Sequoia Capital, whose “stealthy” scouting program first came to light last spring, looks to be formalizing the program by registering its first U.S. Scout Seed Fund with the SEC this morning.
The filing doesn’t provide many details into the new fund, though Roelof Botha – the only Sequoia partner listed on the filing – is listed as the managing member of the effort. The filing also states that the firm intends the offering to last more than one year, which is unusual. No target is listed, and Sequoia hasn’t yet responded to requests for information.
Last May, the tech blog PandoDaily exposed the now three-and-a-half year-long trend of entrepreneurs being led to believe they’re working with moneyed founders-turned-angels, only to discover that the angels actually represent a venture capital firm.
Sequoia partner Alfred Lin – one of Sequoia’s first “scouts” while still an entrepreneur — told the blog in a subsequent interview that the program’s mission was to drum up interesting deal flow from plugged-in entrepreneurs who perhaps couldn’t afford to or didn’t want to gamble with their own money — and who didn’t want to be inundated by entrepreneurs in fundraising mode, either. “[T]his was actually discussed, and we all agreed we didn’t have a ton of time to screen a bunch of investments, and we mostly didn’t want to get pinged all the time.”
At the time, another early scout, Nick Mehta — the former CEO of LiveOffice and today an entrepreneur-in-residence at Accel — also said that scouts were told to disclose their ties to Sequoia with the entrepreneurs they were funding. (The entrepreneurs would eventually see a wire transfer from Sequoia anyway.)
But the scouts were also told to warn the entrepreneurs about the signaling risk involved in advertising the association. (If a firm invests in a startup’s seed round but chooses not to participate in a future round, it sometimes signals to other investors that something is wrong with the company.)
Sequoia Capital was the first to launch such a program; Andreessen Horowitz later admitted to running a similar program.
Update: A source who is familiar with Sequoia’s scout program but who asked not to be named says that “dozens of scouts” are currently operating on behalf of Sequoia and that they have collectively backed more than 100 companies. The source adds that, to his knowledge, Sequoia has only provided Series A funding to a “minority” of those startups. He further added that he’s been told Sequoia’s new fund will be in the “tens of millions of dollars and not hundreds of millions of dollars,” or “enough to fund the [scout] program for several years.” Asked whether it will be LPs, or the scouts themselves, who receive the bulk of any returns produced by the startups being scouted (originally, the scouts were promised the lion’s share of any returns), the source did not know.
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