Scout Ventures Launches $55M Fund for Veteran Founders

The Convergence of National Security Expertise and Venture Capital

The Department of Defense, U.S. intelligence agencies, and the national laboratory system represent a significant concentration of scientific and engineering talent. These institutions, benefiting from substantial funding and a degree of operational flexibility, are actively engaged in cutting-edge research spanning areas like quantum computing and advanced satellite technology.

Frequently, this highly skilled workforce remains within the governmental sphere, distinct from the fast-paced environments of Silicon Valley’s product development and fundraising landscape. Locations such as Langley, Arlington, and Los Alamos present a different culture compared to tech hubs like Palo Alto or New York City. A transition between public service and the private sector can prove challenging due to inherent structural differences.

Scout Ventures: Bridging the Gap

Scout Ventures aims to connect the startup ecosystem with this extensive pool of science and technology professionals, with a specific emphasis on individuals with backgrounds in the military, intelligence communities, and national laboratories. Established in 2012 by Brad Harrison, the firm has already deployed two funds and made initial investments in numerous companies.

Notable portfolio companies include ID.me, a leading identity verification platform currently valued at $1.5 billion, Bespoke Post, a curated subscription service for men, and LeagueApps, a youth sports management solution. Furthermore, Scout Ventures has also been instrumental in incubating ventures such as Unite Us, a health services company.

Today, the firm announced the successful closing of its $55 million third fund. This fund will maintain its focus on supporting veterans while concentrating its investment strategy on emerging technologies. Key areas of interest include machine learning, robotics, drone technology, physical security, quantum computing, and the space sector. It is important to note that the firm does not invest in weapons development.

Brad Harrison, a West Point graduate and Army Airborne Ranger with prior experience as an angel investor, observed a pattern among his most successful founder investments: a significant number were veterans. This realization led to a deliberate focus on this demographic, and the subsequent addition of Wes Blackwell (Naval Academy) and Sam Ellis (West Point, Brooklyn) as co-partners.

Fund Strategy and Investment Details

Scout Ventures operates as a traditional seed-stage fund, targeting approximately one investment per month. Typical investments range from $500,000 to $1 million, securing around 10% equity. The firm also allocates $2-3 million for potential follow-on investments in promising portfolio companies.

A key differentiator for Scout is its ability to leverage substantial non-dilutive funding from government programs, securing these resources for its portfolio companies. Harrison estimates that for every dollar invested by Scout, portfolio companies can access approximately three dollars in government funding, accelerating growth and minimizing equity dilution.

Currently, the most significant funding sources are originating from the Air Force, followed by the Army, the Department of Energy, and the National Science Foundation.

Focus on Dual-Use Technologies

The firm’s investment thesis centers on “dual-use” startups – companies developing technologies with applications in both the public and private sectors. These are considered “core, disruptive technologies” with inherent relevance to both the Department of Defense and commercial markets.

Identifying these opportunities is a challenge, necessitating extensive company evaluations. Harrison highlighted examples in quantum computing and electronic warfare, where innovations are valuable to agencies like the NSA as well as telecommunications companies like Verizon and T-Mobile. He also mentioned De-Ice, a company utilizing electromagnetic technology to enhance aircraft de-icing processes, benefiting both the Air Force and commercial airlines.

Scout Ventures believes its unique network and targeted approach will provide access to founders who are often skeptical of traditional venture capital firms. This specialized focus is expected to create a competitive advantage.

Limited Partners

The new fund’s limited partners include the New Mexico State Investment Council (which oversees the Los Alamos National Laboratory), Richard Parsons, former chairman of Citigroup, Auctus Investment Group, David Kassling, a restaurateur and brewer, and Michael Loeb.