Incisive Ventures is Upgrading the Syndicate

Assassin’s Creed Syndicate

Angel Syndicates have been a huge upgrade to the early-stage fundraising ecosystem delivering over $3B in capital recently and the pace is accelerating. Syndicates promise to add value and reduce friction for both investors and companies. Unfortunately, as an investor in over 300 syndicates, I have often been underwhelmed and frustrated. So I decided to upgrade the Syndicate process with Incisive Ventures.

Over 25 years of investing and as a CEO, I have directly invested in over 120 companies, am an LP in 12 Venture funds, have been a Venture Partner at a major fund, and raised over $500M for my own companies including a NASDAQ IPO. Overall, my direct angel portfolio is up 6x while my venture portfolio is only up 2x. After extensive analysis of my decision process versus returns, the key to superior angel returns became clear: The ability to separate weak investment signals from excessive noise in the very early stage incomplete information environment. My angel returns have outperformed by taking calculated early risk on non-obvious ideas with very weak traditional investment signals. As information becomes more complete and the investment signal grows stronger and obvious, returns go down: see Venture Capital returns. The only way to outperform is to be right about an idea that is non-obvious at the time you invested.

Over 10,000 start-ups in the US received their first outside funding last year. Each one thinks they will change the world and be a unicorn. They all have a story, some customer traction and some investors who believe in them. That is a lot of noise. I want to make 5-7 material angel investments a year with a high degree of confidence for a 10x+ return. To get more capital into companies I have high confidence in, I have added Syndicates to my investment stack.

Angel syndication has grown for many good reasons. Syndicates typically invest in VC quality deals, often alongside VCs, with half the fees of a venture fund. There are software platforms that have significantly reduced the friction to create and manage syndicates as well as crowdfunding. While the smallest direct Angel investment check is usually $25,000, syndicate minimums can be as low as $1,000. Investors make a deal by deal decision rather than a fixed capital commitment. Investors often get access to deals they otherwise would not see at their local angel group, or through their limited friend network. Syndication has exploded lately, there are over 3,000 syndicates on Angellist alone. I was quite hopeful that Syndicates would be an effective filter layer to improve my Angel Investments. Unfortunately, this has not been my experience.

An explosion of Syndicates has created new problems for the Angel investor: Which Syndicates are any good? Does the lead add value that outweighs the cost of the carry? Some of the frustrations I have found as a syndicate investor include:

An Opaque Filter. When separating signal from noise, the PROCESS, and CONTEXT of HOW THE FILTER WORKS are all important. Many deal memos I get from syndicate leads are little more than regurgitations of the pitch deck. Many times I will get 2-3 deals a week from a syndicate lead. Is it really possible to find 2-3 unicorns a week? Every syndicate lead lists the impressive places they have worked before and a handful of successful deals, but most are very light on HOW they screen deals for syndication. Many leads also present deals across various stages and markets without any consistent theme. I call these “Any Good Deal” leads. How do they judge “Good”? Why, as an LP, should I trust your judgment? The most significant value a syndicate lead can bring is to share how and why investors should pay attention to this particular deal. Why do they have a strong conviction that it will deliver superior returns? Can a lead really be an expert in all stages and all markets? Sadly this process and context are lacking in most syndicates.

Misaligned incentives.. One of the first things that struck me on the first syndicate deal I received through Angellist was that the lead was only investing $1,000 into a $300,000 allocation. Basically, a no-cost option on 20% carry on $299,000 of other people’s money. If the investment doubles, the lead makes $1K on their investment and $60K in carry. 60 times more in carry! When the rake is more than the risk capital, you are playing against the house, not WITH the other players. I understand how that is great for the lead. I don’t understand how that is great for the investor. Many platforms will also drive investors to your deal, making the incentive for the lead to throw up as many deals as possible while putting as little of their own capital at risk. In many ways, syndicate leads are incented to be a POROUS FILTER which I find weird. Angel investing should not be a casino where the house has no risk capital and always wins.

