Welcome to episode 11 of Fundraising Demystified. In this episode, we speak with Nik Talreja, the CEO of Sydecar, a deal execution platform for venture investors, specializing in SPVs and fund management. They've recently raised an $8.3MM Seed round bringing their total capital raised to $16.5M.
We talk about their fundraising journey from pre-seed to Seed, extending the runway by raising a bigger round to prepare for the VC winter, how to think about calculating their TAM/SAM/SOM, raising from their target customers, and much more. Let’s dive in.
The Birth of Sydecar: Automating Capital Allocation in the Private Market
Sydecar is a company that automates the creation of vehicles for venture investors, simplifying the process of spinning up an SPV or launching a fund. Unlike traditional fund administrators, Sydecar distinguishes itself by offering a fully automated solution.
With Sydecar, users can handle all aspects of fund creation, including banking, accounting, tax distributions, and compliance, through a user-friendly platform. The automation extends to investor outreach, where Sydecar streamlines communication and allows investors to fund through the platform. Talreja highlights the need for a better way to invest in alternatives as more people show interest in private markets.
Nik shares his journey from practicing law to building a business. After working in a major law firm in New York and later starting his own law practice, he became interested in investing in companies he believed would be successful. Leveraging his knowledge of these companies, he raised capital and invested in several of them.
This experience led him to realize the need for a product that could automate the process of investing in companies, including legal forms, banking, and accounting. Initially intended for personal use, the product gained significant interest from individuals in the ecosystem who wanted to use it as well.
This led to the creation of Sydecar as a business, focusing on standardizing capital flows in the private market beyond venture. Since its inception, Sydecar has grown to a team of 33 people and has facilitated the movement of around $600 million in capital. The company is now expanding its distribution and aims to revolutionize capital allocation in various ecosystems.
Revolutionizing Fund Administration: The Role of Sydecar
We discuss the journey of Sydecar, starting from providing legal services to ultimately becoming their own customers. The founders realized the market potential and transformed the entire company. The name Sydecar was derived from the term sidecar, with a play on the spelling using a 'Y'. It can refer to a cocktail or a vehicle alongside a main fund to deploy capital. The founders recognized the need for Sydecar in the fund administration space due to the lack of efficient documentation and delays in the industry. This need was particularly evident in the VC industry, which emphasizes innovation but lags behind in its own practices.
The fundraising journey for Sydecar involved raising a total of 16.5 million. As their customers were investors, they decided to fundraise in response to market demand. The concept for Sydecar was born in 2020 during COVID when the founders, David and Nik, were investing themselves. Their customers expressed interest in their product, leading them to raise their Pre-seed Round in March 2021, securing 1.8 million.
By cultivating strong relationships with passionate investors, Sydecar was able to attract funding quickly. They turned down conversations with certain funds to focus on investors aligned with their growth stage. With the capital raised, Sydecar expanded their team, despite initially being a non-technical team. They used no-code software to build their product, which exceeded expectations. Overall, their pre-seed journey was successful in positioning Sydecar for growth.
The Rapid Fundraising Journey: Pre-Seed to Seed
Nik shares the story of their rapid fundraising journey, starting with the Pre-seed round. They highlight the role of super connectors in reaching a wider audience and finding their lead investor, Desians. The due diligence process involved conversations about the business and gauging what other intelligent people thought about their business model.
After three months of negotiations, Desians offered a term sheet, which was quickly accepted. The seed round was oversubscribed, raising 6.5 million out of the targeted 6 million. The capital raised was used to scale the team, invest in technical talent, hire engineers and product managers, engage design agencies, and expand the sales team.
In 2022, they received interest from customers to deploy capital and decided to open a customer round to engage with their passionate supporters. They raised approximately a million in that round. Despite market volatility, they achieved their revenue objectives, controlled burn, maintained a strong culture, and outpaced their competition.
In November 2022, an existing investor offered to invest more, leading to a seed extension and raising approximately 7.5 million in total. Looking ahead, they anticipate a competitive Series A round and plan to leverage their existing investor base to catalyze conversations and raise capital next year
The Future of Sydecar: Capital Allocation in Various Ecosystems
In this episode, the discussion revolves around the venture capital landscape, with a focus on whether the company is solely dedicated to venture capital or considering other alternatives. The guest shares their insights on the market opportunity and their journey towards building a unicorn-like solution. They emphasize the importance of ensuring that the business is worthwhile for all parties involved from the beginning.
In the private markets, various vehicles like SPVs and fund structures are prevalent across different asset classes such as venture capital, private equity, real estate, and hedge funds. These vehicles follow similar legal forms, banking requirements, tax complexity, and audit requirements.
However, the current service providers in the industry, including law firms, fund admins, accountants, auditors, and tax advisors, are inefficient and resistant to change. Sydecar envisions a future where sponsors in the private market have access to better tools that work more efficiently. Their focus on venture capital serves as a proving ground to convince VCs to adopt standardized terms and rely on software to run a significant part of their business.
Sydecar aims to apply the learnings from venture capital to other asset classes and believes that various companies and institutions, such as Goldman Sachs, Morgan Stanley, Franklin Templeton, law firms, and fund admins, could benefit from software in their transactions. Sydecar is considering whether to build out the whole experience for every asset class or pursue an embedded play by providing their infrastructure to distribution partners like banks and asset managers, enabling them to run their businesses more efficiently.
Regardless of the approach, there is still a large volume of untapped potential in the manual-driven process of connecting investors to alternative assets, and Sidecar aims to be the place where capital flows.
Calculating Revenue Potential and Selecting Investors
We discuss how to approach market opportunity slides and determine revenue potential for founders. Nik emphasizes the importance of taking a bottom-up approach, analyzing different components within the market, and considering the size of specific segments such as the SPV market for emerging managers, mid-to-late stage managers, fund market, and search funds in private equity.
By piecing together these components, founders can derive a compelling number that represents the accessible market. The hosts also highlight the significance of sidecar market-making, where deals that wouldn't have been possible elsewhere are facilitated through automation and attractive pricing. They caution that the approach may vary depending on the business and ecosystem being targeted.
Furthermore, they stress the need to thoroughly research and understand the actual customer base and acquisition potential to realistically assess revenue opportunities. Rather than relying on top-down estimations, they encourage founders to take a rational investor's perspective and provide meaningful answers to potential questions about market size. By doing so, founders can uncover their true revenue potential and avoid overestimating the market size.
Listen to the entire episode to get all the insights offered.
Links mentioned:
Sydecar website - https://sydecar.io
Follow Nik on Twitter - https://twitter.com/niktalreja
Hosted by Jason Kirby - https://www.linkedin.com/in/jasonrkirby/
Email Jason at jason@thunder.vc
Don't forget to hit subscribe for more episodes!
