Syndicates are used by businesses and organizations of all shapes and sizes to achieve their goals more effectively. By joining a syndicate, you can turn teamwork into a cornerstone of your financial strategies.
What is a syndicate?
A syndicate is a group of businesses or individuals who have united with a common interest in mind. Syndicates are created to manage large transactions, incentivize changes, or face risks that would overwhelm a single person or company.
A group of investment banks, for instance, can use syndication to unify their resources and share the burden of entrepreneurial risks together. A bank syndicate can use the collective power of its members to bring a new issue of securities to the market. While there are many types of syndicates, the vast majority of them are comprised of businesses of only one industry.
Examples of syndication include:
- Two pharmaceutical companies creating a syndicate to unite their Research & Development (R&D) teams. This can help them research and develop a new drug by spending less time and resources.
- To loan a large amount of money to only one legal person, several banks may decide to syndicate. Small lenders can do this to work alongside big clients while also mitigating individual risk. Likewise, this opens the gate for businesses without expertise in a specific asset class to profit from it regardless. This process is known as a syndicated loan or a syndicated bank facility.
- Promising rates of return (RoR) can lead companies to syndicate to manage a particular business venture.
- An underwriter syndicate can be created temporarily by investment bankers and broker-dealers to sell debt securities or new offerings of equity to investors. Underwriter syndicates are also known as underwriting groups and investment banking syndicates.
- The All-China Federation of Trade, one of the largest labor syndicates in the world, is in charge of handling the labor disputes of more than 190 million members.
How does a syndicate operate?
Syndicates operate as temporary unions between legal entities. The purpose of creating a syndicate is for many participants to pool their resources together and take action as a single unit.
The life-cycle of a syndicate
Opening for investment
The creation of a syndicate typically begins with a lead investor discovering a startup that shows promise. They will share their intention to form a syndicate with other potential investors.
Information such as the valuation and amount of money to be raised will also be made available. Interested investors can reach out and specify the amount of money they wish to contribute to the project. If the money gathered doesn’t cover the minimum investment size, then the investment will not happen.
Making the deal happen
An investment vehicle is created. This is the name given to the party of individuals who will manage the investment. The payment for the creation of the investment vehicle is the same for all parties involved, regardless of the amount contributed. Once the investment is made, lead investors will keep track of how the startup is doing.
If an investment ends in failure, then the investment vehicle is dissolved. In case there are benefits like dividends or buybacks, investors may receive their money back plus a percentage of the generated capital gains.
Creating a diversified portfolio of investments
Syndicates empower companies to diversify their investment portfolios. The same amount of money you could use to invest in 2 to 3 startups on your own can be used to invest in more than ten if you syndicate. This way, the risk is spread across many investments, drastically reducing the chances of losing money. Better yet, a diversified portfolio increases the chances of investing in a unicorn company.
Simplifying the financing process
Working in syndicate form relieves you from a considerable number of administrative duties. Moreover, companies being invested in will find faster access to capital to be beneficial. Not only is syndication good for the flow of money, but also for speeding up processes.
Spreading out risk
As the old saying goes: “Never put all your eggs in one basket.” Those who join a syndicate know that, by doing so, their investments will be diversified and the chances of losing their money will dwindle. Reducing financial risks will bring you peace of mind. In addition, if you’re one of the smaller investors of a syndicate you can rest assured knowing you’ll be part of a team with highly-qualified lead investors.
Joining a syndicate is a great way for small investors to get their feet wet in the business world. A syndicate will offer you the opportunity to establish connections with successful and experienced investors. Moreover, you will be able to see how the big fish swim. As a member of a syndicate, you will have access to special meetings where other investors conduct business deals.
If you wish to know how your current investments are doing, you will be happy to know several syndicates keep in touch with the businesses they have invested in. This means that you can easily gauge the success of your investments and learn how the challenges they face are overcome. This knowledge will serve you well in your future business ventures.
Boosting startup growth
Working with a syndicate also means working alongside an expert investment team. Startup founders benefit from working with syndicates because they have access to better deals. Not only does a startup receive financial backing, but through their connection to the syndicate, they have access to more business contacts and opportunities. By working with top-tier investors, syndicates offer startups a substantial competitive advantage.
3 tips for running an effective syndicate meeting
1. Always keep the organization of syndicate meetings in high regard
From annual meetings to last-minute ones, keeping goals and ideas well-structured will streamline the experience and help everyone make better decisions.
You can use the following structure to devise how your meetings will be conducted:
Before jumping into the most important items, some opening remarks should be made to address those present. It is possible that a meeting has not been called in a long time, and some introductory words can help ease everyone in.
Additional remarks and initial updates
After the chairman of the event has finished with their initial statements, co-chairs may also share some words if they please. During this time, some initial updates about the state of business can be made, taking care not to confuse anyone by offering disjointed information.
Return on action
The information that should be relayed first should concern what has happened since the last meeting. Updates and follow-ups on crucial items should be given at this moment.
After everyone has been brought to speed, it is time to discuss management items. Naturally, the content of this discussion depends on how business operations are currently doing.
Make sure not to leave much information undisclosed. Items that have not been properly discussed should be addressed. In addition, the attendees of a meeting will most likely have questions. Being as thorough as possible with the answers will guarantee everyone has the same level of crucial business information.
Preparing some special words to end the meeting with will help attendees keep a positive attitude about its results. The occasion can also be used to thank all participants.
2. All parties involved in a syndicate meeting should understand their advantages
Everyone who is involved in a syndicate benefits. However, the duties and advantages of lead investors may differ from those of backers. For a syndicate meeting to run smoothly, it is important that all those involved know what to expect.
The benefits of lead investors include:
- The opportunity to invest more money per deal and thereby gain the highest returns.
- Being able to establish stable communication with startups and give better offers than what they could on their own.
- As leaders of a syndicate, they have the right to be paid a carry by other investors. A carry is the capital gains that are generated by an exit or the payment of dividends.
- Better investor rights, in the case they invest more capital per deal.
The benefits of backers include:
- Access to better investment opportunities they wouldn’t be able to handle on their own.
- The opportunity to join the same team as more experienced investors and learn from them.
- Considerably less bureaucracy and risks than when managing their own investments. Leaders already know how to do the paperwork and choose the best deals.
- Transparency in all negotiations.
The benefits of startups include:
- Access to better business partners and a higher sum of capital.
- By receiving a large sum of capital from a syndicate, a startup doesn’t have to waste time and effort looking for further backing. Likewise, they will not have to answer to the demands of many investors at once.
- Lead investors will take an active role in managing the relationship between them and the startups they invest in.
3. Implement an online voting system
The decision-making process of syndicate meetings can be substantially streamlined with the implementation of an online voting software. More than just a voting platform on the web, Option.vote’s fully-customizable voting system allows its users to know their duties and responsibilities as members of a partnership.
The novel capabilities of online voting systems allow the decision-making process to be performed fast and easily, from the comfort of every participant’s phone. Thanks to automated alerts and reminders that can be sent via e-mail, SMS, phone call, and more, all syndicate members will know when the next meeting is coming and what they need to do to be responsible participants.