Finding Investors. Who can you trust?
I see lots of investor hunters or finders on the web, but who can you trust? For instance many want a fee upfront to introduce you to 10 or 20 qualified leads. This is mostly done via phone and email. But, after you pay the fee what if they fail to deliver. I was looking at a company called Breadstreet.com and simply amazed at the negative comments after researching them. Evidently many didn't do their homework and got ripped off. So, how do you find that individual or team that can put your plan in front of real angel investors and know you can trust them?
Venture Capital Angel Investors
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you need to find the investor(s) yourselves. No angel/investor will go through a middle-man. That is not how the industry works. – Tim J 13 years ago
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Lots of angel/investors prefer warm referrals from trusted adviser over cold calls from unknowns. This is the essential role the "qualified CEO", the advisory board member, the Board Member, or the _business development consultant_. When securing a CFO, one common desired profile for a startup is the "Fundraising CFO" -- who is that? Someone hired for their access to money. Some of those consultants are licensed and compensated on the success of the raise, others paid for direct services. Some are paid directly by the investor, others paid from the company. That _is_ how the "industry" works. – Joseph Barisonzi 13 years ago
1 Answer
References.
Meet the leadership of companies that they have raised money for. Talk with those references. IF they wont provide references -- move on. It isn't just can they do it, or if they have done it -- you are looking for someone who would work well with you!
The subject of whether or not to engage professionals for the purpose of providing leads to prospective investors is extraordinarily controversial. Due to the huge number of fraudulent players in the market, and the propensity of fraud many folks avoid the entire industry of "rain makers"
There is a strong case to be made that you should find the people yourself through your own networking. There is a strong case to be made that paying for leads walks the fine lines of security regulations and should be avoided. There is a strong case that many investors don't respond well to third party professional referrals.
An equally strong case can be made that the social capital of meaningful relationships with prospective investors is an elusive commodity that many of us just don't have. And when there is a resource your company doesn't have-- it needs to beg, borrow, trade, or purchase it. Meaningful connections with investors may be one of those resources your company purchases.
the most common way companies purchase those connections is hiring an experienced CEO with the proper pedigree, history and linkedin connection list. Another way is that they compile a board of advisers bribed with good drink and promises of equity. A third way is that they hire a business development team to help.
My experience is that the business development teams that assist in this space rarely make their money from the actual referral process. This includes too many risks. The business development teams that really help are those that improve your business materials, polish your presentation material, coaching you on your presentation, setup and coordinate beta presentations. Then they may also provide referrals and leads to trusted associates that provide funding. These folks will be paid for their base consulting up front and then earn a marketing fee in association with a successful raise. (Unless they are licensed, and then earn money as a commission on the raise).
If you don't need the business development support -- then don't hire someone for that. Focus on putting together a trusted advisory board of business and community leaders that will open the doors for you.
