next Google or the next Facebook or Uber or whatever, most likely, they’d probably get a couple percentage points, and that goes public. And it would take 10 years for this to happen. They make these investments and the company goes public, and they got the bet, you know, the best venture fund ever, and they want maybe 2% of Google, when it goes public. It’s like $2 billion. But wait a second, they made $10 billion in profit that year. So it’s like even if they have the best venture fund ever. It doesn’t matter, the overall corporate enterprise. So what that means is that the only reason they it makes sense for them to do it is actually to not to make the money but to Find strategic themes that help their core businesses. So maybe if they can increase their $10 billion revenue business, by plugging something in by 10 or 20%, over the next year will benefit that’ll create $2 billion in value from them. But the thing is, when they come in with that mindset, that’s not helpful to the startups, like no startup wants to be beholden to GE as their like, most arms trying to build value for themselves. And so it creates this mismatch mismatch where, you know, there’s they’re out there saying, oh, we’re investing money, so come talk to us. But that’s not really what they’re about. And it’s just so so then what ends up happening is oftentimes they make bad investments or they get really bad adverse selection. So the best entrepreneurs, the Google’s the Facebook’s, the Ubers, whatever, don’t come and talk to them, because they don’t see value in them. They’ve already been one way. So they end up being in the not top tier companies, and they lose money. And then the higher ups in the corporate are like, why are you losing all this money? And where are the results, you know, and then it usually doesn’t really work that they do deliver those big results that were envisioned and it just kind of falls apart.

Eric Hornung 12:04
Do you think this double bottom line concept? He said it doesn’t work coz it’s very hard to be a good venture capitalist and essentially be something else as well. Do you think that means that impact investing in sustainable and clean tech funds that have a mission associated with them will never be the best venture funds.

Jay Clouse 12:20
It’s hard to say it depends on if the second line is well aligned with making money if you catch the next wave of something, like if clean tech finally happens, or something like that. And then also, like, one thing, I believe is like 99% of entrepreneurship is already good for the world. Like it already has a positive impact, like you can probably sit in most startups is like, this is this is good for the world. Because, you know, they’re producing product that people want to tell you to their lives. They’re creating jobs to creating wealth, you know, it’s like, they’re like, business, you know, most of capitalism’s actually very good to be in. And so if you come in with a mindset of Oh, like, I want to create products, I’ve actually helped people. And you’re kind of loose with that definition. Well, usually when you help people and you create value in their lives, you make money. And that’s a successful business. So I think you come in with that mindset, then it’s good. But I have also seen impact investing come at it from like, we, we think the world should be this better way. And we’re going to like, force try to force everything into this other way. But they lose sight of like actually adding value to individuals lives or making sure that they’re producing something that people want. That’s when they run out of strength, I think within the right flavors, you know, investing with the mindset of you want to make the world a better places, that’s probably actually fine.

Eric Hornung 13:37
I want to dive into the syndicate model. This will be the first time we’ve covered it on the podcast. We may have alluded to it before, but for beginners, can you explain what the syndicate model is just at a basic level?

Jay Clouse 13:52
I guess to you step back, it’s pretty new. So maybe the right place to start is some some history of angel investing. So this idea of investing money in companies and getting ownership from individuals is not new. I mean, venture capital is kind of aggregated it, where they raise money from larger pools of capital and invest in companies. There have also been these things called Angel groups for a long time, there might be 20, or 50, or 100 people. Where they all kind of meet together and have companies come and pitch them and they kind of all put in checks of 5 K or 10 k together and invest in a company and help. At the basic level, this idea of kind of pooling people’s money together to invest in companies and help companies get going and get ownership and create wealth. It’s been around for a while. Now, AngelList was kind of the first to pioneer this model that you’re calling of syndicate, where they’ve kind of taken the concept of offline Angel group where it’s a group of people meeting together and kind of deciding on what to invest in pulling the money and they put it online. And it’s changed and changed things a few ways. So the first is it’s much bigger, conventional experts for wherever meet, you couldn’t really have been more than 1500 people. Both Angels there are thousands of active people out there that are participating in these Facebook virtual Angel groups and investing in companies. Angels has kind of figured out some kind of political and governance things around how you manage successful Angel group investing, that has made it much more successful on this online platform than it conventionally did with each person. But I guess I’ll kind of talk about the mechanics of this. So so the way Angels has created it is that there are individual syndicate leads, and that’s why syndicate lead, I have invited lots of other people to back my syndicate, which means that they follow me, kind of like someone might follow us on Twitter. Whenever I find a startup that I want to invest in, I agree to invest with the founder, negotiate a valuation, we agree that, you know, I’m going to invest and I’m going to share it with my syndicate backers, and I then write up a memo about why I think it’s good investment. And I share it with all my my backers that are on AngelList. And they get to then individually decide if they want to invest in that deal for how much and they commit through AngelLists and the money through AngelList and I basically take everybody’s money are. Angels really does it I don’t even have to touch the money, but we aggregate all the money. And then we close the deal with the company and I and I write them a check. That’s basically all the money that I collected it for my backers and into one and I kind of act like a miniature venture capitalist.

