Raising Money & the Problem of Intermediaries

Early-stage companies need to be very careful about working with intermediaries who offer to help with “fundraising” and expect be compensated with a percentage of the money raised. Unfortunately, this is gray area in which many people operate on the darker side of charcoal. First and foremost, it is illegal for someone who is not registered with the Securities & Exchange Commission (SEC) to be compensated this way—raising money is legally considered “selling securities.” Therefore, paying for this kind of fundraising can create liability both for the company and for anyone involved. Furthermore, many individuals and companies who play this role misrepresent the extent of their personal contacts and actually send unsolicited plans to venture firms and angels—a practice that does more harm than good. (When I worked at a venture capital firm 10 years ago, we threw away all plans we received from such sources.) Using intermediaries may also damage your reputation with angels and early-stage investors, who often view your having found them as a strong sign of your resourcefulness.

Early-stage investors want to hear from and have their questions answered by company management, not from intermediaries who may or may not understand the company’s business. A successful fundraising campaign begins with a solid strategy, a clear understanding of the market opportunity, excellent presentation materials, and a carefully developed list of targeted investors. These are not projects that should be undertaken independent of management. That said, hiring someone to help behind the scenes (especially if this is your first time fundraising) can make your team look stronger. We work with clients to help them prepare.

First impressions matter in fundraising. Don’t let someone else become the face of your business. Your ability to find, reach out to, and connect with investors speaks volumes about your entrepreneurial abilities.

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