Founded in 2021, Reflect Ventures is a syndicate investing in emerging markets. They invest in core infrastructure areas where there are significant barriers to entry and where digitization can enable huge economic gains. Their portfolio represents a global approach, with dozens of companies operating in over 20 countries on 5 continents. To date, they have 250 investors accessing deals through Reflect Ventures. 

Led by four partners, Dan Deac, Michael Friedman, Jor Law, and Buddy Ye, located across the United States, China, Singapore, and the UAE, the team leverages decades of experience leading and investing in companies to bring value to their portfolio companies.

We talked with partners Michael Friedman and Dan Deac about the challenges of running a large syndicate, how they leverage syndication to conduct better due diligence, and how they provide their portfolio companies with meaningful value. 

Sydecar (SC): Tell us how you decided to start Reflect Ventures.

Michael Friedman (MF): In early 2021, my co-founder, Dan Deac, and I were both involved with a VC accelerator called SOSV. We were excited about one of the companies coming out of the accelerator, but the minimum ticket was $500k and none of us were willing to put up that much individually.

They were not willing to negotiate a minimum ticket. Instead, they said, “Bring friends.” So we went through the whole process of learning how to put together a syndicate. It was so complicated to figure out that, by the time we finished, it seemed a horrible waste to just do one.

SC: Reflect Ventures doesn’t use a traditional fund structure; instead, you allow investors to build customized portfolios. Could you tell me more about this model?

MF: We use a syndicate model which allows each investor to build a customized portfolio. We do not ask them what their portfolio objectives are, then say “Okay, We will design it for you.” We let them choose each investment that they participate in.

SC: Are there certain challenges that you encounter with this model compared to the more traditional fund structure?

MF: Definitely. First off, there are some startups that don't want to deal with a syndicate because you can’t tell them exactly how much you’re going to invest off the bat. You have to tell them: “I don't know; I have to ask my syndicate members.” A fund can move a bit more quickly.

There’s also a sense that you're always out there chasing for LPs. With a fund, you have the fundraising phase, and you have the investing phase. With a syndicate, they're simultaneous.

SC: How does running a syndicate change your investing style?

MF: By letting people choose the deals that they want to be in, you get a group of people for each deal who are particularly interested in that company, sector, or geography. So, you end up with a group of people who can be supportive to the startup later on.

Dean Deac (DD): We are indeed a syndicate, but I would say we behave more as a hybrid between a venture fund and a syndicate. A lot of other syndicators write a check to the company, and that's where the relationship with the startup ends. We spend a significant amount of time helping the companies we invest in. We always have open doors, open emails, open everything for any kind of help that we can provide.

MF: Another big advantage of running a syndicate is that it keeps you honest.

With a lot of VC firms, if everyone knows that a certain guy is championing the deal, it will get done. And it gets done, unless someone finds a real red flag. Process can be a formality.

For us, we have to go through the full diligence process on every deal. There are no shortcuts because every single deal is presented to the syndicate members, and they choose whether it gets done or not.

Even though we are planning to move forwards towards a fund, we plan to keep the syndicate because it makes us better investors. We can never take a shortcut.

SC: Have you found that your model is unlocking different kinds of investors compared to most venture capital funds?

MF: We see a huge variety of investor types. Some have been investing into syndicates and funds for a while, and some are just starting out. Our model is more accessible for smaller check investors. 

We also get people who have a different attitude towards startup investing. Not the type who wants to give you their money and forget, but the type who wants to be more involved.

SC: How did you decide to focus on emerging markets?

MF: We took a look at the US market, and especially if you think back to 2021, valuations were ridiculous.

We wanted something that would distinguish us from other investors. We wanted something where there was a big opportunity and where we had an advantage. We have various emerging markets experience, so we looked at companies in places like Pakistan and Morocco.

We saw companies in spaces where it was pretty obvious there were gonna be oligopolies or monopolies. These are spaces where there will be huge advantages to first movers, and where the winner is not gonna be based on branding, but on price, service, and efficiency.

SC: What excites you about recent deals that you've seen?

We are seeing strong evidence that our thesis is right. Industries like trucking, busing, supply chain for construction, materials for neighborhood stores, courier–all of these are being revolutionized by mobile technology.

In countries like Nigeria, Pakistan, and Argentina, the smartphone is changing from a toy for the rich to an essential business tool for the lower and middle class. A trucker in Pakistan will invest in a smartphone because it lets him get a new load more easily.

When we looked at emerging markets, we saw the opportunity that these markets will evolve the same way that China or India have in the last 20 or 30 years with an emerging middle class.

DD: As Mike said, with smartphone penetration and general behavior shifting, we think there’s going to be a huge shift. Emerging markets are a huge segment of the population, and we believe that the investment opportunity in these markets is huge

SC: How do you see venture capital changing in the next few years?

MF: First off, I think there's got to be a shakeout. There have been so many new entrants into the industry, and from what we can see, many are sloppy with their investments. And a lot of these people are going to get kicked out.

We may see new regulations. In five years, a lot of people will have lost a lot of money. There's going to be new regulation that raises the bar to be a syndicate organizer or fund manager, and to be an investor.

We also think that the people who are investing now are going to see awesome returns. Now’s a great time to invest, while valuations are down. This is a boom and bust industry — when everybody wants in, you get bad returns; when everyone's running away, you get great returns.

SC: Since you said there is going to be a shakeout, do you have advice for new entrants who want to avoid early mistakes?

MF: Ask a lot of questions of syndicate leads. Ask things like: “Beyond the good deal flow, what about valuation? What are you doing to understand the companies you're investing in?”Ask the syndicators how much of their own money they are investing. If they don't have confidence and faith in their investment, why should you? Make sure that you're comfortable with the investment strategy and process of the person you're working with.