Eric Hornung 16:13
Why would an investor decide to invest with you or with any syndicate, over a fund or just over doing deals on their own.

Jay Clouse 16:23
A lot of people invest in funds. But it’s not that exciting. When you invest in a fund, it’s kind of black box, square races, they’re fine. You say, here, take my money. Now they have a good track record of producing amazing returns. But you don’t really get to participate in the process. On the other end of the spectrum, there are a lot of people that are excited to support and be involved with individual startups where they’ve learned about the companies maybe help them and kind of curate their own investment basket. And so people people do that as well, where they go and find startups themselves. Yes. Now, the thing with being an individual angel is, it’s really hard to get good deal flow. The best founders already kind of know who they good VCs are and they go to the first or they go to their at the people they already know first that they know are active angels. If there’s somebody that’s just kind of starting out investing, they’re going to see the best deals last or probably they probably won’t, they won’t even see. Because first those founders go to all the VCs and VCs will either say, yes, invest already. Or they say no. And then they go down the stack. And then they say, Okay, well, I’m good with my friends. And then maybe the friends say no, and then they go down. And it’s only when, like, at the point that a random person who doesn’t have a track record or reputation as an angel, when they see a startup, it’s usually been picked over by everybody else. And so it’s very hard as an individual when you have no track record, no brand, to actually see the good deals first. So syndicates kind of bridge those two worlds, where the syndicate leaders like myself have built up a reputation and a track record as being, I guess, I don’t know what the right word is. Maybe honorable investors. Like I have a track record of founders that have taken money from me. I haven’t been an asshole. I’ve been very supportive and helpful in a lot of ways. And so a lot of the founders I’ve invested in actually introduced me to other founders to invest. And new founders that don’t know me can look me up online and see that I’ve invested a lot and have good references. And it’s like, Okay, I’m a normal guy, and probably a safe person to take money from. So I kind of have that established track record, where I actually do see a lot of deals very early in first, and so my backers by being with me, they can still pick and choose individual startups to invest in. But they’re able to see better deals than they might have been able to see otherwise as an unestablished, angel investor.

If I can repeat some of this back in fairly layman terms as the layman of the show here. So it sounds to me like by creating a syndicate, you have more financial power, and therefore are more attractive to startups earlier on. So you get better deal flow. That’s good for you. That’s good for the syndicate backers, and for the startup founder. They see you as an opportunity to obviously get more money into their company. So when you’re talking to a startup founder, and you’re trying to negotiate these deal terms that you’re going to come with your syndicate, bring it to them with their deal memo. What are the expectations? Like? Do you have a minimum commitment that you have to bring to the table for the founder say, here are the terms, but you have to hit this and you have to go and get that much from the syndicate or, you know, what are those thresholds you have to know and at what point.

Peter Livingston 19:21
In terms of a minimum, it actually has more to do with the setup costs of running an SBP or running a syndicate. So the legal costs of creating a new effectively LLC that takes it becomes like a mini corporation takes all this money and invested in the startup. There’s a cost associated with that. And the cost is about $8,000 right now, which is sounds expensive, but it’s actually a very good deal for everything that’s involved in managing. So to make sure that that $8,000 is not a huge cost out of kind of our investment. both I and AngelList also tries to always make sure that the syndicates are always at least $80,000 because $80,000, it’s only 10%, which is still high. But the bigger it is, the lower that he does Miller’s as percentage of the total. So, so kind of the minimum is 80 K, I usually try to get into at least 100 K. And fortunately, because I am in a big and established syndicate lead with a big following, I almost always get at least 100 k for my backers on any given day, in terms of kind of negotiating the amount with the founder. It’s a dynamic process. So on an individual deal, I can usually estimate with something like, not great certainty, but some some certainty about how exciting the deal is gonna be to my backers, just based on what I see with us. Well, you just tell the founder, look, here’s how it works. I’m going to put it in for my backers, we think we’ll get this amount might get more, we might get less, but it’ll be a dynamic process where we can communicate. That can usually say, Look, I’m 100% sure we’re gonna get 100 K. So hold that for me. There’s probably a 50% chance we get a quarter million and maybe a 20% chance we get half a million or more. And as my backers come in, and I see how much we have to figure out how we fit the right amount of money.

Jay Clouse 21:00
How much are your backers typically putting in each.

Peter Livingston 21:04
To range, so I set the minimum for them at $1,000 a deal. So it’s very low. I think that anyone wants to invest in startups should be able to. So I like to make it more accessible. Not not all the tools anyway, some said high, but I try to keep it as low as possible. And then I’ve had backers put in as much as $400,000 into two division. So I think most are 5K and under, I get a ton of checks that are one to 5K, get a few that are 10 to 25. occasionally get a 50k check. And then every now and then for like a very hot deal. We’ll have you know, some big whale that was put in hundreds of thousands of dollars.

