As you probably know, raising money from individual seed and angel investors has become an incredibly popular practice among tech startups in recent years. Many of these seed investors are brand names in themselves, having amassed significant social clout through their years in the tech industry and ostensibly making enough money along the way to invest in up-and-coming startups that they deem worthy. These days, many hot companies fuel all their early- to mid-stage growth through these more casual “seed” funding set ups, rather than by going to traditional venture capital firms.
But what many people don’t realize is that Sand Hill Road VCs have been very quietly getting into the seed and angel game in their own clever way. As PandoDaily’s Sarah Lacy reported last year, a number of well-known individual angel investors are actually working for traditional VC firms as “scouts,” investing money that isn’t their own. After that article, Sequoia Capital was the first VC firm to come out and admit that they indeed did have a stealth scout program — but since then, little more information has been forthcoming.
That is, until today.
Sequoia Capital is now raising an official dedicated fund for its scout program, TechCrunch has confirmed. This morning, the firm filed regulatory documents to the SEC for a new investment vehicle called the “Seqouia Capital U.S. Scout Seed Fund 2013.”
While the documents do not specify how large the fund will be, we’re told that the firm is targeting a relatively modest eight figures — tens of millions of dollars, not hundreds of millions like Sequoia’s general VC funds.
For the past four years, Sequoia has been quietly running its scout program on a “pay as you go” basis with money from its main VC fund — and it seems to have been a big success. Word is that Sequoia now has dozens of scouts who have led investments in more than 100 companies. Now that the model has been validated, Sequoia seems to have decided to finally create a dedicated scout seed fund that its limited partners can support directly.
But while this is a big step toward codifying Sequoia’s scout program and bringing it more out into the open, don’t expect it to come much more out of the shadows. The identities of Seqouia’s scouts will still be kept secret, I’m told, and the investments they make will still be attributed to each individual, not to Sequoia itself.
It makes sense that this arrangement is what’s preferred by not just the scouts, but also by the startups in which they invest. The scouts get to use Sequoia’s deep pockets as their own, while the startups get backed by Sequoia without having to worry about the potential of “negative signaling” at the Series A level.
It’s an interesting mix of transparency and secrecy, but it is something that seems to be working for now. It’ll be interesting to see if other VC firms with scout programs will follow Sequoia’s lead and start operating more in the open — and how long the scouts involved can keep their big-money VC affiliations on the DL.