AngelList syndicate leads and Sequoia scouts

I wrote about Sequoia Capital’s Scouts program in a post around this time last year. From the post:

“Basically, it’s a program whereby Sequoia gives its scouts around $100K a year to invest in promising startups. The scouts consist of entrepreneurs that Sequoia has backed in the past, academics, former Sequoia partners, and anyone else that Sequoia believes may have the ability to identify and access great startups.

Most of the gains from successful investments are shared by the scout making the investment and Sequoia’s LP’s. Sequoia’s GP’s and other scouts only get a small fraction. The fact that the returns from the investment go to the scout rather than Sequoia’s GP’s ensures that the scout has sufficient financial motivation to perform well. The scout essentially gets free money from Sequoia with no downside in the case of a poor investment, but significant upside in the case of a good investment. In this way, the scout effectively becomes the GP of an angel fund where Sequoia is the main LP.”

Towards the end of the post, I performed some basic calculations to estimate the economic returns from the Scouts program. Although the specific numbers are certainly off, the conclusion is likely directionally correct. Here’s the conclusion:

“So for a total investment of $70M, Sequoia is sitting on a paper value of $329M. That’s a minimum 4.7X return.”

Although it took me a year to make the connection, AngelList syndicate leads are similar to Sequoia scouts. Just like a scout is effectively the GP of an angel fund where Sequoia is the main LP, a syndicate lead on AngelList is effectively the GP of an angel fund where syndicate members are the main LP’s.

However, there are two main differences.

First, although there is some overlap, the individuals who serve as Sequoia scouts are largely different than the individuals who serve as AngelList syndicate leads. Specifically, everyone can’t be a Sequoia scout but everyone can be an AngelList syndicate lead. The result is that the quality of the average Sequoia scout is higher than the quality of the average AngelList syndicate lead.

However, the second difference between Sequoia’s Scouts program and AngelList syndicates makes up for this apparent disadvantage. Specifically, Sequoia had to invest in each of the deals brought forward by its scouts. On AngelList, you get to choose not only which syndicate leads you co-invest with but also which of their specific deals you invest in. This effectively means that AngelList lets you pick your own scouts, just like Sequoia, while also letting you pick from within the specific deals offered by the scouts you’ve chosen. In other words, AngelList offers both access and decision-making power. Depending on the quality of your decisions, the latter can be an advantage or a disadvantage.

You can argue that none of the AngelList syndicate leads are as good as Sequoia scouts. However, I don’t think that this is the case. First, there are some individuals like Jason Calacanis who served or currently serve as both Sequoia scouts and AngelList syndicate leads. Second, although AngelList syndicates are younger than Sequoia’s Scouts program, they’ve participated in the funding rounds of some equally impressive companies like Uber.

To summarize, AngelList gives you the opportunity to achieve returns similar to those of Sequoia’s Scouts program. You just have to pick the right scouts. And, if you have enough courage and are good enough, you might even outperform them.

Also published on Medium.