Angel Investing vs. Scouting vs. Advising?

Hi! I’m glad you’re here. You’ve made it to issue #41 of VC Demystified🪄.

My name’s Nicole - I’m a Principal at an early stage venture fund, and I know firsthand that VC can often be a black box. Breaking into the industry may feel daunting and resources can seem scarce and inaccessible. I wanted to put together a newsletter to give others the playbook I wish I had when I first started.

I’ve been spending a lot of time with students across U.S. universities who are well-connected to builders on their campuses. I’ve learned so much about where the most talented individuals are spending their time. If you know any incredible student builders, please let me know! I’d love to follow their journey.

Today’s deep dive: Understanding the differences between angel investing, VC scouting, and startup advising

^{My personal mission is to open as many doors as possible for other people and this newsletter is just one avenue to do that. As always, I will continue to post VC insights daily for free across my socials.}

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Understanding the differences between angel investing, VC scouting, and startup advising

If you’re looking to get more involved with startups and early-stage investing, but you don’t want to jump into a full-time VC role, you should consider angel investing, scouting or advising startups.

Each role offers unique opportunities, responsibilities and compensation.

In this post, we’ll break down the differences between these three roles, what they entail, and who is best suited for each.

1. Venture Capital (VC) Scout

What It Entails

A VC scout acts as an extended arm of a venture capital firm.

Scouting involves identifying promising startups and gathering market information. The role is typically more about deal sourcing (opening up access to networks the VC firm doesn’t have access to), rather than making investment decisions independently.

Oftentimes a deal sourced by a scout still has to get internal partner approval before any check can be written.

Responsibilities

• Sourcing Deals: Continuously network within startup communities, attend demo days, conferences, and meetups to identify early-stage companies.

• Screening Startups: Evaluate products, business models, markets and team strengths to determine if a startup might be a good candidate for investment. You may have to create investment memos.

• Facilitating Introductions: Connect promising startups with the appropriate partners at the VC firm.

Compensation

• Commission-Based: Many VC scouts receive a referral fee or a percentage of the investment the VC firm makes in a startup they’ve introduced. This can range from a small finder’s fee to a share of the carried interest, depending on the firm’s policies.

• Incentives: Some firms might offer additional incentives or bonuses for successful deals or high-potential referrals.

Who Is Best Suited

The level of experience needed varies depending on the program.

For example, many VC firms have university scouts, which are basically students that share deal flow with the VC firm, but don’t really play a part in the investment memos or decision. This require less experience.

But on the other hand, there are scout programs where the scout has more responsibility to source the companies, diligence the companies and present the companies to firm’s partners in order to get approval to write their scout check. This requires more experience.

2. Angel Investing

What It Entails

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