4. What to choose: Fund or Syndicate?

The main difference between Funds and Syndicates is their internal structure. While Funds are treated as a single entity, Syndicates may be compared to a holding company but where subsidiaries are not fully independent companies.

To put it in more detail, Syndicates consist of master (or umbrella) LLC and one or more Series that are established under master LLC.

Each Series has some characteristics of an independent company: it has its own assets, managers, investment policy, members. And the main thing is that debts and obligations of a particular Series may only be enforced against this Series. This means that a Series is not liable for the debt of its sister Series (or master LLC) and assets of one Series may not be used to satisfy debts of another Series (or master LLC).

This characteristic opens an opportunity for Fund Managers to allocate different portfolio companies (or different funding rounds of a portfolio company) to separate Series. In other words, each series may be used as a separate ‘fund’ with its own corporate documents that define investment strategy, management fee rate, a minimal amount of capital contribution, and other issues.

Furthermore, establishing a Series is a much cheaper and less time-consuming procedure than forming a new company or a Fund.

Compared to Syndicates Funds are ‘single entities’. All Fund’s investments, gains and losses are divided among all its investors proportionally to their investments and a particular investor cannot choose whether he wants to invest in a particular portfolio company or not. Furthermore, funds are used for investments in several portfolio companies (however, it is possible to form a Fund for a single investment).

Therefore, Funds are more appropriate when there are several prospective portfolio companies and it is intended that all investors will participate in all investments of a Fund in a proportion to their respective commitments. And Syndicate is a more appropriate form when there is a need to establish several investment vehicles with different investment objectives and pools of investors.