Raising even a small amount of money from investors can take months of effort and hundreds of meetings. If just the thought of fundraising gives you heartburn, you’re not alone. Doing it wrong, getting ripped off, or simply failing can jeopardize your company and your future. And pitching investors is simply not something most business owners do well.
Fortunately, fundraising is not something you have to do alone. Investment bankers and other consultants can plan and execute a capital campaign for you. In fact, a reputable fundraising intermediary will likely speed up the process, reduce your risk, and get a better deal for you, all while you are diligently running your business.
Intermediaries go by many names: finders, consultants, advisors, brokers, and investment bankers. All offer essentially the same fundraising services. But be careful: Not all intermediaries are licensed to do the same things.
Consultants without a securities license can help you prepare for an investment and may even introduce you to investors. But by law, anyone who promotes the sale of your company stock must be a licensed broker/dealer. Loan brokers, like consultants, can help you define your financial needs and find a lender, but they cannot negotiate a sale of your stock.
Before you hire an intermediary, be sure you understand what the person can and cannot do. Look for a few good references and check on any certifications the person claims to hold.
Your lawyer or accountant should be able to refer you to an appropriate intermediary. If not, call a corporate securities attorney in your town, or reach out to your local Association for Corporate Growth. The ACG is commonly made up of the finance crowd, and among their members you will find several consultants, loan brokers, and licensed investment bankers (broker/dealers).
For licensed investment banks specifically, you can check for local broker-dealers on the Financial Industry Regulatory Authority website. (Formerly the National Association of Securities Dealers, FINRA now handles certification.)
Once you’ve found an intermediary you trust, what can you expect from him or her? There are essentially five steps you and your intermediary will navigate together.
1. Dress It Up
A good intermediary will help you make your company look its best before you take it out to investors. This means reviewing operations and financial results in detail. Investors will crawl over every detail, so it’s best to let an intermediary know everything upfront. Not only will you be better prepared to answer investor questions, your intermediary may actually identify ways to improve the business.
2. Write It Down
When the business looks its best, an intermediary will start putting together the promotional documents, called a “deal book,” and maybe even an online “data room,” where investors can review operational results and other corporate documents.
A good deal book can include almost anything you might find in a business plan. You should expect to explain strategy, marketing, and staffing to the intermediary. The more information he can put into the deal book and data room, the faster the deal will close.
3. Set a Target
As you bring all that information together, an intermediary will help you decide what kind of investors will be most likely to help you. Do you need to approach local angels or global venture capitalists? Are there corporate finance companies that could help you out with a loan? You may even discuss alternatives or hybrids, such as a combination of loans and a stock sale. Consider your options carefully.
Finally, the intermediary will calculate key investment metrics such as stock price and the potential return on investment. These are crucial numbers that will excite investors. You may not like what they tell you about your business (e.g., it’s not as valuable as you think), but a knowledgeable intermediary will help you see the situation from the investor’s point of view.
4. Make the Calls
Armed with a completed deal book, the intermediary should pretty quickly be able to start making some calls to angels, VCs, and other investors. The best intermediaries have already established these relationships, or at least have a network to facilitate warm introductions.
Most investors take several weeks, and perhaps a half-dozen calls, before they get serious enough to meet you in person. With this in mind, your intermediary should be selling your opportunity to investors through constant outreach and diligent follow-up until the deal closes.
Be prepared to go on face-to-face meetings. An investor is putting his or her bet on you as much as on your business. To close the deal, you’ll have to represent yourself and the opportunity personally. And likewise, you’ll want to get to know your investors.
5. Close the Deal
At some point, closing the deal may require skills your intermediary does not have. It is not unusual to hire the services of a securities attorney, a valuation expert, or an accountant when negotiating a sizeable investment. How you “paper over the deal” can make a big difference in how it is viewed by other stockholders, the Securities and Exchange Commission, and the Internal Revenue Service. A great deal of care and thought should be given to the details of a final investment contract.
Finally, if you are ready for help from an intermediary, you should also be ready to pay the fee. Most licensed brokers will take a monthly retainer plus 5 percent to 15 percent of the investment. That may sound like a big bite, but compared to the time and risk of striking out on your own, an experienced guide can be a bargain.
By David Worrell,
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