Venture Capital Scout Programs: FAQs

The Sequoia scouts program recently celebrated its 10th anniversary. The founding of that program kickstarted a trend in the venture capital industry. As Jason Lemkin once asked: “Anyone not a scout these days?”

Over the past two years, my Village Global partners and I have spent a ton of time studying this trend and indeed building our own effort around it. Here are some frequently asked questions and answers about VC scouts based on our experiences.


What are “scouts”?

People who are empowered to invest money in startups (usually in ~$50k increments at the seed stage) on behalf of a venture capital fund, sometimes with full decision making autonomy.

What are the differences between the scout programs?

There are two broad types of scout programs.

Some scout programs are run by venture funds that for the most part focus on Series A or later investing. For example, Sequoia Capital is commonly credited with inventing the scout program. Sequoia invests the vast majority of its capital via its full-time GPs at Series A stage through IPO. Some of their investments at seed stage happen through independent scouts who write $25k-$50k checks. It’s an active program but in the grand scheme it’s minor part of Sequoia’s reported $8 billion global fund.

Then there are independent, newer firms like AngelList Spearhead or my firm Village Global. At Village, a network strategy is a central part of our firm strategy. We thrive based on our ability to execute our scouts strategy. At the independent venture firms, you’ll generally find more innovation, resources, and community around scouts.

Why the blossoming of scout programs inside legacy firms?

Over the past 10 years, some venture funds have ballooned in size. Lightspeed, A16Z, Sequoia, Accel, Greylock, Founders Fund, Thrive, Spark, and others are all now deploying billion dollar+ funds, a substantial step up from their historic fund sizes of $200–400 million. Suppose one of these firms employs 6–10 GPs to invest that billion dollars. To get leverage on their time, GPs need to be writing minimum $10M+ checks — ideally bigger.

The problem is, at the seed stage, founders don’t want or need a $10M investment. The round sizes are smaller. Small check sizes don’t move the needle for the VC when they’re trying to allocate over a billion dollars. So should these mega funds just get out of the seed stage business altogether and focus on Series A, B, and later? Some firms have done that, but many have decided they can’t. They need to be seeing seed deals because that’s today’s seed deal is tomorrow’s great Series A — it’s the pipeline.

Hence their scout programs. Big firms perceive them as an efficient way of scanning seed stage flow to feed their main Series A or Series B business.

Why are there independent, network-driven firms?

The existence of firms like Village Global represents a different macro phenomenon. At Village, we aren’t trying to lead Series A’s, B’s, and growth rounds. Our scouts aren’t lead gen for later stage investing. We’re taking a network approach to executing on our core seed mission.

Why a network approach? It used to be that a few full time men on Sand Hill Road could wait for the best founders in the Valley to parade into their office and pitch their businesses. Today, that passive approach doesn’t cut it. There’s an explosion of software-driven, diverse entrepreneurship around the world and across almost every industry. We believe this explosion of opportunity requires a fundamentally different approach to sourcing, selecting, and supporting. We believe a wide sensor network (i.e., a network of dozens of scouts) is more likely to discover a talented founder on day zero.

What’s more, the way founders socialize and develop their business ideas has changed. Thanks to online communities and social networks, founders are increasingly able to connect with fellow founders, professors, authors, or other people they know or respect. These days, when you’re brainstorming a business idea, your first stop may not be the VC’s office — and all the intimidation and nervousness that might entail. You might instead call a founder friend to ask for advice.

We want to ally with the people who are that first call, whose expertise makes them valued resources to founders who are just getting going. We empower those people — our Network Leaders — with our Village Global capital to back their smartest friends. And then we bring to bear the full resources of our network to make those companies more successful post-investment.

Can non-professional, non-full time people make good investment decisions?

At the earliest stages of company formation, you’re mainly evaluating whether the founders are unbelievably resourceful and persistent, and whether they’re attacking a massive problem that, if solved, could produce a large business. There aren’t metrics to analyze. There aren’t customers to interview. So at this stage, we think it’s very possible for someone who’s not full time, or even not terribly experienced at investing, to back her smartest friends, and for those friends to end up creating huge businesses.

Chris Sacca, one of the most successful angels ever, backed Ev Williams and Travis Kalanick, before he had any investing track record or sophisticated framework for investing. It worked out pretty well for him — and eventually for the LPs who backed his angel-stage funds. Who’s the next Chris Sacca?

Do the scouts make money themselves?

The sharing of economics differs from program to program. Almost every firm — including Village Global — shares economic upside with their scouts.

For us, we also focus on non-economic benefits. We cultivate a community between and among our Network Leaders. We expose them to and connect them with our luminary LPs. For example, several of our Network Leaders have had intimate interaction with people like Bill Gates, Bob Iger, Abby Johnson, Eric Schmidt, Ben Silbermann, and others.

