Not long ago, I wrote a piece about starting a syndicate.

One of my biggest takeaways from digging into that topic is that, for most of us, joining a syndicate as a co-investor is enough.

But the reality of being in a syndicate is that you’re not doing your own due diligence. You’re relying on the syndicate lead to do the due diligence on your behalf.

Even if you personally know and trust the lead, it’s worthwhile to ask questions when you see a deal come through.

Get yourself in the right headspace

When it comes to asking questions about a syndicate deal, it’s helpful to put yourself in the shoes of the customer.

Yep, you read that right.

Picture yourself as the target customer of the startup that’s raising.

As the “customer”, ask yourself:

• Do I really have this problem?
• Is solving this problem my top priority?
• Is this company’s product a better solution than all my other options?
• Am I willing to pay for this?

Look beyond the revenue numbers

When you’ve got multiple deals hitting your inbox every month, it’s easy to simply look at the revenue numbers and convince yourself that the company is (or is not) doing well.

Here’s the thing.

Revenue doesn’t always tell the whole story. Especially as it relates to customer adoption.

For example, revenue doesn’t tell us:

• If customers actually love the product → the founder may just be a great salesperson
• If users stick around → this is "retention rate"
• If this product solves a real problem → early adoption might be a flash in the pan

Three things to understand

Whether you’re investing in a syndicate deal or doing a deal directly with the founder, there are three big questions to understand before investing:

1. Why are customers buying this?

‍Is the revenue actually from the product, or is the founder running a consulting role on the side? Are users just the founder's buddies? Did they sign up because they got a huge discount?‍

2. Is this a real problem?

‍Is this a high priority for users to solve for? Do people have budget to pay for a solution?‍

3. Do people like this solution?

‍What are retention numbers?

‍The purpose of these three questions is to understand more of the qualitative than the quantitative.

And if you feel like you can’t answer those questions… it may be best to skip the deal.