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Scout Ventures - What is a VC Scout?
Scout Ventures - Venture Capital
Venture capital is a competitive industry. VC firms are money management organizations that raise money from different sources and invest the collective capital into startups. There are many approaches to breaking into venture capital. One path that has become very popular among new and aspiring venture capitalists is the role of venture scout.
What is a VC Scout?
Venture scouts or VC scouts are the resourceful connectors who can help venture capitalist firms find hidden, great companies and founders to invest in before everyone else. Some VC scouts have a full-time job when they operate in an incentives-based model while others take this role with a goal to acquire the knowledge and tools to become venture capitalists themselves in the long run.
Types of Venture Scouts
Venture scouts are generally considered interns. They connect a fund to promising founders and companies in their network in hopes of making a deal happen. There are two kinds of VC scouts:
Internal VC Scouts
Internal VC scouts get to work as a full-time team member inside a fund or under the VC scouting program of a venture capital firm, e.g. Scout Ventures. They basically focus on meeting as many entrepreneurs as possible and linking them to the firm’s crowdfunding ecosystem. Internal venture scouts are characterized by a strong sense of karma; when they see an opportunity and know early on that it won’t fit, so they do their best to redirect other investors that they know will be more suitable.
External VC Scouts
External VC scouts are people under a fund-led program. They are not full-time employees but they are given a small allocation of funds. In most cases, they are entrepreneurs selected upon application. Some VC firms encourage external scouts in their venture capitalist scout programs as a side project, hence giving them an opportunity to kickstart their own investing career.
Roles and Responsibilities of a Venture Scout
The role of a venture scout may vary depending on the VC firm. But generally, VC firms like Scout Ventures expect the following roles and responsibilities from a venture scout:
Engaging in deal sourcing to find useful investment opportunities. This is generally the main priority of VC scouts during the program.
Representing the VC scout program at startup meetups and events.
Speaking and networking with industry leaders, startups, and founders.
Connecting to VC firm and the broader crowdfunding ecosystem, Reg CF, Reg A, Reg D, etc.
Helping startups that are an ideal fit for VC firm’s investment interest.
How Are VC Scouts Compensated?
VC scouts are compensated differently based on the VC scout program that they are joined with. The following deals are the most common ways of compensation:
Cash on Deal Completion
Cash for Relevant Intros
Startup Equity Relative to the Investment of Your Own Micro-Fund
If you are interested in joining a venture scout program and becoming a VC scout, then it is recommended that you evaluate the different roles carefully before proceeding. It’s better to find a scout role that is more valued within the hierarchy of the company as it will help you acquire the knowledge and tools you need to positively execute upon investments.
VC Scout Programs
VC landscape is booming particularly due to the rise of micro-funds. Unfortunately, it has also become very challenging to get founders’ attention as the competition is strict. This is where VC scout programs are proving to be extremely useful. VC scouts are basically startup operators and entrepreneurs that work with venture capital firms to create more dealflow opportunities. They are the people who have been given the power to invest money in startups on behalf of a VC firm. They also often have full-decision making authority.
The Rise of VC Scout Programs
VC scout programs have emerged as a highly beneficial tool for VC firms to engage angel investors, operators, and founders within their ecosystem to offer unique perspectives and augment dealflow.
VC scout programs create an opportunity for such individuals to engage actively in the venture capital industry, build an investing track record, and ultimately expand their networks. VC scouts are directly responsible for sourcing, assessing, and investing in startups. They also invest across markets and verticals. Over the years, VC scouts have made investments in wide range of sustainability, fintech, B2B, and consumer sectors.
How Do These Programs Work?
It’s a pretty straightforward process. When you sign up to be a scout, you enter into a Scout Agreement with the venture capital firm that outlines your duties and responsibilities as a scout as well as other related matters, e.g. investment criteria, protocols, how you will eventually get paid, etc.
VC Scout Duties
The scouts hired under a VC scouting program have a duty to use their skills to present the venture capital firm with opportunities to invest in startups and early-stage companies. The agreement may specify a target for the number of opportunities a scout should be sourcing for the venture capital firm.
Apart from this, the Scout Agreement also requires the scout to build and maintain healthy, professional network throughout their career. A solid network is one of the key reasons a venture capital firm is often interested in a certain scout in the first place. Making sure that these contacts are maintained increases the chances that the scout will be successful. Finally, once the venture capital firm decides to invest in a certain startup, the scout may have an ongoing duty to assist and advice the venture capital firm over the investment’s lifespan.
The Difference Between VC Scout Programs
Nowadays, virtually every VC firm has a scout program and they generally differ from each other. Some scout programs are operated by VC firms that mostly focus on Series A investing. For instance, Sequoia Capital is a venture capital firm that utilizes scout programs. The firm invests most of its capital at Series A stage via IPO. At seed stage, some of their investments occur via independent scouts.
Then there are newer, more independent firms like Spearhead. Such firms utilize a network strategy and offer more resources, innovation, and community around scouts.
Future of VC Scout Programs
The VC scout programs are in high demand in startup communities across the U.S. This is because more and more venture capital firms now want to tap into the vast networks that scouts generally have on startups. While founders of successful, established startups were among the first scouts, the opportunity is becoming widely accessible to new players in the VC world. Venture capital firms are also realizing that VC scout programs are an excellent way to bring more underrepresented and diverse groups into the industry. So, the future of these programs looks promising.
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