Most great scouts — most great angels in general, I’d argue — are not doing it for the money. They’re doing it for the love of the game. Making money is a happy coincidence if you find yourself in luck’s way.

Do scouts invest their own personal money alongside the venture fund?

At Village Global, we ask most of our Network Leaders invest money alongside us commensurate with their net worth or whatever would constitute skin in the game. We think it makes for better decision making.

Are scouts exclusive to one firm?

Some venture firms try to insist on an exclusive relationship with their scouts.

At Village Global, we eschew a zero sum, exclusivity mindset. We’re fine with our Network Leaders working with multiple venture firms so long as there’s good communication and transparency around the deals they’re doing.

As it turns out, most of our Network Leaders prefer to just work with us because of our focus on them and the network strategy that’s in our DNA.

Should founder/CEOs really be angel investing on the side? What about focusing on their business?

Different sorts of people can be scouts. At Village Global, we have professors, full-time angels, big company execs, retired GPs, and active founder/CEOs in our network.

The most famous archetype — popularized by Sequoia — is for founder/CEOs themselves to be the ones investing the scout capital.

Some people worry that founders who invest on the side are too unfocused:

Here’s my question: Is any hobby outside of work a dangerous distraction? Should founders who work 80 hours a week and spend 20 hours a week on an intellectual, artistic, or athletic hobby, cut out the hobby time and increase to 100 hours a week of pure focus on their startup? Some people believe that. If that’s you, then it’s true that being a scout (i.e., investing on the side) as a founder is just one more distraction from your day job…along with playing tennis, or writing short stories, or occasional travel, or volunteering, and any other hobby one might pursue.

Myself, I don’t think working 100 hours a week is healthy or sustainable, and I don’t think it increases the odds of success. I also don’t think your team will respect you more if you work those extra 20 hours a week like a heartless robot.

If we’re open to the idea that even founders ought to be able to spend some precious hours each week not directly working on their startup, then I’d argue that of all the hobbies one could have (and who are we to judge?), angel investing is comparatively high value.

When you invest in or advise startups as a CEO, you learn. You learn how other CEOs make decisions, especially around fundraising. You grow your network of fellow CEOs and of VCs. You intertwine yourself with a community of people who will likely be more loyal to you, or at least have no choice but to stay in touch with you as you’re on their cap table for life! Among other reasons, this is why Sequoia Capital encourages many of its founders to be scouts.

And sometimes angel investing can actually benefit the CEO’s main focus: her startup. Adam Nash recently tweeted about how Reid Hoffman’s angel investing in Facebook and Zynga (while he was CEO of LinkedIn) helped LinkedIn:

Here’s Falon Fatemi, who’s a scout and a founder/CEO of Node.io (which has raised ~$40 million):

Should you start angel investing as part of a scout program?

The great Elad Gil, in his post on scouts, frames the pros and cons this way:

The positives of investing include giving back to others, broadening your network, information access (for example, what new distribution approaches are working for others), and the potential for financial return (although you should plan to lose any personal money you invest — so do not invest if you can not afford to lose the money).

The cons include investing can become a big distraction, can irritate your cofounders or employees if a lot of your time goes to it (and your startup is not working), and the potential to lose money.

Well summarized.

Is being a scout a good way to become an investor?

Maybe!

Per Bryce, it’s true that in today’s venture industry that best path to a job is to be a really successful founder with a big exit. VC firms tend to favor successful former founders. So if you’re deciding between focusing on your startup or focusing on investing, focus on your startup.

But a lot of VC firms, and all venture capital LPs (they matter if you want to found your own VC firm), care about your angel investing track record. They’d prefer to see some experience at finding deals and investing in the good ones. If you’re cash illiquid, investing scout money — in a time-boxed, hobby kind of way — is a good way to begin to build that track record.

How do you become a scout at a venture firm?

Lots of ways. If you’re interested in working with us at Village Global, feel free to reach out and say hello.

Village Global: Hiring, Network Catalyst, Founder Retreat

A few Village Global updates:

– We’re hiring a full time GM of Network based in San Francisco. Job description here. Wonderful opportunity for someone looking to break into VC in a non-investing role. A good fit for supreme operators who also understand the startup/venture game. Former bankers, consultants, startup CEOs/COOs, or VC ops people could all be a good fit.

– We run an accelerator program called Network Catalyst. Think Y Combinator, but more personalized, more intimate, more about connections than content. Application deadline was  couple days ago but if you’d like to be considered, email me.

– We hosted an awesome retreat for 80 of our founders near Yosemite last summer. Here’s a video recap of what went down. It highlights some of what makes the Village community special:

The Wisdom of Eric Ries

I was delighted to chat with Eric Ries, world famous author of The Lean Startup, a month ago in front of some of our founders at Village Global. Eric dropped an insane amount of wisdom on the business of starting a startup, pivoting, minimal viable products, and more. Video embedded below and also available as a podcast episode on the Venture Stories podcast.

