When an entrepreneur is on the fundraising trail, there’s usually nothing more tempting than finding someone or some entity that will remove that burden.  I’ve been on both sides of that table and thought I’d share a bit of wisdom from my perspective.

I once had a deal teed up with the venerable Robinson-Humphrey company, part of SunTrust since 2001 after having passed through many ownership changes in the preceding decade.  In its day it was the premier investment bank and brokerage in the South.  My deal preceded the dotcom era but was an interesting technology play.  We prepared the offering memorandum, did a road show at various R-H offices around the Southeast, and ended up with exactly the group of investors I had already signed up – and not one more.   I think our show was fine, and the R-H guys put in the effort, but in the end individual angel investing is very hard to accomplish with even one degree of separation.  People who didn’t already know me and who probably had no way to assess the technology just couldn’t be swayed by a broker intermediary.  Then too, the compensation structure of the firm rewarded brokers for trades more so than for tying up their clients’ money in long-term speculative and illiquid deals.  That was a valuable lesson learned, particularly after paying the brokerage fee on my own group.

I have found investment bankers to be very good at accomplishing deals based on real numbers.   They have plenty of databases of private equity groups, VC’s, and strategic investors that are looking for specific types of deals that meet specific financial criteria.  In those cases it’s a matter of due diligence, working the numbers, putting on a show, and matchmaking.   It’s less personal, and the relationships that IB’s have with these various buyers and investors open the doors and enable the deals to get done.  All this effort is not inexpensive, and if your deal doesn’t potentially generate a $1M fee, you’re probably below the range of even the boutique registered IB’s. 

The perversity of this is that it is easier to do a bigger deal than a small one.  I told someone last week that even Goldman Sachs probably couldn’t do a $500K raise based on a story; the same rules I faced with R-H still apply.  

A related blog post by Dan Shapiro entitled “Don’t Ask for Introductions to Investors” came to my attention.  He basically emphasizes the importance of doing your homework, using LinkedIn and whatever other resources you can find to match your deal with the most likely investors.   If you’re doing a startup, the fewer referrers between you and your target, the better.   Yes a warm introduction is still necessary.   You won’t find Ron Conway looking at anything over the transom, but if you can’t find an introduction from the thousands of deals he’s done, you obviously have done none of the requisite homework.

So, if you are in a geography (e.g. not the Valley, NYC, or Austin) where investors are less identifiable, and if you have a business that is more A round ready with enough traction to prove the financial model, and if your company thesis can easily be grasped by someone who is not up on the latest technology, then you may well be able to leverage the skills of an IB firm.  You’ll still be front and center in all the key investor meetings, so you’re not going to able to pay full-time attention to your business and just wait for a check, but you very well may improve your odds of success. 

<image from Man in the Middle DVD cover>