The Syndicate Group CEO: Helping Solution Providers Invest In Startups Brings Them More Than Monetary ROI
Solution providers that invest with The Syndicate Group get more than a potential cash return on their investments, they also get early insight into companies they hope to partner with as well as early access to those companies’ technologies, says CEO Chad Cardenas.
The Syndicate Group, a company started by a former solution provider as a way to let solution providers and executives invest in tech startups, has just expanded its platform to make it easier for them to take part in funding rounds.
Los Angeles-based The Syndicate Group, or TSG, is an investment firm that pools small-scale funds from multiple solution providers to invest in companies they hope will become future vendor partners and at the same time provide a return on their investment.
TSG creates a unique special purpose vehicle, or SPV, for each individual investment, and allows solution providers to choose which tech startups into which they will invest, said Chad Cardenas, founder and CEO, who previously co-founded Irvine, Calif.-based solution provider Trace3 and served as its president.
This gives solution providers a way to invest alongside tier-one venture capital companies in early funding rounds they normally do not have access to, Cardenas told CRN.
TSG has been building its platform for the past five years to help automate and streamline investing in tech startups, which can be very complicated given that every new investment requires setting up a new legal entity with a new set of investors and making data and documents available to sign and approve, Cardenas said.
TSG this month unveiled changes that streamline the process, including providing easier access to critical documents and filings so investors can monitor and manage their investment portfolio, as well as new dashboards featuring extensive and proprietary investment information, he said.
Because of TSG’s channel focus, it is able to choose potential investments that have given it an enviable success rate compared with typical private equity companies that invest in a large number of startups in the hopes of getting one with a huge payout, Cardenas said.
“Historically, for the past five years, we’ve only invested in five, maybe six, companies a year,” he said. “And because of our value proposition, we have our pick of the litter in terms of which companies we want to invest in because we typically get access based on the value that we bring. So that creates an inverse success rate to the point where we see 70, 80, 90 percent of the companies we invest in actually produce a profitable exit via an acquisition or IPO.”
Solution providers, however, get more than a potential cash return on their investments, Cardenas said. They also get early insight into companies they hope to partner with, as well as early access to those companies’ technologies, he said.
TSG and its solution providers investors have already invested in companies like San Francisco-based AppDynamics; Austin, Texas-based CrowdStrike; San Jose, Calif.-based Nutanix; San Jose-based Cohesity; San Francisco-based Abnormal Security; and San Diego-based Drata, Cardenas said.
It has also seen returns from companies that have already had successful exits, including Trifacta, acquired by Irvine, Calif.-based Alteryx, and Valtix, acquired by Cisco Systems, he said.
It is a model that works, said Joe Corbett, CEO and managing partner at Cumberland Group, an Atlanta-based traditional IT solution provider specializing in data center infrastructure.
Corbett told CRN that he has made investments in six companies via TSG, including an investment in Valtix that has already paid off well. In addition, he said, he expects two other companies in which he has invested via TSG, Cohesity and Vast Data, to have IPOs in the not-too-distant future.
However, Corbett said, it’s not just the money that attracts him to the TSG investment model.
“Equally important is the relationships made,” he said. “This started with Cohesity. Some Cohesity executives go to other companies like SentinelOne and Tanium where we didn’t have partnership relationships, but now we do. We’ve signed partnerships with 16 to 18 vendors because of TSG.”
Investing through TSG gives solution providers the ability to meet vendors they might not have heard of yet, Corbett said.
“These are typically smaller companies than we normally work with,” he said. “And before we make an investment, we do tech comparisons and put them in our lab for testing. So it’s a win-win for both of us.”
It is actually a two-way street, as TSG has access to a lot of startups that haven’t built channel programs yet, Corbett said.
“Some of these are really small companies who aren’t familiar with what a channel program is,” he said. “Chad and TSG gives them access to partners like us.”
Several executives at E360, a solution provider and consultancy firm with headquarters in Concord, Calif., and Irvine, Calif., have made investments via TSG, said Brad Bussie, E360’s CISO and senior vice president of security.
Bussie, who in the past worked with Cardenas at Trace3, told CRN that he has made two investments so far, and said he was a bit risk-averse and so got into the program a bit late.
TSG has a couple of unique draws for a company’s potential investors like Bussie, he said.
“I look at the track record of TSG and the way they find companies and their overall communications with investors,” he said. “I feel a lot more connected with TSG than if I were to try this on my own or via another organization. I have good conversations with Chad [Cardenas], and feel my opinion matters.”
One of the things that differentiates E360 from its competitors is how well it understands its vendor partners, Bussie said.
“When TSG decides to invest, it does a lot of fact-finding, gathers a lot of information and gives in-depth presentations,” he said. “So we get a lot of information early.”