Thread by @paigefinnn

hey aspiring vcs 👋 we're going to explore venture capital scout programs: what they are, why they exist, and how to pick and join one...[a thread]

1/ for context - historically, people who would have deal flow to invest in early stage companies would be the ones with capital. as the internet democratizes access to founders all over the world, there’s a growing gap between capital and access. (graphic from @Mat_Sherman)

2/ scout programs provide a mutually beneficial solution to this widening gap of capital and access. we'll explore the benefits from two points of view:

the scout and the venture firm

3/ many young people have networks of founders building exciting venture-scale companies, but don’t have access to capital to invest in them. they either don’t want to or don’t have the access to become investors full time, but want to learn more about investing in a hands-on way

4/ for scouts, scouting provides them an avenue to learn the ropes of investing while exploring other avenues, even founding their own companies. they may be also be rewarded with compensation of cash or carried interest(carry).

5/ on the other hand, venture funds recognize that scout programs can help them expand their reach within networks of aspiring investors and founders, expose them to competitive deals, and build a legacy beyond their full-time investors.

6/ big firms, like @sequoia, also perceive scout programs as an efficient way of scanning seed stage flow to feed their main Series A or Series B business. source: casnocha.com/2019/10/ventur…

7/ "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." - @bencasnocha

8/ 11 years ago, Sequoia Capital began quietly encouraging portco founders to consider which of their founder friends they might like to get behind financially. @sequoia would let them write checks to those companies, and it would share with them any later rewards.

9/ as a leader in a growing ecosystem of scout programs, sequoia is now in the middle of its fifth batch of scouts, that it chooses two “classes” of scouts for each separate scout fund, and there have been three to date, including a $180 million fund it closed last year.

10/ jason(@Jason), one of sequoia’s first scouts, mentioned “they’ll never get enough credit for this, but Sequoia used scouts to radically increase the diversity in the industry...they opened the aperture to get more women and underrepresented investors” techcrunch.com/2019/06/07/a-p…

11/ after Sequoia rolled out their scout programs, many firms followed in their footsteps. scout programs have become an important, although under the radar, part of the venture ecosystem. they’ve helped many aspiring investors get their foot in the door & widened firms' networks

12/ so how do you pick a scout program?

scout programs are architected in different ways, and so provide differing amounts of capital, community, credibility, curriculum, and scout terms. based on the firm's investment thesis, they'll also have a focus sector and stage.

13/ just like a founder must pick the firm that’s right for them, individuals must pick the scout program that aligns with their values and interests. before picking a scout program, you should consider your sectors of interest & where you value these aspects:

14/ my definitions:

community: level of partnership with other scouts, partners, program advisors
capital: amount of capital you can deploy
credibility: how well known a fund is
scout conditions: compensation/exclusivity
curriculum: education provided by the scout program

15/ if you’re new to investing & have great access to deals and want to learn about how to evaluate companies from an investor perspective, you might choose a scout program that offers a structured curriculum and strong community to learn more, and won’t prioritize compensation.

16/ if you’re an informed investor looking to one day start your own fund, you’ll prioritize finding a scout program that resonates with your personal investing thesis, a strong community, and one that holds credibility, and won’t prioritize compensation/curriculum.

17/ if you’re busy and an experienced investor but don’t have the capital to keep up with what can be a very expensive hobby, you might chose a firm that gives you the biggest cut - either cash or carry(carried interest) of the deal - and not worry as much about everything else.

18/ how do you join a scout program?

first, don’t expect anything. many scout programs aren't open to the public, so start by building relationships with people at firms who’s sector and stage you’re interested in and introduce them to relevant founders you meet.

19/ sometimes, you’ll be met with radio silence; sometimes you’ll be met with an email offering carry in a deal! as you continue making introductions, it might blossom into a more formal scout partnership.

other scout programs offer open application processes!

20/ if you're interested in exploring scout programs, here's a great thread to check out:

https://twitter.com/paigefinnn/status/1311024334555684865?s=20

21/ and if you're interested in learning more about VC as a whole, I have an extensive(and free!) notion doc I put together to help you learn:

https://twitter.com/paigefinnn/status/1285653959886209027?s=20