For a Fee, I will Fundraise for You

For entrepreneurs making the leap to build a high-potential startup, one of the most critical and daunting priorities is raising money to help fund the development and commercialization of your innovative product. Although you spotted an opportunity and an exciting solution, fundraising is often an unknown and somewhat intimidating responsibility for first-time entrepreneurs. This makes you vulnerable to offers of “help” that are not really.

Sources of funding for early-stage companies include the entrepreneurial team’s personal resources, government R&D grants, traditional early-stage investors such as angel investors and venture capitalists, and crowdsourcing. Determining which funding sources align with specific opportunities at various stages is both nuanced and complex. Crafting a compelling fundraising story varies based on your target investors and your region of the country. Learning about all of this while trying to figure out how to build a company can just feel overwhelming because fundraising is always hard.

Because of this reality, first-time CEOs are often looking for help to solve their fundraising challenges – and, therefore, are vulnerable to the innumerable offers of help that show up:

• Persistent emails from fundraising conference organizers trying to recruit startups to pay for the privilege of pitching a group of “big-name” investors.
• Crowdfunding websites touting remarkable “success stories” to convince startups that their platform will deliver a pot of gold for a slice of the proceeds.
• Investment bankers promising, for a five-figure upfront fee, to produce fundraising materials and arrange investor introductions, plus a success fee upon closing of any funds.
• Consultants offering to help with fundraising introductions and other work in exchange for a monthly retainer.
• And so on.

As the struggle to raise money inevitably drags on, the temptation to pursue such pay-for-help options becomes stronger and stronger. Yet, most of the time, such sources offering “early-stage fundraising help” in exchange for some upfront payments and potentially a cut of the fundraising proceeds sound appealing, but ultimately are unproductive wastes of time and money.

Those of us who seek to help first-time startup CEOs are sometimes dismayed to see how these offers of help “work out,” so let me share a few stories to illustrate:

• There once (or twice or three times…) was a startup CEO who met a consultant who promised them that the consultant could get them investors for a “small” fee. Filled with hope that there might be a fruitful path to getting the resources needed to build the product, the startup CEO agreed to a monthly fee to secure the consultant’s assistance. There were plenty of updates that proclaimed activity, yet months passed with no solid engagement even as the startup’s bank account drained towards zero. Eventually, the consultant disappeared, leaving the startup CEO with nothing to show for their investment of money and time.
  
  
• There once was a startup CEO who had heard of crowdsourcing. The crowdsourcing websites promised an efficient raise from small dollar investors who would be excited to put their money into the startup’s development of their novel business-to-business product. The team invested time and money in developing marketing materials, a fundraising video, and a whole program to promote their company. The crowdsourcing platform happily set them up, and they launched their raise. A few months later, some of their personal contacts invested money in the raise, and the crowdsourcing platform deducted its 7% fee from the proceeds. Unfortunately, looking back, the startup CEO ruefully realized that the platform had not brought any new investors to the table that the CEO did not already know. So, the startup had spent lots of time and money preparing the materials and promoting the raise, only to end up paying a fee to raise money from investors who would have invested in the startup anyway.
  
  
• There once was a startup CEO who hired a VP to lead their fundraising efforts. The VP did not have experience with startup fundraising but was a smart MBA/consultant who could tell a compelling story. The VP did extensive work trying to figure out how to attract investors and listened to the startup CEO’s requirements for a sky-high valuation and keeping the startup’s plans ultra-secret. The VP managed to get a few investors interested enough to attend an introductory meeting, but that was it. They never dug deeper once they met the CEO and understood his expectations. Ultimately, that CEO spent a great deal of money thinking he could hire someone else to do the fundraising for him, rather than investing the time and energy required to figure out what investors need and how to find common ground with them, as well as share the opportunity upside.

These true-life scenarios illustrate the fraught fundraising landscape for early-stage companies.  It is far too easy for the inexperienced startup CEOs to be taken advantage of, but remember that your time, your hope, and your resources are precious. Proceed with caution – and check lots of references if you do decide to go down these roads.

Investors evaluating startups care most about meeting the startup leader(s), hearing from them directly about the opportunity, and seeing evidence of the startup’s high potential. This means that all these sources of “help” cannot replace the startup leader’s need to get up the learning curve and do the work of fundraising themselves. If someone says they can do it for you, that is a major caution flag. You can leverage volunteer and paid consultants/accelerators that will provide education, coaching, and feedback. Still, you cannot outsource the work of investor engagement to others, no matter what riches they promise to secure for you. 

Thank you, Lee Gorman, for suggesting this topic! As an experienced advisor to early-stage companies, Lee has seen these problems routinely – and she is 100% right! Appreciate all you do, Lee!

For more on this subject, please check out my other post here.