Deep Dive: VC Scout Programs

Max Fleitmann
Founder of VC Stack
Deep Dive: VC Scout Programs
Uma Patel
VC Content Creator

This deep dive was initially published in our VC Stack newsletter. Make sure to subscribe here to not miss any future episodes.

Who is a VC Scout?

A VC scout is trusted with seeking out promising early-stage companies to pass on deal flow to a VC firm. They act as a connector between their network of founders and the investment interests of the firm. Each firm will outline the opportunities they expect the scout to source as well as the stage of funding, target industries, target geography, and investment vehicles.

Internal VC Scout

An internal VC scout is a full-time member of a VC firm who is in charge of securing deal flow on top of other duties within the firm. Their role encompasses meeting as many entrepreneurs as possible and transferring the network into a potential deal flow for the firm.

External VC Scout

An external VC scout works for a fund through a VC Scout Program but is not a full-time employee of the firm. Typically, external VC scouts are current students, former startup operators/founders, or aspiring investors with some established network or knowledge within a specific industry.

Scout Program Model

Program criteria will vary from firm to firm, while some ask scouts to perform due diligence others simply ask them to identify a startup. In some programs, the scout will prepare a deal memo summarizing the startup and opportunity once a potential investment is identified. If the firm is interested, the scout may conduct further due diligence to support the final investment decision. Once an investment has been made, scouts may continue to assist the firm during the investment lifetime.

Scouts are compensated in either of the following ways:

  1. Cash once the deal has been completed. May be equivalent to the total amount invested but varies depending on the program.
  2. Cash in return for relevant intros. A small compensation after successfully scouting and performing due diligence around a startup that matches the firm's investment criteria.
  3. Equity in the startup. Equity-based carry to the scout typically ranges from 2.5%-10% of the funds carry pool but details vary depending on the program.
  4. Micro-fund. In some programs, the scout receives a portion of funding in which they can invest small check sizes ($10k-$50k) themselves. They may receive carried interest and/or a performance bonus if successful.

Special forms of Scouting

  • OpenScout allows angel investors and institutional investors to access the deal flow of their global network of 500+ scouts. If interested in a company, the platform allows you to download the deck or request a warm intro.
  • Altitude VC’s Open Angel program allows angel investors to submit a deal through an open application to potentially receive a EUR 100k top-up and 20% carry compensation. The angel needs to invest EUR 5k and win the allocation beforehand.
  • The Atomico Angel Program allocates $100k per angel to invest in founders they choose. When the founder succeeds they will receive a share just as Atomico would. Additionally in order to promote collaboration, some carry is allocated per investment to an ‘Angel Pool’.

Benefits to the Scout & VC Firm

  • Access into the industry. Scout programs are a great way to learn about the industry, establish professional relationships, and test out a career as an investor while building an investment track record. The VC firm may also be able to hire talent by evaluating its team of scouts.
  • Aligned interests. VC firms only have to pay scouts if an investment is successful, while scouts can strengthen their own network and potentially earn compensation from the high-quality deal flow. A win-win situation for both sides since VC firms do not have to pay for a full-time employee and scouts are motivated by their performance-based compensation.
  • Diversify and increase deal flow. Firms have access to the scout's established networks which broadens their reach and gets them introduced to startups they may have otherwise missed. Additionally, scouts may bring an added level of expertise around a target industry which can further support the due diligence process.

Additional Readings