The fear that keeps VCs up at night

Every venture capitalist knows the brutal math: a handful of companies drive the vast majority of a fund’s returns. Missing just one generational startup can mean the difference between a top-decile track record and an underperforming fund.

It’s why partners spend endless hours chasing warm intros, tracking rising founders, and trying to be first in line for the next breakout. But even with the best networks and research, no firm sees everything. The reality is that some of the biggest outcomes in the last decade were found not by partners in partner meetings, but by scouts placing $25,000 checks.

The Uber and Stripe wake-up calls

Take Uber. In 2009, Sequoia wasn’t ready to formally lead a seed round. Instead, they gave Jason Calacanis a small scout allocation. He wrote a $25,000 check. That scout position ended up worth tens of millions, delivering a return that alone would have justified many early scout cohorts.

Stripe is another classic. Sam Altman, at the time a young founder and angel, invested in Stripe using Sequoia scout capital. That tiny bet ultimately turned into a stake valued at over $25 million — all before Sequoia officially led a later round.

These aren’t isolated flukes. Thumbtack, Faire, Notion, and many others were similarly surfaced through scout relationships long before the main fund got involved.

Why scout programs work like an options portfolio

Think of a scout program as a structured way to buy hundreds of cheap call options on the future. Each scout check — often $25K to $50K — is a tiny piece of optionality. Most expire worthless. But it only takes one or two to go exponential.

For example, a typical VC fund might deploy $200 million, while a scout program attached to that fund might run on just $5 million spread across dozens of scouts. If even one of those scout-backed companies becomes a $10 billion exit, the returns can dwarf the program’s cost many times over.

It’s the purest form of power law investing: minimal downside, uncapped upside.

It’s not just about catching “next big things” — it’s about early visibility

Scout programs also give firms an early look at promising startups long before formal rounds happen. Even if a fund decides not to lead a Series A, it benefits from months (or years) of inside perspective — product progress, team dynamics, market evolution — simply by virtue of having a scout check on the cap table.

This inside track often translates into faster, better-informed decisions when bigger rounds come together. Or it gives firms a graceful exit from companies they quietly learn aren’t executing well, without having tied up significant partner time or capital.

The program costs are trivial relative to fund size

For most mid-to-large funds, the cost of running a scout program is almost negligible. A $200 million fund might allocate just 2–3% toward scout capital. That tiny carveout buys massive deal flow expansion. It also gives firms an excuse to build or strengthen relationships with promising operators and future VCs — many of whom become co-investors or later join as partners.

Compared to the overhead of adding new associates or principals (who require salary, carry allocations, and time-intensive mentorship), scouts operate at arm’s length, compensated purely on performance.

How to use scout programs to truly hedge your fund

• Diversify the scouts. The best programs don’t just pick well-connected tech bros. They recruit from diverse backgrounds, industries, and geographies — increasing the chance someone spots a breakout that partners would otherwise miss.
• Keep expectations clear. Scouts aren’t junior partners. They’re there to place small bets, surface interesting teams, and give your firm optionality. Clarity prevents awkward misunderstandings down the line.
• Use it as a relationship builder. Many future GPs start as scouts. A thoughtful program is a talent pipeline for your firm, building long-term loyalty.

The real question: can you afford not to have one?

The truth is, every VC firm is haunted by the deals they didn’t see. Scout programs offer a systematic, low-cost way to widen the top of the funnel and make sure that the next $50 billion company at least crosses your radar early.

In the venture business, optionality is everything. A small pool of scout capital is often the cheapest insurance policy you can buy against missing the next Stripe — or the next one after that.

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