Momentum overweighted.. It is tempting to mistake deal momentum for deal quality. Nearly every syndicate mail I receive has one or more of these trigger phrases: “Oversubscribed”, “Last check-in”, “Famous investor X, Y, and Z investing”, “Growing 30% M/M”, “YC Batch X”, or my favorite, “I had to fight for the allocation”. Reading many syndicate deal memos you could get the impression that deal momentum is the only thing that matters. “Buy before Midnight tonight!” Paul Graham puts a very fine point on the dangers of overweighting fundraising momentum:

There’s no correlation between the percentage of startups that raise money and the metric that does matter financially, whether that batch of startups contains a big winner or not.

Except an inverse one. That’s the scary thing: fundraising is not merely a useless metric, but positively misleading.

Paul Graham, Swan

If you ask most syndicate leads for their returns, you will see they are very close to Venture Returns. Why? They overweight momentum and only invest after VCs. To outperform in Angel Investing, you must focus on primary signals. Management, product traction, market traction, CAC/LTV, customer reviews are primary signals. Momentum is a proxy signal. I have found that overweighting momentum is lazy investing and doesn’t end well. Theranos anyone?

I started Incisive Ventures to solve these problems. To be the upgraded Syndicate I wanted for myself and my friends. To be a truly value-added filter reducing the noise and improving the investment signal. Upgrading the syndicate is a long-term project for us at Incisive Ventures, and here are a few of the ways we have started the process.

A fine-grained, transparent, filter.. It is clear some filters work better than others. When the recent fires on the west coast kept most people coughing inside, I happily drove around in my Tesla X with Bio-Weapon Defense mode engaged. The key to a great filter is that it is fine-grained and built with data-driven, proven technologies. There are many different ways to design filters and even poorly designed filters will work some of the time (a broken clock is right twice a day). At Incisive Ventures, we have built ours through a detailed data-driven analysis of 25 years of angel investing and continue to improve it with every new investment. By focusing on primary investment signals which have been proven to correlate to superior returns in the very incomplete information environment of early-stage, we have consistently been able to deliver superior returns. Our model focuses on what characteristics Unicorns had BEFORE they were unicorns. During the Seed stage. We have shared parts of our process with LPs through our Meta Themes and Deal Funnel posts. Our filter has been designed for early-stage technology investing. For different markets and different stages, one would design a different filter. Our filter has been backtested and we show you our work in every deal memo. Incisive Ventures is a low volume, high conviction syndicate. While not a guarantee of future returns, we put our money where our confidence is which leads us to…

Aligned incentives. At IV, we are investors first, syndicate managers second. I put a significant PERSONAL check into every syndicate deal. With this commitment, our LP investors are truly investing WITH me, not handing over a free option on their hard-earned capital. While a few syndicate leads also follow this strategy, it is often from a FUND they manage and receive management fees on. Since they are paid to deploy the money, the bar for deploying it could be lower than for a personal check. I follow the same filter and deal memo process for every check I write. The Incisive Ventures syndicate is simply an extension of that process to share my work and get more money into deals I have a high degree of conviction on. Since the incremental work to syndicate is very low, I do not need to charge management fees to support the work. While VCs and syndicate rolling funds charge a management fee plus carry for the privilege of investing in every deal, through our Preferred LP program, we don’t charge management fees, reduce the carry, give you early access and guaranteed allocations in the hottest deals. You are not playing against the house at a Casino. We are truly investing together.

Execution focus. Ideas are free. Execution IN THE CURRENT BUSINESS is the key to all early-stage startups. This is why Management carries a 50% weight in our filter. We dig past the prior successes, fancy companies and degrees, to understand how management is executing against the specific opportunity we are investing in. How personal is solving this problem to management? Is that passion shared across the management team? There has to be a compelling WHY that drives management? We test management resilience, war game market dynamics, pivots, competitive responses, dig into the company culture, and do reference checks. We dig into the primary signals that show how the company is executing against product development, market traction, and regulations (total 30% weight). External validation of execution like other smart investors, or celebrity endorsements are considered, but only as secondary, proxy signals after we have validated the primary signals. These tests for execution take time, another reason why we target 5-7 deals a year instead of dozens.

