Investment Bankers can be a useful resource for raising Venture Capital. Most Investment Bankers have years of experience with funding private and public companies. Most of them are former brokers that worked on Wall Street. They usually have a wealth of knowledge and experience. They should have significant contacts that they developed over the years. It is for these reasons that you should network with Investment Bankers. Even if you don't use them for your first round of funding, you may be able to use them later on as your company grows and evolves.
I have worked with many Investment Banking Firms over the years. They have either been clients of mine or I have represented private companies using them to raise funding. In addition to raising capital for companies, they are also tremendous Deal Makers. Networking with them is important to your venture capital raising efforts.
They love to put deals together. All types of deals, including raising Venture Capital, Private Placements, Mergers, Acquisitions, second round financing, IPOs, Spinoffs and more. After all that is how they get paid, by closing deals. You just have to convince them to get funding for your deal. As with any business segment however, there are good professionals and bad professionals.
You have to be a little selective and conduct some due diligence on Investment Bankers you talk with. Be extremely careful of any firms that ask for an "upfront fee." It is one of the oldest scams around. I strongly suggest you do not pay anyone an "upfront fee."
If they ask for payment of expenses, such as travel, make sure they are agreed to in advance and itemized. Asking for an upfront fee when they also get a commission is a good indication that they may not be that successful in actually raising money. I always advise clients to stay away from groups that ask for upfront fees.
Investment Banking Firms can be extremely helpful in providing you with services besides just raising capital. They may review your Business Plan and give you some very important comments. These comments can be the difference that gets your foot in the door with some important funding sources.
Some Venture Capital Firms and other funding sources rely on Investment Bankers to source deals for them. They rely on them to screen deals because there are just too many deals for them to review all of them. This is a valuable service and of course the Investment Banking Firm has to get compensated for this service. Generally they charge 10% of the amount raised and about 10% in stock. If they can raise you the financing you need it is a fair value for the services and support they can provide.
Joseph B. LaRocco - Visit http://www.angel-and-venture-capital-guide.com for great tips and information on Business Plans, Venture Capital Financing and Angel Investor Financing. Other Networking tips and strategies can also be found at http://www.angel-and-venture-capital-guide.com Mr. LaRocco has represented and advised private and public companies, broker-dealer firms, investment bankers and high net worth clients in the area of securities investments, private placements, compliance and due diligence. Mr. LaRocco is an attorney who practices law in New Canaan, CT. He also has extensive experience advising hedge funds on numerous trading, regulatory and compliance issues. He is currently General Counsel and a Director of NetSky Holdings, Inc. (Symbol: NKYH)
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