Discussing VC Scouts

Discussing VC Scouts
Read time 1.9 minutes

For those of you who are unaware, a VC scout is a person who partners with a large Venture Capitalist like Sequoia, a16z, etc. and is given money by that firm to invest in early-stage startups.

Many founders proactively reach out to scouts because they see it as a way to get a larger check from a Tier 1 VC in the future.

Today, I want to quickly clarify (i) who VC scouts are and how they are picked and (ii) the risks of taking money from VC scouts.

Who are VC Scouts, and how are they picked

VC scouts don’t work for that venture capital firm. They are instead a form of networking. Venture Capital firms often partner with people like me (I get approached often) because of my access to early-stage startups. They are looking to trade small amounts of money ($10k-25k) for an inside look at startups that they might later back with $100M+.

The key things to know then are:

1. VC Scouts don’t work for the VC firm

2. VC Scouts have money from VCs but make their own decisions

3. VC Scouts are chosen for their network/access

Risk of taking money from VC Scouts

Most founders think that VC Scouts are the best possible source of money because you are essentially on the minor league team for a Tier 1 VC. They get to see firsthand how you grow, and once you are mature enough that you fit their thesis, they can back you.

The problem is that the VC scout and the VC aren’t investing in the same thesis; they don’t have the same things they are looking for, so most often, after receiving investment from a VC scout, you then are turned away from the VC when you get to the stage where they normally invest.

This creates a massive problem for your company. When a Tier 1 VC whose scout invested in you decides not to back you, this is the equivalent of being blacklisted from all VCs. No matter your metrics, growth, etc., everyone will assume that the Tier 1 VC that saw you grow knows something that they don’t.

In reality, there are many reasons a VC won’t back you. But the truth is when you’ve worked with a Venture Scout; you are betting everything on a single VC, deciding to fund your next round.

So before accepting VC Scout money, ensure you understand the risks. It could be the start of a great journey, but it could also be a massive burden that kills your company.

Are you looking to grow your business? Here is how I can help:

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Onwards and Upwards,

Liam Gill