Eric Hornung 21:38
One of the things that we have heard about Angel groups, you talked about them in your history segment there was that from an entrepreneurs standpoint, they are just too slow. This is the syndicate. Does it still have that kind of legacy slowness, or are these backers seeing it and saying yes, no, right away?

Peter Livingston 21:58
Absolutely. So I luded earlier when I was talking about Angel groups that there are some kind of political and governance type things that angels actually overcome. And that is the biggest dangers. So Angel groups have a bad rap, because they’re slow, and they negotiate too hard and often don’t add that much value. I think what that has to do with is historically they’ve been organized very democratically. were usually so I’ve been a part of a couple age groups, and I saw this firsthand where, you know, you might have 50 members, and they all try to vote this way to get comfortable deals. So there’s a lot of socializing. And most of these people are totally amateurs, like most of them have like a different job or other hobbies or whatever they’re doing. And they’re not singularly focused on making this fast. So so yeah, it gets bogged down, it takes too long. And because they’re so slow, the best companies don’t go to the first place. So there’s a big adverse selection comfort groups, and as a result, they usually see the weakest companies that have no other option are willing to spend six months trying to get money out of them because they only see and appreciate returns in general. Now, the way Angeles has overcome that is they focused this around these syndicate leads that have a high degree of agency. So there’s no democracy in mind syndicate. And I’m sure I would love everyone to have an equal say, and I’ll, but we can’t be fast like that. So the way it works is, I can run fast, I decided to do the deal. And I put it up to my backers and say, who’s in five days to decide? That’s it, we’re gonna go. And so there’s no haggling. There’s no negotiating with with my backers. It’s just are you doing are you are you and because of that, you know, the entrepreneur deals with me. The other thing with Angel groups is usually they welcome anybody. And there’s some people that are either assholes or not very smart or ask them questions and take up doctors time. And so when the entrepreneurs taking money from that conventional Angel group, they’re often dealing with the lowest common denominator, the guys that are bored at home and have nothing else to do and just like wanna, like, who knows what, but with the syndicate model, the founder gets comfortable with me. They know they’re only dealing with me. They can have access to my backers if they want to, but they don’t have to. I kind of shield them from all my backers, and my backers. So because that single point of leadership in the agency around that it’s kind of overcome those political challenges mentioned within tubes.

I want to talk about that role of shield that you have to play. I see from your syndicate profile, you’ve had 675, unique LPs that have invested, can you help me benchmark that against what a typical Angel group or fund might have in terms of number of LPs? And if that makes a functional difference for you?

Yeah, well, it’s bigger than just about anything historically. So the conventional Angel group has 20 to 100 individuals. A venture fund rarely has more than 200 LPs, and usually it’s less than 40. Usually, they just want a few big pools of capital. So it’s a pain for them to do capital calls. And for me, angels has made it super easy. It’s not all those 600 people that participate never deal on any individual deals, usually anywhere from 30 to about 150 people that participate participate, I believe Speed is very important in getting to the best teams. And so I really push for it. So if there are individuals in my sector that are being too slow, or like maybe they’ve committed and most, you know, what sometimes happens is, I’ll, I’ll get most of the money that we’re going to invest and there’ll be one or two people that hadn’t borrowed their funds. Yeah. And I’ll check in with them once and say, Hey, where’s your money, like, we got to close right now. And if they don’t respond, I just kick him out of the deal. And you know, they understand that and it’s just the way it is and because there’s no tolerance for either bad behavior or being slow and you know, it’s just we’re going to move on without you if you miss it, and you might miss out on it has not ended up being a problem.

Eric Hornung 25:39
How often are you coming in before a company has a lead or are you ever leading around and he said, hundred thousand dollar $250,000 check. So sounds a little smaller.

Peter Livingston 25:51
So makes a lot of deals where I participate as part of big around and it might be a lead or not, and then I have led a number of deals. So I’ve led both Very early pre seed deals were like they’re only raising 150 K or 250 K and I put in 100. k check and I was effectively. I’ve also led more kind of corsi deals. So I’ve had a couple deals we’ve run about $700,000 on a deal. That was the biggest investor. And because we have so much interest in linebackers, we’re able to say, you know, will serve as your lead board observer on one. We negotiated terms.

