The Sequoia scout model: what is documented, and what you cannot assume about joining it

The Sequoia scout model: what is documented, and what you cannot assume about joining it

Sequoia Capital's scout program has been widely copied by other venture firms, in the words of the reporting on it, and almost everything written about it describes how it worked years ago. The documented record covers roughly 2009 through 2019. It establishes what the model was, who the early scouts were, and how the money moved.

It establishes nothing about whether you can join today, how a scout is selected now, or what the terms currently are. This guide separates those two things, because most articles on the subject quietly merge them.

Separate historical model from current availability

Two pinned sources carry the record here. TechCrunch reported on the program in June 2019, on what it called the tenth anniversary of the scouts initiative, drawing on an interview with Sequoia partner Mike Vernal and four named scouts. Sequoia itself published a piece in January 2018, written by Vernal and originally posted on his Medium, explaining the firm's approach to seed investing, written on the heels of raising its third Scout Seed fund.

Both are dated. The most recent of them is more than six years old at the time of writing. Nothing in either establishes current recruitment, current terms, or a current application route, and this guide does not claim any. Treat what follows as the documented historical model.

How sourcing and delegated investing differ

The distinction that matters most is between bringing a fund a company and deciding to back one yourself.

According to TechCrunch's account, Sequoia's model was the second kind. Ten years before that 2019 report, the firm began encouraging founders of its portfolio companies to consider which of their founder friends they might want to get behind financially. Sequoia would let them write the checks and would share any later rewards. That is delegated investing: the scout picks, the fund supplies the capital, and the upside is split.

The reported mechanics fit that shape. Scouts could invest up to $100,000 per company. Jason Calacanis, one of the first scouts, told TechCrunch he had put $600,000 into 20 startups across his years in the program, and that his first scout memo ran to two words. Sequoia approved that investment. The company was Uber.

Contrast that with a pure sourcing arrangement, where a scout introduces companies and the firm decides. Both get called scouting. They are different jobs with different economics and different conflicts, and the word alone will not tell you which one a given program means. Ask.

What official accounts establish

Sequoia's own January 2018 article is thinner on the scout program than the reporting is, and that is worth noting rather than filling in. Its single scout reference is the mention of the third Scout Seed fund. The rest describes the firm's seed practice.

What it does establish about that practice, in the firm's own words: Sequoia describes itself as not a passive financier, partnering with very few companies and then working on strategy, recruiting and customer introductions. It says it looks for exceptional founders with a unique insight in a market poised for large growth, and is more interested in what might be possible than in a working product or existing customers.

It says it is happy to work with SAFEs or convertible notes, and that it typically does not take board seats. It states that since 2010, about 75 percent of Sequoia-backed seed-stage companies went on to raise Series A financing, which it puts at about two to three times its peer group average.

That last number is Sequoia describing its own record, published in 2018, with the comparison group unnamed. It is a first-party marketing claim in a fundraising context, not an audited statistic, and it says nothing about scout-sourced deals specifically.

The 2019 reporting adds the program's shape. Early scouts included Sam Altman, then running Loopt, along with Airbnb's Brian Chesky and Dropbox's Arash Ferdowsi and Drew Houston.

By 2019 Sequoia was described as being in its fifth batch of scouts, choosing two classes for each scout fund, with three such funds to date including a $180 million vehicle closed the previous year. Vernal declined to say how many scouts had worked with the firm.

He did say that while the first batch was biased toward Sequoia portfolio companies, it was no longer the case that the firm tapped only founders it had already backed.

What an aspiring scout can learn

Three things transfer from the record, and none of them is a route in.

The model rewards proximity, not credentials. Every named early scout was a founder with an active network of other founders. The firm was buying access to conversations it could not otherwise reach, which is why the program started inside its own portfolio.

Decision rights were the design choice. Sequoia gave scouts capital and let them pick. Other programs do not. When you evaluate any scout offer, establish which model it is before anything else, because it determines what you are actually being asked to do and what you could earn.

Outcomes are long and concentrated. TechCrunch reported that Altman's scout investment in Stripe was valued at roughly $25 million by 2019, more than a decade after the program began. One documented outcome from one scout across a decade is not a base rate, and it should not be read as one.

What remains unknown, and how to check

Be direct about the gap. These sources do not establish that Sequoia is currently recruiting scouts, that an application process exists, what current scouts are paid, how selection works today, or whether the program still runs in the form described. Anything you read asserting those things should be traced to a source with a recent date on it.

If you want to know the current position, this is the verification checklist:

• Check Sequoia's own site for any current scout or seed program page, and note its publication date.
• Treat any figure without a date as unusable, particularly check sizes and carry terms.
• Ask anyone claiming to recruit for a scout program to name the fund, the decision model, and the economics in writing.
• Confirm whether the arrangement is sourcing or delegated investing before discussing compensation.
• Have any agreement reviewed by counsel in your jurisdiction, since authority, conflicts and compensation all carry legal consequences that vary by market.

If you are looking at scouting as a path rather than at Sequoia specifically, explore scout programs to see what is documented about programs today.

Sources: TechCrunch, "A peek inside Sequoia Capital's low-flying, wide-reaching scout program," 7 June 2019; Sequoia Capital, "Sequoia and seed investing," 16 January 2018, by Mike Vernal, originally posted on Medium. Both are historical records of the period they describe and establish nothing about current program availability or terms.