Show notes pasted here:

Over the nearly 75-minute session, Eric gave a masterclass in Lean Startup techniques, addressed questions from founders on some of the finer details of the framework, and shared what he has learned from his entrepreneurial journey in the early 2000s as well as more recently as founder of the Long Term Stock Exchange.

Eric and Ben start out by talking about uncertainty as the core of a startup and the stark contrast between planning in an early-stage company versus in a large enterprise. Eric points out that those in the startup world take for granted certain startup best practices that “would get you fired in any big company.” He talks about the need for structure around entrepreneurial exploration, including making one’s hypotheses explicit and rigorously testing them.

Eric discusses the difference between customer discovery and customer validation. He tells the story of a founder who interviewed prospective customers and was told that the product was great and that they would use it, but that when he asked those same customers to put their name to a letter recommending their bosses purchase the product, not one would do so.

“The ideas that sound big are usually not the things that end up big.”

They move on to a discussion of pivots and why Eric says that in virtually all cases, after having pivoted, founders say they wish they had done so sooner. He explains why every six weeks is an ideal cadence for a “pivot or persevere” meeting.

MVP (minimum viable product) has become household term that was popularized by Eric. He discusses how founders can get over their fear of shipping something they perceive as incomplete and why he says the ideal MVP has “way fewer features than you think it needs.” He fields questions from Village founders on MVPs and talks about how small companies should think about their MVP when targeting large companies as customers.

“Engineers always think that more features will solve any problem.”

Eric explains what he means when he says that “entrepreneurship is a process of self-discovery” and why managing yourself and your own emotions as a founder can be equally as important as managing those of your team. He also addresses some of the criticisms of the Lean Startup methodology and common misunderstandings of the framework.

“I truly believe that entrepreneurship is a process of self-discovery. I think that two people working on the exact same company, encountering the exact same evidence, and deciding on a pivot, would probably choose two different pivots if they had different values. You discover something about what you really care about.”

Along the way, they discuss some of the seminal works in entrepreneurship, like The Four Steps To The Epiphany by Steve Blank and Crossing The Chasm by Geoffrey Moore.

The Wisdom of Eric Schmidt and Tyler Cowen

We are honored to have former Google CEO Eric Schmidt as one of our luminary LPs at Village Global. He recently participated in an event with our founders and Network Leaders in San Francisco. It was a delight to have my old friend Tyler Cowen, interviewer extraordinaire, conduct the chat with Eric. They had a wonderfully stimulating conversation about a range of topics. Perhaps my favorite part was near the end, when Eric and Tyler have a back-and-forth about GDP growth.

Here’s a video of their conversation. Here’s the post on the Village blog about the event. The audio of the conversation will also be published on Tyler’s must-listen podcast, Conversations with Tyler.

The Wisdom of Bob Iger

We’re honored to have Disney CEO Bob Iger as one of our LPs at Village Global. We recently hosted an event with Bob and about 100 of our portfolio companies, Network Leaders, and other friends of the firm at the iconic Beverly Hills Hotel.

Bob was in fine form on stage, and was terrific with a small group of our founders afterwards in a smaller session. As one of the world’s most successful CEOs, and one of the most important people in the entertainment industry, we were thrilled to be able to hear from him up close and personal.

Here are the photos from the event.

One of the more memorable things Bob said at the event was that he’s not “paranoid” about the future. He acknowledged the Andy Grove quip that “only the paranoid survive” but said that this particular framing (paranoia) doesn’t resonate with him. He’s more curious than he is paranoid. He’s relentless about trying to transform an iconic company into a new era. But it’s curiosity and optimism that drives him to do so. It was a refreshing, different sort of view than the common Silicon Valley line. It was a reminder that there are many ways to frame the challenge of disruption and innovation. And there are many ways to be an exceptional leader.

Lessons from Village Global Luminaries

We’re honored to be hosting events with several of our LP luminaries at Village Global this fall. A few updates:

  • Video series of short clips featuring exclusive footage from events with Spanx founder Sara Blakely, Pinterest founder Ben Silbermann, LinkedIn founder Reid Hoffman, and others. See the embed below for an example of Reid on Village.
  • We recently hosted Fidelity CEO, Abby Johnson, in an intimate lunch conversation with our Network Leaders about fintech and other trends.
  • Next week, former Google CEO Eric Schmidt will be in conversation with economist Tyler Cowen in San Francisco. You can request an invitation here.

Lessons on Confidence, Criticism, and How to Thrive as an Underestimated Founder from Sara Blakely

We were honored to have one of our LPs, Spanx founder/CEO Sara Blakely, in Palo Alto for the Village Global event called Underestimated. Sara was joined by dozens of other remarkable female founders and VCs in Silicon Valley.

