How to find a job as a scout for a venture capital firm – TechCrunch
The easiest way working with and for venture capital funds means becoming a scout, being paid for sourcing investments. But how do you do that?
We studied VC scout programs, not only to improve our search for contracts, but for four broader reasons:
1. To help our transitioning founders
Versatile VC runs a free community for transitioning founders, “Founders’ Next Move”. We’ve put together a wide range of resources for founders considering starting a new business; angel investing/becoming a VC; buy a business; join boards of directors; consultant; serve as an interim executive; or just find a job. Our goal is to invest, co-invest with and/or recruit transitioning founders.
2. Monetize our deal flow
All VCs, including us, regularly see investment opportunities that don’t fit our mandate. We may as well be paid to refer them to others. There are a number of venture capital funds that share the carry earned in their co-investment with the referring party. Another option is to become a formal scout for other VCs through programs like the ones we list below.
3. We are launching our own recruiting program and want to benchmark compensation and structure against our peers
We already have a senior team of venture capital partners helping us with origination and due diligence. They may also consult directly with companies or sit on boards of directors, in which case we will accelerate their remuneration directly by the relevant company. Scouts are intended to be a lighter, supply-only relationship. We plan to have an unlimited number of Scouts, but only a small number of Venture Partners.
4. Scouts help promote diversity in VC
This is true for both investors and managers of portfolio companies.
What really matters is the adjustment of the Scout Fund. You won’t make money if the type of investment you’re looking for doesn’t suit the VC you’re looking for.
We have identified a number of VCs in addition to us who have publicly discussed their Scouting programs and, in some cases, publicly shared their savings. We found them by browsing company websites, social media, blog posts, and more. We list them all below.
In addition to formal prospecting programs, note that many VCs will structure one-time deals with “friends of the business” to compensate them for sourcing. You cannot normally “apply” for these relationships unless you have a pre-existing relationship with the VC.
How much can you earn?
Scouts generally receive a percentage of the carryover investments they procure. So, excluding any upfront payments, your cash compensation, which is normally paid upon leaving that startup (usually three to 12 years from now) is equal to:
# companies you are looking for
* (% of companies in which the VC invests)
* (average VC control size)
* (average multiple generated, minus 1)
* (your carry pool percentage, typically 2.5% to 10% of the fund’s carry pool on a given investment, i.e. the typical 20% the fund earns)
If you are paid per transaction, your contract may have adjustments for carry compensation. For example, if the overall fund is a multiple of 0.9X, you may get paid zero even if you are looking for a winning investment for that particular fund.)
Some late-stage VCs have invested in some of my older funds, in part to motivate us to offer them future investment opportunities. A few companies also or instead pay a cash bonus to scouts, usually 1% of the amount invested in the company. Alternatively, some companies pay a fixed percentage of the total fund carry per trade, i.e. if you search for one company out of the 30 companies provided in a fund, you might get 10% * (1/30) = 0.333% of carry. Bowl. This structure has the benefit of easier accounting and motivates the scout to be a resource for the entire portfolio, not just the one company they researched.
A few funds (eg Accel, Sequoia) give the Scout a small pool of capital. In fact, the scout then manages a small pocket of this venture capital fund. Typically, the supporting VC will have some ability to veto the Scout’s investments in this structure.
That said, a generous carry percentage is irrelevant if the fund metrics for the other components of the above formula are low. What really matters is scout fund adjustment. You won’t make money if the type of investments you’re looking for aren’t suitable for the VC you’re looking for, because they just won’t put any money to work.
Some Scouts also have the opportunity (or the expectation) to help raise money for the fund by soliciting fund pledges from potential LPs. Typical incentive payouts for fundraising from venture sponsors are 0.5% to 2% of the money raised, with higher percentages for smaller funds. Check with attorneys to make sure these compensation structures are compliant.
Other Investors Who Pay a Supply Fee
Here we focus on venture capital, but the private equity industry also employs origination-focused team members. They are mostly full-time team members, but private equity funds also employ investment bankers as well as freelance “researchers”.
Including bonuses, the approximate salary for a new business development associate with a private equity firm is around $100,000. Some private equity funds publicly announce rewards for anyone who refers them to an investment, while independent sponsors may charge a 20% fee to facilitate transactions.
Similarly, some income-based financial investors also have open-access screening programs.
“Given the instant nature of RBF, payout is immediate: a successful affiliate typically generates up to 1% of the amount raised for the discoverer,” noted OpenVC CEO Stephane Nasser. “If you have access to post-revenue SaaS or e-commerce companies, you can easily earn $1,000 to $10,000 per business within days.”
Most scouts only get paid on success, with no down payment. If your responsibility is just to forward emails and do the occasional introduction, getting a down payment is less common. You can argue for a retainer (or an investment in your fund, if you are a VC yourself) if a combination of the following applies:
- You will be spending a lot of time on marketing, sourcing and investment screening, beyond your normal business activities. If you’re going to work an hour a week, most people are comfortable knowing that they may not get paid, if at all, for a decade. But if you do more than an hour a week, ask for more certainty of cash and/or stock compensation. I suggest clarifying the number of hours/week you are expected to work and multiplying it by what you consider a reasonable hourly rate.
- You are involved in other aspects of the firm’s activities: due diligence, portfolio acceleration, board of directors, etc.
- You are important enough that your affiliation with the company generates value for the brand.
How to find a scout job
Scouts are generally hired because they are well-connected and credible in an industry, geography, and/or community that a VC is focusing on. Joel Palathinkal, CEO of Sutton Capital, observes that scouts generally fall into one of three categories: