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I'm not sure if or why this is news? Everywhere you read, VCs say- don't cold call- come through a warm introduction which makes it clear that there are insider groups and people that carry weight. Not necessary that their scout circle has insight into every great idea/company.

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There's a pretty significant difference between a warm referral and a kickback, and especially a kickback that makes use of a shell company that disguises from entrepreneurs and other investors the kickback's existence and the origin of the funds used.

If it's not illegal, it should be. Investments typically involve disclosure for good reason.

The lack of disclosure that the scouts are agents acting on behalf of Sequoia is definitely wrong, though it is unclear if it's the norm or the exception. However, the shell company that disguises the source of the investment from other investors does serve a useful purpose to the entrepreneur in minimizing signaling risk in the follow on round. If Sequoia invests in your seed round but passes on the subsequent series A, every other investor you're talking to is going to wonder why one of the top VC firms is passing on the investment.

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