Let’s rewind to a familiar conversation in early-stage venture:
Founder: I sold my last company to [BigTechCo], and I’m building again—this time with an AI product that’ll make [X process] 10x better.
Investor: Love your track record and the idea. Let’s reconnect once you’ve launched and shown some traction.
It’s a classic early-stage moment. Both parties are genuinely interested, but without something concrete to invest in, the conversation ends in a polite “come back later.” In reality, most people never do.
At GFR, we started asking: What if we could say “yes” earlier?
What if instead of waiting, we wrote a small check, just enough to build a relationship and stay close?
Some investors already do this out of pocket. But what if we formalized it? What if a fund made early conviction a structural part of its strategy?
That’s exactly why we created the GFR Scout Program.
When we launched our $54M Fund III in early 2022, we carved out a $3M allocation specifically for scout investments. This capital gives each GFR partner the ability to write up to $50K checks into promising companies without going through the usual diligence or investment committee approval.
It’s not buried in our LPA or tied to a side letter. But we designed it with intention, discussed it in every investor meeting, and positioned it as a strategic tool for engaging with great founders from day one.
This isn’t just about writing small checks—it’s about building early conviction. It lets us show up at the friends-and-family round, observe execution in real time, and develop a relationship with the founder long before the seed stage.
We invest early—pre-seed and seed—where things move fast, hypotheses change, and traction can be fleeting. But conviction isn’t built in a spreadsheet. It comes from watching how a founder executes, communicates, and adapts.
The Scout Program lets us assess:
By the time a seed round rolls around, we’re no longer evaluating from scratch. We’ve already had six to 12 months to build trust, understand the vision, and get clarity on whether we’re ready to lead or participate.
What we’ve seen so far
In just three years, we’ve deployed most of the $3M Scout allocation across 50 companies. Of those, we’ve led or participated in follow-on rounds for six—a 12% graduation rate.
Some companies raised follow-ons without us. Some were acquired. Some didn’t pan out. That’s the reality of early-stage investing—and we’re comfortable with that.
In fact, based on our previous programs, we expected a 10–20% graduation rate. We’re right on track, with more scout companies preparing for seed rounds in the next 6–12 months.
Our Scout Program builds on lessons from previous experiments. In 2020, we launched a $1M Angel Fund to invest in companies that were too early for our main fund. We brought in exited founders and experienced angels as “scouts,” giving them small budgets to back startups in their networks.
Half the Angel Fund’s investments came from these external scouts. The other half? Internally sourced companies we passed on initially, but didn’t want to lose sight of.
Of the 23 investments we made through the Angel Fund, four graduated into our seed portfolio. That early success showed us the value of a structured early-check strategy—and helped shape the foundation for Fund III’s Scout Program.
While our main goal was to build earlier conviction, the Scout Program unlocked other strategic advantages:
During the pandemic, we expanded our focus beyond the U.S. Small scout checks became a way to test opportunities in new regions—Europe, Asia, and emerging markets like India and Africa. Several of those checks turned into meaningful follow-on investments.
In addition to new geographies, the Scout Program has also helped us explore sectors outside our historical core focus. For example, we’ve started testing early opportunities in consumer packaged goods (CPG) and adjacent categories where founder-market fit is strong, but traditional VC may hesitate due to lower margins or longer ramp-up periods. With small checks, we can move quickly, learn deeply, and double down where we see real traction.
VC is an apprenticeship business. There’s no substitute for doing the work. We use the Scout Program to empower junior team members to source, evaluate, and close small investments—helping them build judgment in real time.
No strategy is without challenges. Here’s what we’re still navigating:
Scout companies add up. With 50 scout-stage startups on top of ~30 core portfolio companies, it’s a lot for a small fund. We’re learning how to stay close to the ones that matter most, without spreading ourselves too thin.
If we don’t lead or follow-on in a scout company’s next round, it may raise questions for other investors. So far, this hasn’t been a major issue, largely because we clearly communicate the exploratory nature of these investments upfront.
Most of the companies we scout are pre-product, pre-revenue, sometimes even pre-incorporation. We don’t expect perfection—or even predictability.
But the best founders show us something more valuable: Clarity of thought. Grit. Curiosity. A willingness to engage, ask questions, and share progress (even when things aren’t working).
Some founders disappear for months and come back with incredible progress. Others over-communicate, asking for advice every step of the way. There’s no one-size-fits-all approach. But when the chemistry is right, we know it—and we double down.
The Scout Program is one of the best decisions we’ve made at GFR. It’s lean, fast, and founder-friendly—and it gives us a front-row seat to the companies we may one day lead.
Here’s where we are today:
We believe early conviction matters. The Scout Program helps us act on it.
Interested in learning more about how we work with founders from Day 0 to Series A? Reach out—we’re always up for a conversation, even if you haven’t launched yet.