How Syndicates and VCs Really Work — And What That Means for Investors
In the startup world, there’s capital — and then there’s intelligent capital. To truly understand how startups raise cash (and exactly how investors really turn a profit), you have to look past the veil of the two giant powers driving innovation: venture capital firms and syndicates.
While both write checks to early-stage businesses, their incentives, organization, and investor experiences couldn’t be more different. In this article, I will describe both models, how they play out in reality, and what you need to know — whether you are a founder fundraising or an investor looking to get into the game.
What Is a Venture Capital (VC) Firm?
A venture capital firm is a pool of investments managed by a group of seasoned investors (General Partners, or GPs) who raise money from Limited Partners (LPs) like pension funds, university endowments, high-net-worth families, or corporations.
The Goal:
To invest in early-stage companies with growth potential for 10x+ returns — and return reasonable profits to LPs within a ~10-year fund lifetime.
Structure and Flow:
Fundraising: GPs raise a fund (e.g., $100M) from LPs. The funds are legally structured as limited partnerships.
Investing: GPs subsequently invest that fund in ~20–30 startups, typically deploying the capital over 3–4 years.
Support: VCs typically sit on the board, provide hiring, ops, PR, and strategy support.
Exit: If a startup exits (IPO or acquisition), the VC gets a return.
Profit Sharing: LPs get ~80% of the profit; VC firm (GPs) keep ~20% as carried interest.
Real-World Example:
Andreessen Horowitz (a16z), Sequoia, and Benchmark are all multi-billion dollar VC firms that raised capital from LPs. These funds are diversified: a16z’s fund could contain companies like Airbnb, Coinbase, and Clubhouse.
What Is a Syndicate?
A syndicate is a deal-by-deal investing group, usually led by an experienced operator, angel, or individual GP who stumbles on a startup deal and recruits others to co-invest.
The Goal:
Streamlining startup investing — for angels that do not wish to operate a fund, as well as for backers that don’t wish to invest millions in advance but wish to get into qualified deals.
How It Works:
Lead closes a deal — usually a founder they know, or a company they’ve been tracking.
Negotiate terms — valuation, equity, rights, etc.
Take the deal to backers — usually on a platform like AngelList, Flow, or Stonks.
Backers decide how much to invest — usually $1K–$50K.
SPV is created — a special purpose vehicle pools all investor checks into one entity on the cap table.
Lead earns carry — typically 15–25% of future profits.
Real-World Example:
On AngelList, Lenny Rachitsky (writer, ex-Airbnb) could lead a syndicate and co-share a pre-seed deal with 300 backers. If the deal performs great and exits 5 years from now, everyone gets a share in the upside — but the lead gets a share in profits for operating the deal.
Key Differences: VC Funds vs. Syndicates
Capital Raised
VC Firms: Raise large funds upfront (e.g., $50M–$1B+)
Syndicates: Raise money on a deal-by-deal basis (no committed fund)
Structure
VC Firms: Operate on a long-term fund cycle (typically 8–10 years)
Syndicates: Use a Special Purpose Vehicle (SPV) for each individual deal
Decision-Making Process
VC Firms: Centralized — General Partners (GPs) make all investment decisions
Syndicates: Decentralized — Lead investor shares deal; backers opt in or out
Minimum Investment
VC Firms: Often require $100K–$1M+ per Limited Partner (LP)
Syndicates: As low as $1K per deal (accessible to accredited individuals)
Diversification
VC Firms: Built-in — your investment is spread across 20–30+ startups
Syndicates: Up to the investor to diversify by participating in multiple deals
Investor Access
VC Firms: Primarily institutional investors (endowments, family offices, pensions)
Syndicates: Open to individual accredited investors (via platforms like AngelList)
Speed
VC Firms: Slower — due to formal diligence, legal review, and committee approvals
Syndicates: Faster — more agile, often closing in weeks
Carry (Profit Share)
VC Firms: 20% carried interest on profits from the entire fund
Syndicates: 15–25% carried interest on each individual deal
When Should Founders Raise from a VC vs. Syndicate?
VC Pros:
Larger checks ($1M+)
Deep support (hiring, intros, fundraising guidance)
Prestige (can help with downstream rounds)
VC Cons:
Slower process (multiple meetings, diligence cycles)
Term sheets may be more controlling
Board seats and pressure to scale fast
Syndicate Pros:
Faster to close (especially pre-seed/angel)
More flexible and founder-friendly terms
Lead is often an active operator, not just capital
Syndicate Cons:
Smaller checks ($50K–$500K total)
Less formalized post-investment guidance
More administrative complexity (SPV, cap table coordination)
Hybrid strategy? Many founders take early money from a syndicate to kickstart momentum — then raise a larger VC round with more formality once traction has been built.
Who Are Syndicates Good For
New Angels/Investors
Syndicates allow new investors to start small, learn from the lead, and build a track record. You’re not locked into a 10-year fund and you see every deal before investing.
Operators & Founders
You’re in tech, see cool companies early, and want to invest in peers — but don’t want to carry the legal/admin burden of a fund? A syndicate allows you to do so.
Solo GPs/Builders
You’re building your own venture thesis but aren’t ready to raise a fund yet. You can build credibility, return money, and raise a fund later.
LPs Who Want Exposure Without Long Lockups
Want startup exposure but hate to lock up money for 10 years? Syndicates offer optionality and liquidity management.
How Syndicates Make Money (and When You Do)
Syndicate leads typically earn on carry — i.e., they only get paid if the investment is sold for a profit.
Example:
You invest $5K in a startup via a syndicate.
7 years down the line, the startup gets acquired and your $5K is now worth $50K.
The syndicate lead takes 20% carry ($9K), and you get the balance $41K.
Compare that with a VC fund:
LPs typically invest $250K+ upfront, and wait 5–10 years to get back a return.
They rely entirely on the GP to pick and invest.
Diversification is automatic — but choosing individual deals isn’t under their control.
Last Takeaways: Which One Is “Better”?
There’s no one answer — because these models are suited for distinct purposes:
There is no one-size-fits-all because VC syndicates and funds are meant to serve various purposes depending on your investing or fund-raising level.
If you aspire to invest in a portfolio of diversified startups over the longterm, an LP in a VC fund might be best, as your funds will be placed in many companies by experienced managers.
If you enjoy having direct control over each investment deal that you invest in, a syndicate allows the flexibility to look at and choose investments on an individual basis.
For startup founders raising funding, syndicates can be ideal for seed and early-stage rounds due to their responsiveness and flexibility, while VCs are ideal for later rounds when greater capital and structured support are needed.
If you wish to learn venture investing as a founder or operator, syndicates offer low-barrier, high-opportunity learning — you can relax, ask questions, and co-invest with experienced leads.
And if you wish to earn carry while building your network and reputation, consider leading a syndicate or eventually raising a micro fund to become a recognized quantity in the investing world.
Finally, it is not a question of which model is best — it’s a question of which model best suits your capital, experience, and ultimate goals.