Jay Clouse 26:25
It’s both. Okay, so talk to me about why you didn’t go the traditional fund route, or why you haven’t chosen at this point to go to the traditional fund route, fewer LPs, maybe you can raise more seems like you’ve proven a track record. Yeah. So

Peter Livingston 26:39
it’s funny, I actually did try to raise upon first. So after I had put up good numbers as an angel, I went out and tried to raise normal funds, and I went and tried to raise $20 million. And I just hit a brick wall. There were two main pieces of feedback that but actually there were three or three, that all the big LPs reasons they said no. So the first was We’re live. So I’m from the Bay Area from the San Francisco Bay Area. But my wife and I decided like six years ago, we want to try something different from into my living in Miami for five years. I put up most of my good angel investing returns there. And I tried initially tried to raise the fund from Miami. And all the LPS hated that I was in Florida. They’re like, they’re no good companies in Florida, and you have to be close to your companies. And I don’t agree. But the customer’s always right. So we decided to fix that we came back to California about a year ago, just to kind of try to move forward in my cleaning that way. The second piece of feedback was it it doesn’t count when it’s your own money. So I did this all with my own money and put up really good returns. And they’re like, Well, you know, it only counts when it when you invest other people’s money. It was partly that but it’s also the cheque size. They You know, my checks are tiny, like it’s very easy to get 10 k into a hot deal. Can you really get a quarter million into a hotel or half a million and so they want to see more track record bigger checks, and the third was trying to do it as a solo GP and a lot of them don’t like that they’d like to see you know, partnership of multiple people they’re investing. So I pivoted from the funds to do the syndicate thing to. So both moved back to California to overcome that that piece of feedback, created the syndicate, so to invest more money with other people’s money and improve that up, but I want to stay as a solo GP, I really like operating independently. And I like how fast I can be an agency to them. And the ironic thing is that within a few months of doing the syndicate, I was already moving more money on a monthly basis than it would have been with my $20 million fund. So with a $20 million fund, you usually invest half in first investments over maybe three years, and you were sort of half follow ons. So might be 10 million over three years. And already about a year and a half in I’ve invested over $11 million, and so even more money than I would have been there. And I think that’s the biggest thing is that when you actually raise a fund, all those LPs that you raise a fund from are they become your bosses and you’re beholden to them if one of them’s not happy, or if you deviate from the strategy that you promised them in the Beginning, you end up with conflict and friction. And what’s really cool about the syndicate model is that I’m more of like a professional blogger. And I am a venture capitalist, you know, I have over 1000 investors behind me. And if one of them is unhappy with the types of deals I’m doing, or doesn’t like the strategy or something like that, I could go somewhere else, like, it’s no big, big loss, and they’re not committed, they only committed to the individual. And I’ve really been enjoying that freedom. And as a result, I’ve decided I’m actually not going to go back and raise a fund. I really love this syndicate model able to move all the money, I would have been I’m making enough in terms of economics. The other thing about this is this is actually a pretty unpopular viewpoint. Most people see the syndicate as a stepping stone to being able to raise a fund. It’s kind of like the minor leagues deal to go get up to the major leagues. And I guess, an experiment that kind of pursued is what if you invert that? What if no one has really become a long term professional league before it? What if I do just stay here and keep growing it? Why is it better to respond? Why do why does it run prefer to go do that?

Eric Hornung 30:00
You go back down that idea of being a blogger, how do you think about platform risk with your current syndicate and the fact that you’re beholden to Angeles? Currently,

Peter Livingston 30:10
Angeles is awesome. I’ve had no issues. No, you’re right. There’s platform risk. But the LPS that are on there are investing in me and my deals because they trust me. And yes, they also trust Angeles. But they’re actually cases in the past of syndicate on angellist leaving that because they weren’t happy with the structure there. And they basically took all their LPs with them, and the LPS kept investing with them because they trusted that that individual, and so like Jason Calacanis is one who’s a syndicate lead on angellist first platform offer. And then there are other people that have gotten raised their own funds like Rama, Namie, abstract, etc. and Zach caelius. All those excellent syndicates, Brandon Wallace, a fifth wall, which was a syndicate lead before raising this wall. So I don’t know if that risk is there, at least not not in a big way. But then also I’ve just found Angeles to be so awesome in every way. So they they take a portion of my career. But it’s pretty small, it’s about a quarter of my carried interest. And they do so much in the background that makes it it’s, it’s a very good deal for me. If I were to do this on my own, I’d have to hire people. And it cost me more than what I paid angellist because I’m on Angel list, it’s kind of a continuous investor finder for me. So people join Angel list and they look at syndicates to back and they end up with me. So by staying on there, it’s keeping me growing faster than I would have been if I was off.

Jay Clouse 31:25
I saw that you built that syndicate to more than 500 people faster than anyone else has ever built an angel list syndicate faster to 500 people. And a lot of that comes down to this trust that you’re talking about. What is it about Peter Livingston or unpopular ventures that build trust with professional investors faster than anyone’s ever done it on? angellist?

Peter Livingston 31:48
Well, I mean, to be honest, I do feel proud that I grew quickly. I think part of it is simply that angellist is more established when I first kind of broke out. You know, angel says only there cynic products only been around For five or six years, the people that started syndicates five years ago, there weren’t more than a couple hundred people to even recruit to be in their center. And then I also did a couple growth hacking things on angellist that excellent had ever done before. Effectively, I cold emailed everybody on angellist and said back my syndicate, and that’s not easy to do. Actually, it took me about six weeks to do it straight manual. And from that I was able to get three or 400 people. And then after that, I just kept doing good deals. And people would tell their friends about Oh, like this guy Peters putting up good deals. I think that’s that’s all there is to do it right there. That’s all that’s all there is to it. I try to make really good investments. I try to build trust in my LPs. I try to show that I’ve good judgment. I feel very fortunate that they have trusted me that’s continuing to grow. So it’s over 1000 investors now.

