How To Choose A Good Fundraising Advisor. A cost of opportunity that can either help you or kill you.
I have raised funds for entrepreneurs. All of them were grateful for the job I have done and even paid me well for it :) Yet, I fully agree with the recent post Vincent.
This being said, here is why an entrepreneur should work with a fundraiser and how he should choose one.
First, Good Fundraisers don’t do miracles. They try to reach the best possible output. They don’t work on small deals (why to raise 500k and take a 30K€ commission when you can raise 5M and get 250k…) unless they fall in love with the team and what they are building. In that case, they do it in “pay it forward” mode: They provide the best advices and intros and then let the entrepreneur decide what it’s worth. They will often prefer equity to cash, if they really love you.
Fundraising Advisors are a cost of opportunity for good entrepreneurs. It allow them to save time and energy. Their job is to put together the right materials, to contact investors in order to organise meetings, to follow up with them, to keep up the momentum and to help you with negotiations in order to optimize and maximize the whole process towards a good closing.
So, how do you choose a good fundraising advisor?
- Contact the entrepreneurs they have worked with. Make sure you share something in common: sector + size of the deal. Otherwise it does not make sense.
- A fundraiser without a track record to show is simply a charlatan.
- Let them ask you questions. The good ones will ask the right questions. The bad ones will fuss around…
- Good fundraisers don’t take retainers. They take tranched success fees. up to 2M€ = about 6%, up to 4M€ = 5 to 5.5%, up to 6M€ = 4 to 4.5%, above 6M€ = 3 to 3.5%. 2M fundraising = 120k€, 4M€ = 220K€, 6M€ = 300–310K€, 10M€ = 420-40K€
- Good fundraisers don’t put their logo on the deck besides the front page (Even though I prefer the last page). They put together a deck that represents your company and your team.
- Good fundraisers don’t put together complicated presentations with too much information, they build a complete yet simple and relevant deck.
- Good fundraisers close.
I already wrote about an ugly VC-Founder story where the fundraiser played an important part in the failure of the fundraising. Most recently, we invested in a great marketplace. But it could have never happened: Their fundraising advisor had sent me an executive summary that was beyond mediocrity and it’s only because I reached out to the founders to tell them that their so called fundraising advisor was unqualified for the job and harmful that I realized how great the team and the business were.
Entrepreneurs, be careful. A fundraising advisory firm is a cost of opportunity that can either greatly help you or seriously harm you. So choose one carefully :)