Here’s a writeup on some of the insights shared by the speakers.

Here are a bunch of photos from the event.

The energy in the room was electric. More to come!

Lessons from Ben Silbermann, Founder of Pinterest

Ben Silbermann is co-founder and CEO of Pinterest, one of the world’s most successful consumer internet companies.

Ben is also a Village Global luminary — a group of tech industry founders and executives who are backing the next generation of amazing entrepreneurs.

At a dinner recently with a small group of Village Global’s Network Leaders, Ben shared stories and lessons from the Pinterest journey. Here’s a writeup of some of my favorite nuggets that Ben shared. And below is a video with some of the highlights…

 

Hiring a Head of Content

In September 2017, we announced Village Global, a new type of venture capital fund that is networked at its core. From who we have as financial backers, to how we invest, everything we do is about empowering and connecting people.

So far we’ve been heads down, focused on generating outcomes worth writing about. We’re finally ready to start telling some of the stories of the Village network, and, as such, we’re hiring a Head of Content and Marketing.

The Role

You’ll spread ideas and insights that matter to the tech community. You’ll pull out the best gems from our events, podcasts, and other media and repurpose them across different social media channels.

You’ll interview Village Global luminaries, network leaders, and founders — some of the most talented people across fields, disciplines, and companies — and create original, compelling content based on their stories.

You’ll join the ground floor of a new kind of venture firm and build our content and marketing strategy with us from the ground up.

You’ll go from 0 to 100,000’s of monthly readers/followers/subscribers, and aim to become one of the most recognizable brands in venture capital.

You’ll join a small team where you’ll learn about all aspects of venture capital. We want this to transform your career.

Interested? Here’s what we’re looking for:

You’re a writer, editor, and curator at heart. Maybe you run content for a startup or do marketing for a big company. Maybe you’ve been a founder who loves to write on the side. Maybe you’re starting off your journalism career but want to explore a different way of applying your skill set. You understand storytelling, narrative hooks, and you know a catchy idea when you hear it.

You understand online marketing and want to get better. You already have experience and good instincts when it comes to social media, VC and entrepreneurship Twitter feeds, email marketing, and running experiments to build brands. You geek out on audience building and engagement and use metrics to keep score.

You’ve always wanted to build something from the ground up. We’re looking for someone who can help architect a high level content strategy but who can also execute on it from start to finish on their own. Over time, you might even build a team around you to help fulfill our potential as a firm.

Venture capital and Silicon Valley fascinate you. You don’t necessarily need deep knowledge of all things technology and VC, but you should be wanting to learn fast to become a domain expert.

We’re based in San Francisco, but we’ll accept remote.

To be clear, this role is not:

  • General PR — If your dream job is pitching the New York Times and spinning out press releases, this isn’t that.
  • General marketing — This is not about designing corporate schwag, booths at conferences, etc.
  • Event management/production — We’re already covered there.

Does this role at Village Global sound like something you’d be terrific at?

If so, we want to talk to you. Email us and include a link to your LinkedIn profile: [email protected]

Do you know someone who’d be great for this job? If you refer the person we hire, we’ll pay you, the referrer, $5,000 as a thank you!

Do You Love Making Connections and Thinking About Networks?

I recently co-founded Village Global, a new early stage venture firm. We’re hiring!

Here’s one position we’re actively recruiting for. It’s a unique role. Please email [email protected] if you’re interested. And if you refer a candidate we hire, we’ll pay you $3,000!

Title: GM of Network

We are looking for someone to help us build our network-driven platform strategy.

This will include helping design the events, programs, and systems by which we help portfolio companies with hiring, distribution, fund-raising, advice, key introductions, and other network needs. You will help figure out the best possible introductions to make across our vast network.

You should possess a deep passion for connecting people and also sweat the details. You should love connecting people and love thinking about the systems for how to make those connections more efficient and effective.

Ideal background, experience, and personality

  • Demonstrated ability to connect with everyone from LPs, VCs, and portfolio founders. Knowledgable about VC industry.
  • Experience creating value-add initiatives or events for entrepreneurs or investors
  • Experience working in a venture capital firm, incubator, accelerator or small startup tech company
  • Comfortable with uncertainty and fast-changing conditions
  • Self-starter and self-motivator — able to work independently and with little oversight
  • Experience using a CRM system or eagerness to become totally fluent in one
  • Preferably located in the Bay Area, though open to Los Angeles or New York if willing to travel
  • Comfortable interfacing with professionals from different countries and planning events outside the U.S. (You would not need to physically staff events outside the U.S.)
  • Able to attend at least a couple events per month in the Bay Area
  • Service-oriented, knows how to add value — wants to focus adding value to companies rather than investing.
  • Think big and execute small; detail-oriented but can also do strategy. Willing to do whatever it takes — no task too low or high