An entrepreneur needs to have the right team in place, and this step must be done even before starting the venture fundraising process. A fully formed management team is not always a requirement depending on the stage of the company in question. Generally the later the stage of the company the more fully formed the management team expected.
In addition to the management team, the selection of advisors is critical to deal success. Choosing the wrong banker or wrong attorney can cost a company significantly more money, end in a much lower valuation, take a lot more time, or a combination of all three. Some items to consider:
- Number of deals. Many people fixate on how many deals a banker has completed. Doing a lot of deals likely means that they have a big team and often a large support system doing most of the execution. When a banker is spread too thin, there is only so much time he/she can dedicate to your deal. League tables are largely irrelevant. Not completing enough deals is equally worrisome as it makes you wonder how effective they really are.
- Deal team. The corollary to the number of deals is how involved the senior bankers are. The most successful deals are led by experienced senior bankers who play an active and material role in the transaction.
- Network. Any banker worth their salt has a good network and knows the investors/venture capitalists who might invest in your deal, sothis is rarely a differentiator.
- Cost. Most bankers charge 6% for a capital raise depending on the size of the transaction and many get warrant coverage. This should not be a differentiator, since if they do a good job, the cost will be offset by a better valuation.
- Number of deals. The number of transactions completed by an attorney is important; too many deals over too short a period of time makes you question how much time is dedicated to each deal; too few deals demonstrates a lack of experience.
- Fixed fee arrangement. This is generally a good idea in many circumstances, since itallows the entrepreneur to know upfront what the costs for the transaction will be. The firm’s willingness to offer a fixed costshould be a prerequisite.
- Relationships. Familiarity with the potential investors, potential investors counsel, and the specific deal type in question are all important. Working with a no-name might save money, but also might cost additional hours of negotiation frustration.
- Positive references. Check references before you hire an attorney. Make sure that you interview at least 3 prior to making a decision.
Please leave a comment or email me if you have any thoughts or things that we should include. Have you had a different experience than this?