Our long-awaited scout program is live!
Scout programs Historically, breaking into early stage investing has been incredibly difficult. The best way to become an investor has always been to have an investing track record. The problem is that track records are a "chicken and egg" problem if you don't already have enough personal wealth to go make 25-50 personal investments. Enter scout programs, which offer a way for non-investors to refer good investment opportunities, build a track record, and get some upside in great startups before they have their own capital to invest.
At least that's how they're supposed to work in theory. The reality is that many programs are exclusionary in who they allow to be a scout, encourage a "spray and pray" mentality of scouting every company to every fund, and most importantly don't offer a real on-ramp to becoming an investor.
So we decided to do things differently, with a focus on making our scout program an explicit on-ramp to becoming an investor at Calm Company Fund.
Our Scout Program
While in many ways our program looks like a traditional scout program, the overarching goal is for it to truly be an open meritocratic on-ramp for new investors/GPs in calm companies. Thanks so much to all who gave feedback on the original post for the idea.
How it works
1/ Join the Scout Program. This will be open to all, although there will be a manual approval process to keep out spammers.
2/ To scout a company just have them fill out an application on our site and give them your Scout ID code to add to their application. The application is open to all and scouts don't need to make a "warm intro."
3/ Optionally, scouts can submit an investment memo for the company making the case for why you think this company is a good fit for our thesis. We have a specific templated form that maps to our Key Investment Questions for you to fill out. We (you and I) will discuss the memo and I'll be providing feedback on the memo as well as the company.
4/ If we invest in the company, scouts get to choose either (a) cash compensation or (b) a share of the carry in our investment.
There are two tiers of compensation contingent on whether the scout submits a viable investment memo.
No Memo: $2,000
With Memo: $5,000
No Memo: not available
With Memo: 10% of our carry on the deal
Note: we plan to ramp up these compensation levels per deal for scouts who successfully scout multiple investments.
What's a carry share
Our funds are structured, like most venture funds, with 20% carried interest (aka "carry”). We raise a fund, invest it all in a portfolio of companies, and then start getting money back in the form of either exits or Shared Earnings from those portfolio companies. Once investors have gotten all of their initial capital back, then carried interest kicks in an we keep 20% of whatever else comes back to the fund. That's carry at the fund level.
Our scout carry sharing model is done at the individual deal level. So if a scout sends us a deal with an investment memo, we invest, and they elect to take carry share, they will get a percentage of the profits from that one investment. Let's say we end up investing $250k into the company, the scout would get 10% of our carry on the $250k investment. If some day the investment exits for 7x the valuation we invested, then our $250k investment turns into $1.75m back to the fund or $1.5m in profit. Our carry on that would be 20% or $300k and the scout would get 10% of that which would be $30k or 6x more than the cash compensation.
Scout Carry Share = ([Total cash returned from investment] - [investment]) * 20% fund carry * 10% scout carry
Reminder: As scouts perform well over time, we will increase the carry share percentage on subsequent scouted deals.
A true on-ramp to General Partner
This is probably the only scout program in all of early stage investing where the primary goal is to source and vet new investors (GPs) at Calm Company Fund. We don't necessarily need more "dealflow" at the moment and this isn't an affiliate program. The basic premise behind our scout program is to create a structured way for me to actually do the work investing with an open group of people interested in investing in calm companies.
The dream outcome here is that once someone has scouted several deals, and the most recent investment memos were spot on and effectively rubber stamped by me, we'll empower those folks with a chunk of capital to start investing.
Growing the investment team at Calm Company Fund is my top priority and this is the most meritocratic, repeatable, and scalable way to do that I can think of. Let's get to work (together).
Essential Reading for Scouts
The main reason we write so much about our thesis is to turn it into an open source toolkit for others to apply the principles of our thesis to areas outside of our current competency. I'm really hoping scouts will take the basic ideas of our thesis and run with it, applying it persuasively to niches, geographies, founder profiles, and business models that aren't on our radar.
Participation in our scout program is completely at our discretion. Nobody is eligible to scout deals for us until they submit a scout application and are approved. Our intention is to make this open to all and only filter out spammers, but we retain full discretion here.
Scouts do not represent Calm Company Fund or any of its affiliates and are not empowered to make investment decisions on behalf of the firm.
Investment Memos are also subject to approval by the fund. We want to see some real effort and thought put into these before authorizing them for the higher compensation tier. Scouts are still eligible for the lower tier of compensation if the investment memo is rejected. Memos will be accepted or rejected before we make a final investment decision on the opportunity.
Your Scout ID is the final arbiter of "who scouted this deal." If multiple scouts are claiming to have referred an investment opportunity, we'll defer to whichever Scout ID the founder put in their Application.
Scout Carry Share is contingent on there being fund-level carry to share. It's possible for an investment to be an early exit for the fund, not yet return all of our investors' capital, and therefore not generate any carry for the fund to be shared with the scout. Scout Carry Share will be paid as soon as the fund has carry to share.
Where can I find companies to scout?
The whole point of Calm Company Scouts being open to all is because we know companies that are a fit for us can come from unexpected places. We can’t be everywhere — the communities and networks that you're operating in are your USP. In short, Calm Companies can be found everywhere and anywhere.
