12 May Is there Value in Hiring a Fundraising Advisor?
There is a misconception that founders need the help of a fundraising advisor in order to bring in investors. Hired with the hope of building a meaningful relationship between startup and investor, these advisors make grand promises, but according to Vincent Jacob, they are largely unnecessary.
In a blog that questions the value of what he called “crooks and charlatans,” Vincent writes of the mistruths that these advisors rely on to woo startups. The first is the belief that because advisors have been in the field for a long time, they’re in a better position to help secure funding. Lack of experience is not an automatic handicap; there’s a lot of resources available, and Vincent even suggests going right to the VC with questions.
There is also the belief that fundraising advisors add value by creating a business plan and financial model, but they utilize a standard template that is accessible to anyone. Vincent writes that these advisors try to justify their very large fees by creating models no one needs–or wants. Along with putting their logos on the deck, they will intentionally withhold information in order to keep their privileged relationship, harming the startup.
Advisors claim to add value because they can manage the fundraising process while utilizing their access to investors. Having a third-party to create a relationship is a hard way for the investor and the startup to form a team. Similarly, if a founder is not able to manage the process, there are then questions about the ability of the founder in terms of sales. Vincent also highlights the importance for the investor to interact with startup and advisors take away that ability.
If a startup feels they absolutely need a fundraising advisor, Jean de La Rochebrochard offers useful advice in selecting a competent advisor. The startup should not expect miracles, and should reject any advisor that promises them. Founders should speak with the entrepreneurs the advisor has worked with to get personal references. Finally, if the deck is a representation of the startup, and not filled with the advisors logo, and if the advisor has made clear the value they would add to the fundraising process, hiring an advisor with a success fee schedule can be a potentially beneficial experience.