Unique pipeline. There is definitely deal fatigue out there in the Angel community. Do I really want to see another YC company? If you do, there are syndicates who specialize in that. At Incisive Ventures, you are likely to see a unique stream of companies you will find nowhere else. Obvious problems have many people rushing to solve them. That is a red ocean. We like the Blue Oceans. Many of the companies that fit our Meta Themes are tackling non-obvious problems with proprietary technology in a unique way. We want to fund the leaders in a new fast-growing niche. In addition to the Venture firms, angels, and CEOS in my network, I always have a couple of personal theme areas that I am looking to fund the best company making a product that I want to buy. An example of this is my recent investments in companies that bring Continuous Glucose Monitoring (CGM) from the diabetes market over into the general health and fitness market. I have worn a CGM for three years (well before it was “hot”) and tried every company in the space. I found the best ones and invested.

Curated, value added Angel Investors. Paul Graham has said that “Angel investors are the most critical.” and we tend to agree. Many angels have been founders themselves and have large networks to leverage. One of our IV Meta Themes is to only invest when we can be personally helpful to the company. Founders we talk to are increasing asking “Who is in your syndicate and how will they help us grow the business?” Many times, we receive an allocation because we delivered value BEFORE the company raised money. IV syndicate members were very active beta customers with in the CGM product space. When we approached the leader about financing, the CEO already had received value from our beta participation. Ability to deliver value over and above capital will become increasingly important for Syndicate leads. This is something Incisive Ventures is hyper focused on.

At Incisive Ventures, we have a high degree of confidence our companies ability to solve big, non-obvious problems at the time we invest. We know where to look by our Meta Themes. If we are right, our returns will outperform.

Angel investors should join syndicates to improve your reach and leverage your capital. Just make sure you understand and agree with the filter process and meta themes of the syndicate lead. Make sure the lead incentives are aligned with yours. We have a proven process to separate the investment signal from the noise. I have designed Incisive Ventures to be my dream syndicate. I hope you find yours.

Announcing IV Preferred LP program

For those investors who want to beat the crowds, today we are announcing our Preferred Limited Partner Program. Peter over at Unpopular Ventures runs a very good syndicate and I thank him for the inspiration of this syndicate upgrade.

In the past, in order to get access to all on thesis investments from a Venture Fund or a Syndicate Rolling Fund, investors are asked to pay management fees AND carry. This always seemed odd to me. As an investor, I make a long term capital commitment which helps the lead get into more deals, and you DOUBLE my fees? The lead is getting secure capital and I always thought investor fees should go down. Now, with the Incisive Ventures Preferred LP program, you get lower fees and many other benefits. Since I started the syndicate with a bunch of friends whom I have been investing with a long time, we have been piloting this since the beginning. We are now ready to consider new Preferred Limited Partners. Connect and let’s discuss.

Preferred Limited Partners commit to:

  • Invest a minimum amount into every IV syndicate deal (minimum $5,000) over at least a 12 month period.
  • Preferred LPs are able to opt out of any deal in which you have a personal or values based conflict, just drop me an email.
  • IV is a low volume syndicated and we expect to do 5-7 deals a year.

What Preferred Limited Partners receive:

  • No management fees
  • Reduction of per deal carry to 15% on their investments.
  • Early access to every deal (we will email you first)
  • Guaranteed allocation of your Preferred LP commitment in every deal. No more getting cut back in oversubscribed deals.
  • Preferred access to the Incisive Ventures team.

If you agree with our Meta Themes and how we filter the funnel, join my long time investing partners and put a portion of your angel investing allocation on auto-pilot. Become an Incisive Ventures Preferred LP. Let’s connect.

Incisive Ventures reserves the right to update terms and conditions for the Preferred Limited Partner program at any time. Current program terms here.

The Incisive Deal Funnel

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From a firehose to a trickle

Over 8,000 companies received pre Series A funding in 2019. As I write, 2020 is on pace to surpass that. How does one separate the signal from the noise? Over 25 years of Angel Investing, I have made every mistake there is and built a process from all that learning. This is the process I use to select deals for the Incisive Ventures Angel List Syndicate. Here is how I do it.

