Back last Spring, I met with an entrepreneur who needed to raise funds for his business. He is a solid, technical guy who has bootstrapped a great company. I sat down to understand where his business was at and where he wanted to go.
When it came to funding, he told me he knew someone who had recently raised angel funding for his business which was in a similar space. She had offered to help him approach those same angels to invest in his business – for a fee, of course.
That never quite sat right with me, but it wasn’t my business.
Anyway, I recently heard from that entrepreneur. He’s still looking for money. This so-called agent clearly did not come through.
So, what’s my point?
It is tough to find investors and tough to really understand the financing process. So, especially early on, you need help. Thus, it can be tempting to fall prey to the pitch of so-called advisors. There are plenty of people out there that are supposedly experienced in “helping” startups raise cash.
You don’t need to be an expert in the process to know if someone is legit. Just apply the smell test.
When I left that meeting last May, it just did not sit right with me that someone who has his own business to run would be offering to spend time helping someone else raise money. From the same investors no less! If I was an investor, I’d be pissed that he was spending time doing something other than trying to generate a return on my money. Its one thing to offer advice or contacts to a fellow entrepreneur. Its another altogether, to put yourself out as an agent and take a fee from someone.
If he had just applied the smell test and asked himself if this made sense, he could have saved himself a lot of time and headaches. And his business could be funded and much further ahead today.
If something doesn’t feel right, or doesn’t make sense, its probably a bad thing. Trust your gut (or your nose). And apply the smell test.
And when it comes to fundraising help specifically, just ask:
– Is this what this person does for a living? Is there any conflict?
– What is this person’s track record? Who have they helped and when? What deals has he helped close recently?