Where can the companies be based and what type of companies do they need to be?
This is an evolving answer. In an ideal world, we would be investing anywhere and everywhere. In practice, we are somewhat constrained. We definitely have a slight preference for US based corporate entities. We have expanded our scope of that to US, Canada, Australia, Singapore, UK, and most of the EU — we can work with any corporate entities in any of those regions and have made investments already in those spaces. We don't care where the founders are physically located.
What are the red flags I should be looking for?
We are looking for people that you trust, building brands that you personally would want to invest in. Ensuring that the product exists, that the revenue is actually associated with the product you’re scouting, and that you’re comfortable scouting that company.
Also is the company values aligned with what we're trying to do, is this the right financing for them?
Can you share strategies on how to reach out to founders?
Ideally, you are recommending companies that you already know.
A message like “Hey Lisa, have you thought about investment from Calm Company Fund to get the company to sustainable growth? I know you’re not feeling the VC route...Happy to chat to you about it if you want more info,” should be enough.
As a company, why would I go through a Calm Company Scout and not directly?
If you already know about us and are ready to apply for funding, please do so! We go through every single inbound application. The value add for a company that comes through a scout is
1. They may not have been aware of us beforehand
2. Scout endorsements from Calm Fund LPs and, over time, from "anyone who's successfully scouted deals for us in the past" will add extra weight to an application.
3. If the scout writes an investment memo, it will provide extra validation for us to understand why the company is a good match.
How many companies do you expect Calm Company Scouts to scout?
We have no expectations of how often a scout will scout a deal for us. We launched the Calm Company Scouts program at the beginning of November so we don’t have enough data yet to share how many are scouted.
If a scout hasn't been able to find any companies, what happens?
Nothing. There is no obligation or minimum number of companies you must refer to us. We will check in to see if you still want to be part of the program.
Are you able to share a sample investment memo?
The best way to write us a memo is to answer the questions here — that will be the best guide for what we are looking for.
At Calm Company Fund, we want to know some of the metrics that signal growth. We want to get an idea of the momentum of growth. A good example of this would be “MRR growth was averaging ~5% monthly from Sep 2020 – Jan 2021, but is averaging 11% monthly for the last 4 months which is around $900 in net new MRR each month”.
Do you look at each memo? Do you reply to all of them?
Yes, we definitely look at and reply to every memo sent our way. Response time is currently within a week but it will be vary depending on things like quantity of referrals and waiting on the companies themselves — sometimes, a memo comes in before the application from the company. The ideal order is the application comes in first, and then the memo arrives afterwards.
How quickly do you reply?
Response time is currently within a week but it can vary.
How much due diligence should the scouts be doing before submitting a memo?
If you’re asking if you should be reviewing financial statements, P&L sheets and things like that, the answer is almost always no. The time commitment to scouting should be proportional to the upside so you spending an entire week working on a deal doesn’t make sense. We’re looking for an understanding of the basic metrics of the company, so you can ask them ‘What is your recurring revenue? What's your churn?’ If it makes sense and sounds good to you, send it over. Our job is to check it all diligently.
What should be sent first; the memo from the scout or the application from the company?
The ideal order is the application comes in first, and then the memo arrives afterwards. We won’t reply to the scout until we’ve reviewed the company’s application.
How will you keep me in the loop about a deal I’ve scouted?
It’s early days and we are currently working on figuring out what the process looks like. Watch this space. Right now, in your Scout profile, you can see if we have invested or not.
Are you providing feedback to Calm Company Scouts?
Yes, we are taking more time to provide feedback to those who write memos as we hope they will, in the future, be a bigger part of Calm Company Fund. We will let you know why the company you scouted isn’t for us so that you can start to iterate to find companies that fit our thesis. But also, this opens up a two way dialogue – if you think we’re wrong, convince us as to why this is something we should be investing in.
What is the contractual agreement between Calm Company Fund and a Calm Company Scout?
It’s as if you've done a one-off consulting project for us where you provided one off advisory services in diligence whilst recommending this one deal — you're not an employee and you don't necessarily have an ongoing relationship with us. We will wire scout fees to the account you provide us with and it’s your responsibility to do the research needed on how to declare it which will depend on the jurisdiction you live in.
How quickly do you pay scouts?
As quickly as possible, within a week after making the investment is our goal
How does compensation work?
If you scout a deal we invest in without sending us an investment memo, we will pay you $5k.
If you scout a deal and write us an investment memo, you have the option of $5k or having 10% of our carry on the deal.
Can I co invest with Calm Company Fund?
We have not built something into the scout agreement yet but we are open to the discussion. Let us know in your memo that you’re also interested in investing alongside — this is also another great data point for us of your belief in a company.
Can I invest my scout fee from a deal?
If you write a memo, you have the option of a $5k check or carry in the deal. Having carry in the deal provides the same opportunity for upside, and downside, as if you had invested in the company directly.
Will I be given a Calm Fund email address?
No. As a Calm Company Scout you represent yourself, not Calm Company Fund or any of its affiliates.
How can the Scout community work together?
We’re looking into how we can support that. In the meantime people are connecting already via Twitter, DMs, linkedin..