The top of the funnel is not every possible deal, you must apply a filter. The first filter is my personal network built over decades as an LP in over a dozen Venture funds, Angel investor in over 100 companies, CEO having raised over $500M for my companies (and all those venture and banking relationships), Founder of the Angel network Element8, and all the management and investor relationships over that time. From that network, I see thousands of deals a year.

The second filter is the Meta Themes I have found deliver outsized returns when present. They are listed below. If you want to get into the weeds, there is a very detailed dive into it here.

  • Software eats everything
  • Great founders figure shit out
  • Disruptive innovation creates new markets
  • Platforms win
  • Americans are lazy
  • Invest only when I can be helpful
  • Invest along other very smart, committed people.

After screening hundreds of deals through the Meta Themes, less than a hundred get the concentrated diligence process and end up with a weighted score. With every check I write of any size, I want to have a greater than 80% confidence in a 10x return on my capital. If you want to get into the weeds on the ranking algorithm, head over to this blog post. There are 5 major risk areas for every startup. I assign a confidence level from low (weak, unprepared, or insufficient) to high (easy, will crush it). The five components are:

  • Management (50% weight)
  • Product (10% weight)
  • Market (10% weight)
  • Regulation (10% weight)
  • Terms (20% weight)

Less than a handful make it through to writing a check. My check size goes up along with my confidence interval. I usually write checks up to $50,000 between 80-90% confidence. Over 90% confidence, I will write checks up to $1M either alone or with friends and other smart investors. These are typically the deals that go through my Syndicate.

PS: Major Errors I have made.

While there is likely a whole post on errors I have made in the course of decades of Angel investing, the major ones that have cost me the most capital are listed here (in stack ranked order).

  1. Weak management. Management that can’t execute and pivot over time. Most management have nice looking resumes, but until you dig deeper and understand how they execute and the kind of culture they create, you won’t understand if they are up to the startup challenge. Everyone has an idea. The winers out execute everyone else.
  2. Underfunding. Most startups run out of money before they find a product/market fit. Many startups fundraise hand to mouth, never gaining enough capital to mitigate the big risks of the business. Underfunding can also be caused by overspending by management on the wrong problems at the wrong time (see above).
  3. Big Market, unclear entry strategy. I have fallen in love with large market size numbers, we all do. Without a clear product path to enter the market with some sustainable advantage, the market size doesn’t matter. Without product/market fit, the size is irrelevant. Also, if the “market” is already big, there are likely lots of competitors, a red ocean. There are better returns creating a new market niche and leading that niche with your product.
  4. Me to products. Never invest in a follower. Unless there is some geographic, language, or market reason. There has been a lot of money made copying innovation from the US in Europe for example. But copying a product in the same market tends to lead to low returns for investors. Invest in the leader, the category creator.
  5. Following investors without personal theme fit. I started out Angel investing with an “any good deal” strategy. How did I decide if it was a “good deal”? If other “smart” investors were in it. You will never know why other investors write checks, or even if they are “smart”. Plenty of “smart” people put money into Theranos. They all lost their money playing the momentum of others without doing their own thinking.

Incisive Ventures Meta Themes

At Incisive Ventures, certain Themes drive WHERE we look for investments. The short answer is where we believe we have an ADVANTAGE. Some kind of information, insight, or talent advantage that is not available or at least non-obvious to others. The long answer is the rest of this post.

Having far exceeded the 10,000 hour rule over decades of Venture investing, I have found an advantage when I follow these seven Meta Themes. These themes emerged from careful analysis of every check I ever wrote, the state of the company when I wrote it, and the eventual outcome. Turns out, the best returns (10x or more) have ALWAYS occurred when 5 or more themes are present. I now search exclusively for investments that fit 5 or more of these Themes. While I occasionally do invest with a looser fit, (say in an extremely strong founder outside technology), approximately 90% of our capital is deployed in line with these Themes.

  • Software eats everything
  • Great founders figure shit out
  • Disruptive innovation creates new markets
  • Platforms win
  • Americans are lazy
  • Invest only when I can be helpful to company
  • Invest alongside other very smart, committed people

Software eats everything.

