The 411 on VC Scout Programs
Recently in a digital health slack group, someone asked about how to become a scout and it reminded me that I wanted to put together some resources on the topic and share my personal experience. So let’s dive right in…
What is a VC scout?
A VC scout is a person who has an agreement with a venture capital (VC) firm to write angel-sized checks into startups using the firm’s capital. While each program differs, scouts usually earn a portion of the return, known as carried interest or "carry," from the startups they invest in. Typically, these scouts are founders, angel investors, startup leaders, or other well-connected individuals in the startup ecosystem.
My experience as a VC scout
Years ago, I was a VC scout for a venture fund. I will not say which one because they asked the angels that were part of the program not to disclose being tied to them. I don’t totally understand the reason for this sort of secrecy, but I’ve come to learn this is how most VC scout programs operate. Scout programs are generally invitation-only to join, and many more angel investors are part of these programs than you would know by their LinkedIn profiles.
Anyhow, I went from writing a handful of $10k-$25k angel checks per year, to writing many $50k-$100k checks—totaling over $1M— in 23 companies over two years. It was a great way for me to become a more active investor and take bigger stakes in companies without having to tie up my own capital.
In addition to having been part of a VC scout program, I was also previously part of an angel fund. An angel fund is an independent fund, not tied to a VC firm. The purpose of an angel fund is to give angels more cash to invest in startups. Some angel funds require the angel to be a limited partner (LP) in the fund, meaning they invest directly in the fund, so they also have skin in the game.
How do VC scout programs work?
VC scouts operate somewhat independently, like an angel whose money comes from another bank account. After being selected for a scout program, the VC earmarks a certain amount of capital for each scout to invest. The deal flow is primarily managed by the scout, with the VC firm acting as a silent partner.
While the scout is responsible for signing term sheets and other financial documents, back-office tasks such as legal review and funds transfer are typically handled by a third-party service provider (like Navigation Fund Services or Kranz). In my case, I had my own subsidiary entity, so my name appeared on all cap tables.
I did submit a summary of each deal for approval (no deal was ever denied), and I had to follow certain rules. But in general, the VC was very hands-off and trusted me to find and screen portfolio companies.
Is a VC scout paid?
Unlike an Entrepreneur-In-Residence (EIR) role, which typically involves a fixed salary or stipend, a VC scout position is generally compensated only through carry on the investments sourced. This structure aligns the scout's financial incentives with the success of the portfolio companies, rather than providing a guaranteed income irrespective of investment outcomes.
How much carry does a scout get?
I was given 30% carry in the deals I led, plus 5% divided equally among the angels in the program. After a year, this went down to 20% carry plus the 5% shared carry.
Keep in mind that carry is distributed after the LPs are paid back. So if a $100K deal makes $1M:
The LPs get their $100K back plus 65% of the profits = $100K + $585K = $685K
The VC scout gets 30% of $900K = $270K
Angels in the program split 5% of $900K = $45,000 split X ways
When does a scout get paid?
The scout only gets paid when a startup exits, which can be 5-10+ years. Sometimes this is structured as deal-by-deal carry, where they earn their carried interest each time an individual investment is exited profitably. In other words, if a startup in the scout’s portfolio goes public or is acquired, the profits from that specific exit are immediately subject to the agreed-upon carry percentage.
In other cases, a scout program may use a fund-level carry model, where scouts only receive their carried interest after all the invested capital from the scout (or scouts) has been returned to LPs. This structure aligns the scout’s incentives with the entire performance of the fund rather than individual deals.
Are scouts exclusive to one firm?
While the terms of a scouting relationship can vary between different VC firms, exclusivity is often required. The firm I was with felt so strongly about this… that they said I could no longer be part of their scout program when my husband became part of another one.
Does the VC get information rights?
In my case, the VC did not get information rights, or the right to confidential company information like revenue. And I did not share founder updates with the VC, nor was I asked to. However, the VC was privy to high-level data about the startups, such as valuation.
Did the VC do any follow-on investing?
For large funds that primarily invest in Series A rounds and beyond, it's often not practical to write dozens, if not hundreds, of small checks at the seed stage. Collaborating with angel investors in scout programs enables these VC firms to, theoretically, become acquainted with promising startups at an earlier stage.
Some scout programs include provisions for follow-on investments. This means that if a startup performs well, the sponsoring VC firm may invest further in subsequent funding rounds.
But in my case, the VC fund didn’t invest in a single one of my portfolio companies (five of which are valued at $1B+). I did make a few intros when these companies were raising their Series A, but nothing ever came of it. Perhaps that is because the VC focuses on tech and isn’t much of a healthcare investor.
Why do VCs keep scout programs on the DL?
I think VC firms keep their association with scouts under wraps so they can operate with a degree of anonymity that allows them to explore early-stage investment opportunities without having to run a seed program themselves.
Also, most startups that receive an investment from a scout will not get subsequent funding from the associated VC. If it were positioned that the VC (instead of the scout as an angel) had made the seed investment, the absence of follow-on from the VC could be interpreted as a red flag by other potential investors.
The low-profile nature of these programs is designed to preserve the scout's effectiveness and the VC firm's competitive edge. But certainly, there’s room for other, more transparent models.
How do I become a VC scout?
Since these programs are generally by invitation, the most straightforward pathway is through a direct connection with a VC. If you don’t have existing relationships, you’ll want to start building those relationships now. If you have a strong track record as an operator or angel, I would cold-email investors to begin getting to know them (and vice versa).
Or, if you want to learn the mechanics of angel investing, First Round has a program called Angel Track to help aspiring angel investors “sharpen their skills” over “eight evening sessions packed with tactical frameworks” (funding not included).
Remember: it's less about finding an open door and more about being ready when the door opens for you.
Which VCs have scout programs?
Here are some scout programs I know of. Unfortunately most do not have information available online, and involvement is by invitation only.
Accel (by invitation)
Bessemer Venture Partners (by invitation)
BLCK VC Scout Network (accepts applications)
Founders Fund (by invitation)
Greylock (by invitation)
Lightspeed (by invitation)
Sequoia (by invitation)
Social Impact Capital (by invitation)
True Ventures (by invitation)
I hope this provides a helpful overview of what it's like to be a VC scout based on my personal experience and insights. Wishing you the best of luck!