Eric Hornung 32:45
Is there a near term like economic incentive to running a syndicate? So in the fund model, you have you said that $20 million fund? Well, you’d be pulling in $400,000 a year on that $20 million fund through the two and 20 model what about in the syndicate model, which is to buy Deal.

Peter Livingston 33:00
Yeah, so so in a syndicate, there’s no management fee, or at least not yet. Some syndicates are trying to play around with that. But historically, syndicates usually don’t charge a management fee. And so there is no near term cash cash, I get by purely get carry. But one way that the carry is different in a syndicate versus on a fund is that it’s deal by deal. Whereas on a fund that carries on the whole portfolio of investments, and individual deal carries more attractive because a larger fund, it’s really hard to return the fund usually takes a long time, maybe eight or 10 years. So you know, you might have one deal that returns 20% of fun, and then another one that returns 50%. And then another one that returning and finally in year eight or 10, you finally return all the money that was invested. And then you get you start producing problems and we’re going to carry with deal by deal carry, I only need one to return more than we invested and I’m looking forward to serving. So usually when you’re investing there might be a deal that breaks away quickly and increases an exit in year three to four that might return 20 30% of the fun and I would make money Then, rather than waiting to meet her, so that’s attractive. But yeah, there’s no management fee, I feel fortunate that I’m in a position where I don’t need that salary right now. Also, you know that 400 k sounds like a lot on, you know, $20 million fund, but the reality is to run that fund, you have to employ a lot of people. And, you know, the LPS are gonna expect you to hire people without they won’t they like, they won’t be happy to take all 400 k salary. So in the end of that your salary might be like 150 K, which is still good. Yeah. You don’t end up profiting that much from management fees.

Eric Hornung 34:31
Does that mean there’s kind of like a barrier to entry for in addition to being accredited, which I believe you have to be to be a syndicate lead on angellist. If they change the syndicate rules, and it’s essentially anyone who works at a financial firm, it becomes accredited. They’re still you still have to essentially fund yourself for a few years, while your investments mature, and eventually until they eventually exit.

Peter Livingston 34:55
It’s true. There is that barrier to entry, and I wish there wasn’t I wish it was more equal. fair to everybody. I know a lot of the syndicate leads do it on the side, like they have a main job that pays no salary. And then they do, you know, they run deals through their syndicate on it becomes. So that’s one way to do it

Eric Hornung 35:11
is is there a world out there where GP staking for syndicate leads can become a thing. So essentially investing in a syndicate lead as if you’re investing in a startup with their runway and burn?

Peter Livingston 35:23
Yeah, potentially. I think a ROM tonight me with with abstract VC actually did that. So he did something where he sold part of his GP to a bunch of top tier VCs like Marc Andreessen. So I think they gave him cash to live on and operate in exchange for money modules. Yeah, are we?

Jay Clouse 35:40
You answered a ton of my questions as far as how syndicates actually work, but we didn’t spend a ton of time talking about unpopular itself. What types of companies are you looking for and predominantly investing?

Yeah, it’s really mix. It’s all it’s all over the map. A couple anecdotes on this. So So the first is that most of My best investments as I was kind of playing around with angel investing in just learning and investing everything. Most of my best investments were the ones I couldn’t get anyone else to do. And so that was a big learning for me. And in contrast these hot deals that had tons of people in them, it seemed famous and got a lot of press. I did a lot of those. Most of them didn’t do that. Well. And that’s not a new insight. Really. A lot of people have talked about this before. But yeah, the only way to make money in any kind of investing in startups and public markets, is to be what’s called non consensus and right. So you Andy rackleff, talks about this. He was one of the founders of benchmark, but he got it from Howard Marks at Oaktree capital. And the idea is if you kind of distill investing it down into a two by two matrix, so on one axis of the matrix, you can either be right or wrong. On the other axis, you can be consensus or non consensus. Everybody knows that you want to be right. But what a lot of people miss is that if you’re right but invested with the consensus view, you don’t actually make much money you don’t make you don’t beat the market because everything is personal. But the tricky thing is that when you’re investing you don’t know if you’re gonna be right or wrong when making investment. The only note Going to consensus or non consensus. So therefore, the only thing that you can actually optimize for at the beginning of the investment is to be non consensus. And then simply hope that you’re going to be I mean, sure you want to try to be right. But yeah, the only way that you make money in any of this is to start by being non consensus, and then you get to 5050. Right? So So anyway, what I found is that the unpopular deals, still lose money and a lot of them but the ones that I’m right on, those are the ones where I need big, big money. And then the other funny thing was when I was trying to raise my fund, a lot of LPs really wanted me to focus and concentrate. They said, Well, we want you to either focus on digital health or AI, or, you know, some core area where this is gonna be my expertise. And I found I really don’t enjoy that. And I don’t feel like it’s a good way to personally invest. I prefer to be more diversified in all kinds of different businesses that are all attractive in their own ways. And so I’ve ended up diversifying a ton. So I’m in financial technology, I mean, real estate stuff. I mean, a lot of transportation deals I’ve invested all around the world. So company newsletter and developing markets have done a lot in Latin America, or in Africa, a couple of Pakistan have invested in doing a deal right now a follow on in a food company. It’s kind of like an Asian sausage company that just incredibly excited about that the team is super good. Business is great. They really executed well. But yeah, I feel like are the best opportunities in all of life not just from investing or startups, but everything tends to come from to, to robust traveling. So in everything I do, I try to kind of go to places where no one else goes and kind of find things that are like really like weird and different. Most people like well, like, I’ve never, I’ve never heard of that or Well, how could that be a good investment? But then once you kind of dig into and kind of really look at it, it’s like,