Great software significantly reduces market friction and creates new markets and value. Bezos is right: “Your margin is my opportunity”. Amazon’s software ate retail. eBay’s software ate the classifieds business. Online banking software ate retail banking. Uber’s software ate the taxi market. Redfin’s software enables efficiencies that they pass onto customers while remaining profitable. Software “eats” another industry when it delivers greater value at a lower cost. In eating an existing industry, the best software can actually grow bigger babies. There are 100x more people hiring drivers through Uber than anyone who ever took a taxi. I buy stuff on eBay which is NOT available locally, new purchases that are impossible without eBay. This is especially true when your competitors’ core assets are not software or technology-based.

I have a friend who started shorting Amazon around $300 saying Walmart was much more profitable and had better physical assets. Yea, but those physical assets were costly, not scalable, and created friction in the retail process (get in car, drive, check out lines, etc.). Amazon’s core assets were software which fundamentally reduced customer friction allowing Amazon to grow sales much faster than Walmart. Software won. Investors in Amazon have been rewarded with orders of magnitude greater returns than investors in Walmart (a $10K investment in both in 2000 would yield approximately $100K for Walmart and $9.2M for Amazon) by mid 2020 (a $10K investment in Amazon’s seed financing would be worth over $1B).

Not all software “eats” another industry. Many software companies are competing against other software companies. That is not eating, that is competing in a red ocean. These can still be great companies, but the greatest software companies “eat” an inefficient, slow industry.

Incisive Ventures recently invested in a company that has replicated the therapeutic effects of most drugs and over the counter medicines (anything with a non-covalent bond method of action) in software. They have double blind placebo controlled scientific proof that it works, and patents. Yes, software may eat one of the most profitable industries on the planet, pharma. Didn’t see that one coming did you? We were looking for it.

Investing in “software eats…” ideas tends to produce superior returns.

Great Founders figure shit out.

“Everyone has a plan, until they get punched in the mouth,” Mike Tyson said. A startup founder is going to get punched in the mouth over and over again. Great founders can take the punches and figure out how to win anyway.

Management commands a 50% weight in my decision process for a new investment because of this Theme. A start-up is a journey through a land of incomplete information with limited resources. Opportunities abound and resources are limited. Great management is skilled as guiding the ship through the journey. This is a constant decision process, under pressure of where and how to allocate limited resources. Great founders pivot often. They attract other great people. They inspire customers. They modify their original plan to meet the engagement they find in the market. Great founders have a personal stake in the company or product.

I often ask founders to explain a failure (or two) as well as a success. How a founder talks about failure and success is very instructive. During the failure, were they animated, doing every next right action they could think of? Or paralyzed. Are they accountable for their part, or do they put blame or not credit on others? How much did their actions contribute to the success and how much was right place right time? Many founders from successful companies overvalue their contribution to the prior success and underestimate their own role in failures. I avoid these founders. Great founders are very self aware of their strengths, weaknesses, and those of their team. Great founders are very accountable for their actions.

Disruptive innovation creates new markets.

How big was the ride share market before Uber? The cell phone market before iPhone? Premium coffee before Starbucks? Streaming video before NetFlix? Great innovation allows people to buy stuff they never thought they needed. This is the Blue Ocean Strategy. While the “Software eats…” theme is looking for technology companies disrupting traditional businesses, this theme is looking for innovation to OPEN NEW MARKETS.

So I look for category creators. The first brand to reach scale in a new category, or the early start up who could possibly create a whole new category. This is related to the “winner take most” fact behind category creators. The followers of eBay, Amazon, Netflix, etc. all have crumbs compared to the category creators.

Platforms win.

Platforms exploit network effects and investments in integration to create outsized value and make replacement very difficult. Amazon is a platform. Microsoft is a platform. Facebook is a platform. Slack is a platform. Zillow is a platform. Adobe is a platform. Apple is a platform. Google is a platform. Cisco is a platform. SalesForce is a platform. Shopify is a platform. Coca Cola is a platform. Cargill is a platform. A platform is any company which has very deep customer relationships, controls multiple parts of the value chain, has a shared infrastructure across multiple product lines, has an ecosystem connected to products and services, and continues to deliver new innovation into the ecosystem.

Very few start-ups ever reach platform scale. Those that do deliver orders of magnitude greater returns to their investors.

