A former solution provider exec is now working with other solution providers to help them purchase equity in vendor startups as a way to build early relationships between those vendors and potential channel partners.
The Syndicate Group is an investment firm that invests in tech startups, with some of that investment coming from solution providers who normally do not have a way to get an equity stake in their vendor partners, said Chad Cardenas, founder and CEO of the Los Angeles-based company.
“We are working with channel companies who essentially act as limited partners and invest in the vendors,” Cardenas told CRN. “But they are actual members of an LLC (limited liability corporation) who does the investments.”
The Syndicate Group‘s current portfolio includes cloud data security and regulatory compliance vendor Bitglass, cloud data management vendor Cohesity, continuous delivery-as-a-service platform developer Harness, penetration test technology developer Synack, data analysis preparation software developer Trifacta, all-flash file system developer Vast Data, and IT incident detection and resolution technology developer BigPanda.
The Syndicate Group approaches vendors late in their funding cycle, often as these companies are developing their channel strategies, Cardenas said.
“We go to companies like Cohesity or Vast Data during their C and D funding rounds, and take a small stake, usually about $2 million,” he said. “We work to identify and on-board as many channel partners as we can as investors. Startups get the attention of channel partners and accelerate their relationships with those vendors because the partners have invested in the companies.”
Solution providers who invest this way get regular access to emerging companies and products and the ability to form early relationships, Cardenas.
They also get the opportunity to do venture investments in a company, he said. “If the company does an IPO, they benefit accordingly,” he said.
Each time The Syndicate Group makes such an investment, it forms a new LLC which solution providers can join and invest in, Cardenas said. “We want to give partners the opportunity to invest in company they feel have strategic value to them,” he said.
The actual aggregate amount invested on behalf of solution providers is calculated to provide them investment opportunities and early relationships they might not actually have otherwise, Cardenas said.
“Channel-focused startups always understand the strategic value of partners,” he said. “But they don‘t allow small investments of $25,000 or $50,000. It’s very complicated to have small investors. We take care of that.”
Also, these startups might get funding rounds in the tens of millions of dollars or hundreds of millions of dollars, nearly all of which comes from large institutional investors, Cardenas said.
“If a company wants $50 million, maybe they will take $48 million from larger investors, and then $2 million to $3 million from The Syndicate Group and know they will get 40 to 50 strategic partners,” he said.
Cardenas is very familiar with how that works. Prior to founding The Syndicate Group, he was a co-founder of Trace3, an Irvine, Calif.-based solution provider, which he left after it was acquired in 2017 by a private equity company.
While at Trace3, Cardenas said he saw a disconnect in how companies get the attention of channel partners and keep it, and how solution providers often did not know how to take advantage of startup vendors.
“So at Trace3, I started a business called Instant Scale to invest in these companies,” he said. “It worked, but at a small scale. Eventually, we opened it up to other non-competitive companies, and invested in AppDynamics, Cohesity, Nutanix, CrowdStrike, and Skyhigh Networks.”
While working with The Syndicate Group gives channel partners and individuals a chance to invest in vendors, the real value is in building relationships, said Rob Wentz, senior vice president of business development at Cumberland Group, an Atlanta-based solution provider and
Cumberland Group first met The Syndicate Group via the solution provider’s relationship with Cohesity, and in particular with Todd Palmer, the former vice president of worldwide channels at Cohesity and now head of global partner sales at Tanium, Wentz told CRN. Cumberland in turn introduced The Syndicate Group to Vast Data, he said.
“The focus is on accelerating relationships with these vendors,” he said. “Our sustainable long-term value comes from our relationships with vendors.”
Wentz said his company aligns well with Cardenas and The Syndicate Group’s culture.
“Chad sat in our shoes for years,” he said. “Running a solution provider business is hard to do. Having someone understand it is important. We look at ways to differentiate ourselves. And there’s a lot of value in the long term working with The Syndicate Group.”
Wentz said his company is still evaluating investing in Harness and Synack.
“We never heard of either before working with The Syndicate Group,” he said. “We would normally have to search the internet and talk to several people to learn about new technologies like this. But The Syndicate Group brings it to us. It makes it easier to see new opportunities.”
The relationships built with the help of The Syndicate Group is facilitating the ability to quickly set up executive business center briefing between vendors and potential clients, said Mike Strohl, CEO of Entisys360, a Concord, Calif.-based solution provider that’s investing in Synack and BigPanda through that company.
While executive business centers, or EBCs, were traditionally set up to generate immediate sales pipelines, solution providers today find that it may no longer be the case, Strohl told CRN.
“What we need now is a way to generate trust,” he said. “That will lead to pipelines in the future. We are setting up EBCs with The Syndicate Group. They bring in new vendors to meet our clients face-to-face.”
It is getting difficult to stand out from other solution providers during a year when the pandemic makes it hard to get face-to-face time to demonstrate technology, Strohl said.
“It’s doing things like this that will help us stand out,” he said. “We can’t operate as a VAR like we used to. We need to show our relevance and build relationships with new companies.”