Eric Hornung 38:38
that is actually pretty interesting. If you if you put a deal in front of your syndicate, and all 675 backers said yes. Would you pull it?

Peter Livingston 38:47
That’s a good question. Probably not. Mmm. Like, the thing is, it’s like as a syndicate leader, I’m also like,

Jay Clouse 38:54
in some ways, I’m a VC. But I’m also kind of like

a matchmaker where I’m also just trying to put options He’s in front of people that they want to invest in. And because they are making the choice, I don’t get the final say on if they’re gonna invest or not, I put up the opportunity, they make the choice, a big part of my job. It’s not just to choose, it’s to put good choices in front of other people. And if other people want to make those choices, then, you know, I also have a responsibility to let them make that choice. So So in that case, it hasn’t happened. I don’t think it ever will happen.

Eric Hornung 39:24
You have this quote that the next Sequoia is going to be a syndicate, not a fund. And I really like that quote. But I want to know, in the listener for the listeners, edification, why you think that

Peter Livingston 39:35
two reasons. First, the trend is very much in favor of syndicates. This has appeared, it’s growing super fast. And there are a lot of advantages over it in it over what conventional venture protests. So I think that, you know, navall said this recently, it’s like when you have a platform shift, you have to move over to that new platform, otherwise you get left behind. And most existing businesses of all kinds have a very hard time changing platforms. For the ones that do succeed in the new pair. So there are a few things that are really interesting about some. So the first is that all of my backers are individuals, and a lot of them are really impressive people in their own way. So they’re, they’re all accredited, not always, but in many cases means that they’ve had a high degree of success in their chosen careers. They’re spread around the world. And so oftentimes, when I’m competing with another VC for a deal, where the founder has multiple choice, and they’re like, Who do I take money from? Maybe they have some VCs and already, but I’m going head to head with another VC. And they say, Why should I take you actually have a very easy answer? It’s, who do you want your money to come from? A bunch of boring pension funds, or 100 individuals spread around the world in a variety of professions that can all help you as an easy choice to like, Oh, that sounds awesome. Bunch of individuals. And so these big conventional VCs, you know, sure they have some individuals, but that’s, that’s not what they’re about. You can kind of get that individual partner to work with and that’s it, but I bring the homepage. The second thing is, I’ve effectively built in a better scout program than Sequoia has into And this comes from the deal by Joel Carrie. So you might have heard Sequoia and other venture funds have scout programs. You know, I think Sequoia has over 100 scouts. And basically, when you know, each scout has a certain amount of money they get to invest in they get kind of carried interest in that. But it’s a pretty small footprint of Joel scouts. And there’s a lot of them and it works well. I’m just quiet is the best. Like, you know, this is one of those things where I’ll probably be wrong, the syndicate, probably, you know, it’s gonna be hard to overtake score. But I still think that there’s some structural things that are done. I don’t mean just sort of expected to score. They’re amazing. They’re the best in venture. But but the scout program in my own model, what I do as I share a huge chunk of my carry with anybody who first made the deal that I did, what I found is that on my good deals, I pay my scouts more than the school pays their stats. So as an example, if someone simply sends me to let me do it, they do no work. It’s simply a referral, I give them one third of my carried interest. And if I bring in half a million dollars or $700,000 on that deal, their carried interest on that is equivalent to 25 Sometimes 50 K, for that deal is equivalent to the upside of an angel investment. And I have over 1000 LPs in my syndicate, over 100 portfolio founders, tons of friends huge network. And all these people know that if they send me a deal, and I do it, they get paid a lot, probably more than they would get paid as they go to school. And so as a result, I’m seeing deals first and better ones from around the world, because I could have had this unlimited scout program. And, sure, maybe Sequoia could do it. But it’s different. Like it’s hard to set to pull out that carry and do it the same way or do it at scale or do it in a big way. So I guess where I’m going with this is because of this kind of inherent scout program, wherever I can kind of carve out that job. I do carry and share with anybody, thousands of people, anyone who wants to send me a deal. I deal flows down through the roof I see probably like 50 deals a week. And they’re all very good. I’m very hard to choose in particular. And so I and I’m not gonna be the only one that does this. So other syndicate leads are doing this as well. A statistic that’s remarkable. So evangelist has only been around since 2012. They’ve already been $1.8 billion through the platform. And they track everything. They are now in 36% of all top tier USBC deals 36% they’ve only been around for 10 years. And so you kind of extrapolate that forward and there’ll be more syndicate leads more LPs on there and more deal flow passing through here. And, you know, I’d like it to be it might be not, there’s a lot of talented people. But I do think that we’re going to this place where Angeles melts syndicates that exists on are going to be extremely powerful and a major part of the system. Maybe not in the next five years, maybe not the next 10. But I bet in 20 years, you’re going to see syndicate leads on the Midas list, maybe longer term, this will be considered as big and on par with no support or maybe overturned.