Most start-ups are solving a niche problem. These can be great investments and I have made good returns with best of breed companies with a single product. And the absolute best returns have come with companies that were able to become platforms. So I keep an eye out for those.

Americans are lazy.

While I would like to believe consumers are rational and make considered choices, I have found that whatever product enables the consumer to be the laziest usually wins. Even if it is more expensive. If it is less expensive, you have a unicorn. Why drive to Walmart when you can One-Click Amazon from your couch? Why go to the movie theatre when you can sit in your underwear and watch NetFlix on your couch? Drive-through coffee that costs 100x making it at home? Starbucks crushed that.

While this is somewhat true across the world, this theme is on steroids in America. Americans are always looking for the easy, quick solution. The One pill, The One Diet. The One Click purchase. While there is much snake oil sold this way (don’t invest in those), the companies that actually deliver a quality product that enables laziness tend to win.

Invest only when I can be helpful to the Company.

I have found Venture investing to be a two-sided problem. The best companies can easily raise money, so why would they take mine? I have more opportunities than capital, so how do I convince the best companies to take my money? While a company may look great in the deck, if I can’t come up with three ways to help the CEO before my call with him, I will pass. Being helpful to the company will improve their chances of success, growing my investment. Startup companies always need help. Customer, employee, business development, product development referrals, and review.

We recently invested in a consumer products company selling paleo baby food. While outside my normal technology focus and failing a number of my major themes (Software eats.., new markets, etc.), I had kids, a paleo influencer wife with a huge network, and some retail relationships for business development. I made the investment and delivered the influencer network and retail leads. The company exceeded their sales projections for the next three quarters and just closed an up-round at 3x the valuation we invested at. Being helpful is good insurance after the investment.

Remember, these themes are all about how to improve the odds that the investment returns 10x or more. Investing in companies where I can be materially helpful improves the odds materially.

Invest alongside other very smart, committed people.

Lets unpack that a bit. There are three key words here: “alongside”, “very smart”, “committed.”

As a smaller check Venture Investor, I am rarely the lead investor. That means I am following other investors who have done some level of diligence. You are always “alongside” other people, so you better figure out who they are and if they have a track record of good decisions. The deeper their diligence, the deeper their relationship with management, the more confidence I have. Some investors will blindly follow other name-brand investors, and companies will often roll out their name-brand investors to attract others. I am aware of this trick and dig deeper. Figure out who you are in the boat with. People just along for the ride (momentum players), or thoughtful, driven people?

There are smart people and then there are Very Smart people. Bill Gates, Jeff Bezos, Elon Musk, Steve Jobs are all Very Smart. Very Smart people are the top 5% of smart people. When I was at Microsoft, when someone was called “smart”, that was translated “average” (everyone there was “smart”). But “Very Smart”? Ok, you better listen to her. Investing with smart people is a given, table stakes. Investing alongside “very smart” people has produced outsized returns for me over the years.

I always want to know the level of commitment from my co-investors. What is the ratio of their check size in this deal to their net worth or typical investment? The higher the ratio, the stronger the commitment signal. Also, how active are they? When was the last time the CEO spoke to them. I once looked a deal where the CEO was shameless flogging a name brand investor. During the call I asked the CEO when the last time he talked to the name brand investor was. “Actually never, his team made the investment.” Pass. That is not commitment. In fact it is dis-honest for the CEO to flog the name which signals a deeper issue with the CEO.

“Crowdfunding” platforms, while significantly increasing access to products and even angel deals at very low levels of risk capital, simultaneously put your investment alongside the masses of not so smart, not very committed novices. Follow that crowd at your peril.


These seven Themes are the top-level filter every deal goes through in my Angel investing funnel. If a deal ticks 5 or more or a couple super strongly, I move the deal down the funnel to “how to decide”. These themes have given me an advantage over time and kept me out of investments where I do not have an advantage. While there are plenty of people making money in areas where I don’t have an advantage, they likely have animating themes in those areas which give them an advantage. For those areas, I invest in Venture Funds with competent managers. One can’t have an advantage everywhere.

If you like the approach, invest with our syndicate.