Inside the Secretive World of Venture-Capital ‘Scouts’
- Many top venture firms have scout programs where they recruit others to help them find startups.
- These scouts get to write small checks from designated funds.
- Some scout programs are secretive. But others have open applications.
Jamshed Vesuna, an engineering manager, had been dipping his toe into the startup-investing world for about a year and a half as his friends and colleagues launched companies. He liked talking to them about their vision and hearing their founder stories and would chip in his own money as an
angel investor
to help them reach their goals.
He was catching up with one of his former coworkers earlier this year who had become a venture capitalist at Accel. When the two started talking about “some of the angel investing I was doing, he was like, ‘Hey, you want to join this Starter program?'” Vesuna said.
It was an invitation to join the firm’s scouting program, Accel Starters, and invest with way more capital than he had access to on his own. Vesuna jumped at the chance. It was a learning experience he couldn’t pass up.
The world of venture capital can seem clubby and complicated to those not on the inside. To those dreaming of a future as a venture capitalist and the wealth it can bestow, one of the fastest pathways is through scout programs.
Many top-tier venture capital firms have such programs. Scouts help the firms find great companies to invest in. In many programs, they are given an allotment of capital out of a firm’s designated fund (like a seed fund) and set free to find founders and startups to invest in by presenting a pitch to their paired venture capital partner or advisor.
Insider spoke with four current venture capital scouts and people who recently worked in the role at Lightspeed, Accel, and Sequoia Capital about their experiences.
Jamshed Vesuna
Scout-program basics
For all the scouts, the day-to-day is similar. Each gets an allocation of capital of about $100,000 to $200,000 from a designated scout fund to use for smaller investments of about $25,000 to $50,000. A person familiar with Sequoia’s program told Insider the total was about $100,000, while it was roughly $200,000 to $300,000 for Accel and $250,000 for Lightspeed.
Some scout programs require their scouts to write short memos to their matched partner at the firm explaining why their investment is a good idea. The memos can be somewhat informal, several scouts told Insider.
If the firm decides to invest, scouts will get what’s known as “carry” on that investment. Carry refers to the portion of the investment’s profits that the venture firm keeps as a fee. The carry for scouts varies from deal to deal and differs at each firm: At Accel, it is pooled throughout each scout class and divided up evenly among all scouts, so it will depend on the number of deals, while a scout at Lightspeed gets a percentage on their deal.
This makes these programs mutually beneficial: VC firms get early-stage-investment opportunities hand-delivered to them, and scouts can make money as investors while learning from their experience.
Lolita Taub
Scouts from all backgrounds
The most famous scouting program is likely Sequoia’s as it is the firm that invented this system more than a decade ago. This program, however, is also the most secretive. Sequoia finds scouts among the founders it has invested in. It also finds them through recommendations from those founders and recruits them through its campus-ambassador program from schools like Harvard and Stanford.
This program is how one former Sequoia scout (who spoke on condition of anonymity because the person was not authorized to speak with the press) ended up joining the program three years ago.
If you refer a company to Sequoia, “and they end up investing in them, you could become a scout that way,” this person said.
Another way to get an invitation to become a scout is through having a reputation in the tech industry and a big network. Some Sequoia scouts find their way into the program through a large social-media following, and others get in by being a person whom founders come to for advice, according to a person familiar with the program. Accel Starters are similarly well networked.
Recently, some scout programs have shifted away from a traditional network approach and offer public applications reviewed by the firm’s partners who oversee the scout funds.
Jason Calacanis’ new program, Open Scouting, does this, letting anyone submit a startup through a webform application. If accepted, a startup is backed with capital from the Launch fund and The Syndicate.
While sifting through piles of scouting applications is one downside of this system, it can open up doors for people less connected to the world of venture capital.
Lightspeed’s scout program accepts applications for its scouting classes during a window of time through a form on the firm’s website. Its program is in its third year and in the middle of its biggest class yet, with 42 new scouts and 11 rollover scouts from the past year.
For Mercedes Bent, a partner who coleads the program with Lightspeed founder Barry Eggers, this framework is crucial to the success of the program.
“The world of VC can be such a monoculture, and to find the best ideas, it requires diversity of background and thought,” Bent told Insider. “It’s already so exclusive and clubby, and there’s no reason our scout program should be this way.”
Christine Kim
The pandemic opened doors
Before the pandemic, Sequoia would hold networking events and mixers for scouts and prospective founders. Other notable figures in the venture would also come, including Jana Messerschmidt from #Angels, the former Sequoia scout said.
Those events have been paused, but that’s had a positive side effect: It increased scouts’ access to founders from diverse backgrounds.
For the Lightspeed scout Lolita Taub, scouting during the pandemic via video meetings helped her invest in founders in Latin America, one of the fastest-growing areas for seed investment and a place where hopping on a plane to tour Sand Hill Road isn’t feasible for everyone.
“I did not come from money, and I know that when you require people to meet in person, it could be cost-prohibitive,” Taub told Insider.
“VCs know that there is a market that’s untapped that the status quo, traditional funds, do not have access to. So how do you access that? You access it with people like myself and the group in the Lightspeed scout program,” she added.
Vesuna agreed: “Because almost all of my calls have been over video chat, I’ve been able to talk to people in Oregon, Seattle, New York, Chicago, Texas, like all over the place.
“I think it has leveled the playing field, I hope, for access to capital and access to venture capital partners.”
Some scouts go on to become full-time investors after they get a taste of investing in the market. A person familiar with Sequoia’s scout program told Insider three of Sequoia’s partners, Mike Vernal, Jess Lee, and Alfred Lin, were once scouts.
This was the path for Christine Kim, an Accel Starter in the 2020 cycle who now works at Greylock Partners. Kim started her tech career in product at
Uber Eats
and began scouting on the side while still working there.
“I invested through my personal network,” she said, adding that she invested in founders she personally knew or met through friends and then pitched them to Accel. “The scout program helped me get the job where I’m currently at. It was a great way to open doors.”
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