Jay Clouse 43:38
Awesome. Well, if people want to learn more about you or unpopular ventures after the show, where should they go?

Go to Angel list type in Peter Livingston unpopular ventures should show up.

Eric Hornung 43:55
All right, Jay. We just spoke with Peter from unpopular ventures. We had the Burj chirping in the background. We had some people coming up and asking them for favors, is quite the outside quarantine Starbucks interview.

Jay Clouse 44:09
Yeah. And as expected, it delivered on teaching me a lot about a model that I knew nothing about going in. Still sounds like, you know, a lot of people to deal with. But I am much more bought into the idea that it’s really not more burdensome than running a fund. I love the idea of kind of going deal by deal. He said something that resonated really hard with me, which was basically, I’m more of a blogger than an investor at one point, which makes a lot of sense. I mean, he’s essentially built an audience. And he goes out audience and says, here’s something that I think you’re interested in, take it or leave it, which is pretty great. I mean, because you only have to deal with the people that want to take it, and you move forward.

Eric Hornung 44:48
Yeah, I like the concept of being a matchmaker for deals saying, Yes, my stamp of approval is on this. But you don’t have to say yes. And he knows that if he’s doing he knows what he’s doing. Good job by the amount of people that are saying yes to each deal and how oversubscribed something is or how much money is flowing in. So there’s some pretty cool metrics there that can show that his deals are doing well and gaining support. And he’s in a pretty good position to

Jay Clouse 45:15
protect his position as one of the largest Angelus syndicates here. Not only because, you know, the rich tend to get richer, so to speak. But because something you brought up at the end the interview, which I hadn’t thought about, this is quite a long term play with no immediate reward whatsoever, and a pretty large time commitment that I would guess you had to put into this to talk to a ton of entrepreneurs decide on the deals that you’re really interested in. Then write something compelling to present to your LPs and then work through all the terms like that’s a lot of work for something that, you know, you hope as part of the portfolio pays off 10 years down the road, but with no management fees in a syndicate that’s a little bit of a bonus. against other people who want to come in and start a syndicate right away.

Eric Hornung 46:02
Yeah, I mean, it’s near impossible if you wanted to cut your teeth, running a syndicate that you could do what Peter’s doing full time without the personal runway to get there. I mean, that’s a huge just barrier to entry for anybody who’s in their 20s and 30s. And hasn’t exited a couple million dollar business, or even their 40s. I mean, there’s just a lot of a lot of runway and I think it goes to like, the, your margin is my opportunity type thing, where funds need to have that 2% overhead, but syndicates, I guess don’t or maybe they do, maybe eventually there’ll be a platform that steaks syndicate leads and buys essentially GP shares so that people can be off, get off the ground and start investing.

Jay Clouse 46:49
I also really like that, you know, as an individual, he is still investing in a portfolio of companies, but because it’s not all being deployed from one fund He’s not trying to return that fun. Like once things start to exit or liquidate they can happen one by one and go back into his ability to invest, which is one of the things that I think is limiting and annoying about this venture capital structure that we’ve had for decades.

Eric Hornung 47:18
Are you saying he there will be no forced liquidations because of how he’s investing?

Jay Clouse 47:23
Yeah. And he hasn’t had to think about, I guess I’m not super familiar with or as familiar with venture capital to say that this is materially different. But he doesn’t have to think about like this individual fund, what is the makeup of that he can really go like company by company and not worry about, okay, these 10 companies I invested in, that’s all a 10 year experiment like you can really stagger the experience a little bit more. And because the LPS are investing deal by deal, they can kind of see the outcome of their investment faster, because it’s not the entire fund. I don’t know. Am I thinking about that the wrong way? Call me out on it.

Eric Hornung 47:57
No, I think I mean, I think you’re thinking But it from the perspective of the syndicate member, there’s a, there’s some pushback, I feel like in the LP community, or maybe maybe it’s in the fun community on behalf of the LP community, I’m not really sure who’s leading the marketing charge here against syndicates. But they say that it’s unfair because it for the syndicate, lead essentially just represents a call option. They don’t have to worry about returning a fund. So yeah, if you got in the right deal of those 10, great good for you. LP you pick the right deal. And the GP or the syndicate, lead gets all the upside of that one deal and doesn’t have to worry about the other deals. There’s probably some merit to that. But there’s also if like Peters doing, he’s investing in every single deal. He has skin in the game, and he’s not getting a management fee. So I personally think the syndicate model is better aligned. But the traditional way to do funds, I think, people say oh, but that’s not how you play the game kind of thing. You know, like when Michael Jordan came to the NBA, and he was just like flying over everyone and dunking and everyone’s like, That’s not really how you play the game. You’re supposed to be shooting mid range jumpers,

Jay Clouse 49:03
even watching the last dance. No, I have not. Oh, it’s great. You should watch it. Something you just brought up that honestly, I didn’t realize until recently. And so if there are listeners out there who are a little naive like me, I wanted to point this out. When a fun raises a fund, say as $200 million or something, I had always assumed that meant that they immediately had that $200 million on hand in their account. But it’s not that it’s this capital call structure that you’re talking about. Can you explain a little bit more of that?

Eric Hornung 49:31
Yeah, so it varies fun by fun, but when you raise $200 million, maybe 25% of that comes in day one. And then once you get to a place where you’ve invested that 25% or used the management portion that 25% to pay salaries, you need to make another capital call, you go out and you depending on what the fund structure is, maybe you call another 25%. Or maybe you start with 50% and you have one capital call three years out, whatever the terms are, over time that LP is committed. Legally committed to giving you that money. But they don’t need to write you a $10 million check on day one. So one of the things I want to talk about with the syndicate model and why I’m personally so bullish on it, is that the fun model is very like traditional finance. And you can use certain tools to go out and find deal flow or to review a deal and you can use notion and collaborate better. But the underlying structure itself doesn’t scale. Well. What I mean by that as you go up, the way to scale a VC fund is to do bigger deals, not to do more deals. So the incentives for a VC fund is okay, you start with a $17 million fund that works out well you go raise 100 million dollar fund and now you’re doing both seed deals and series A deals and then that works out well and you say okay, I’m going to go up river again. Now I’m raising a $200 million fund and I’m going to do series A and Series B deals and all all the meanwhile is good for you because you get 2% of a bigger and bigger pie going forward. Because of that, it’s better for you to do at a $200 million fund, it’s better for you to do a Series B deal or a suite of Series B deals than it is for you to go back down and do 500 pre seed deals. Because the fund economics, it’s just, it’s harder, you’d have to hire so many more people to do all of that due diligence and everything right? on that raise side, you’re still raising from 40 or so LPs, and they’re giving you all of this cash and it’s begging, it’s up front, and you’re doing it in less and less deals because you want your portfolio to stand for itself and return the portfolio. On the syndicate side, you have an ever changing LP base, and it’s all set by like technology, the syndicate, as it currently exists would be so so hard to pull off without great technology. And that’s why Peter is talking about how great Angeles has been to him. And remember Angeles takes 5% of your 20% carry. So they’re sitting out there with call options on essentially everybody that’s out raised through angellist. And if they do well angellist is gonna make so much money in 10 years on this, but because of having that platform, and it’s like a technology first versus a legal structure, first entity, Peter could have 20,000, LPs and do 500 deals a year with not that much more overhead, as opposed to a fund, which would have to do the same amount. So Peter mentioned in the in the interview itself, he deployed more capital in a syndicate than he would have been able to in a fund. And that scales over time, I believe.

Jay Clouse 52:38
We’ll find out if you’re right, I think we should keep talking about the syndicate model and maybe talk to some more syndicate leaders here on the show as we move forward. We love to hear your thoughts on this episode about syndicates and whether you want to hear from more syndicates, what questions we didn’t ask about the syndicate that we should have asked. You can tweet at us at upside. FM, or email us Hello at upside down FM, and 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 or find us on Twitter at upside FM. 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. It 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 on your 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: 5:16
Debrief: 43:55

Unpopular Ventures is led by Peter Livingston, whose experience is almost entirely in startups – as both an operator and investor. He was the first engineer at iRhythm (IPO 2016) and was the founder/CEO at Lifesquare (backed by Kleiner Perkins).

He has been angel investing since 2013, made >150 investments to date, and has produced investment returns well within the top decile of VC industry performance.

Peter founded Unpopular Ventures to keep investing in startups – but with a bigger family, bigger checks, and bigger impact.

Key points:

  • Disagreeing about corporate VCs (9:11)
  • Syndicate Model (13:37)
  • Investors and the syndicate (16:13)
  • Not following the traditional fund (26:35)
  • Building trust (31:25)
  • Edification (39:23)

Learn more about Unpopular Ventures:

Follow Peter’s Syndicate:

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