Published 09 April 2018 Category: Entrepreneurs, SMEs, Startups, Business, Investors, Funding

Identifying Your First Broker

There’s a lot of talk online about business brokers for early stage startups, some of it negative. Here are 5 key points to determine a good or bad broker:

A good broker doesn’t just cold email investors a company teaser. Real brokers have established solid and trusted relationships with investors, so when they reach out on your behalf, the investor will see it as a trusted referral. Moreover, the investors they can bring to you are people you don’t have easy access to and are also relevant for your sector and stage. They can also fast track the process of getting you connected with the right decision maker to focus your time and efforts. This translates to saving you valuable time, resources, and possibly even getting better terms.

Exclusivity: Not necessary
Be very cautious of a broker who wants an exclusive agreement, which gives them a fee of your capital raise regardless of how much they actually did themselves. With very rare exceptions (unique industry, down round, etc.) there is no benefit to a startup and can even cause a deal to collapse in the end.

Pay to play
Paying a set fee or monthly fee to brokers is usually unnecessary. A retainer can be fair if they will be doing serious work that requires a lot of time, such as preparing a deck (from scratch or close to it), business plan, financial projects, etc. But besides that, a broker shouldn’t charge any fees besides the success fee.

Good advice is hard to find
A good broker should put in their time to really understand your company, market, vision, and be an advocate for you. They should also have some relevant industry experience, and be willing to review your existing materials and offer feedback. When building an approach list, they should work with you to identify which type of investors are most appropriate for your stage and sector - whether it may be angels, Venture Capitalists, corporations, or strategic partnerships.

Experience: Key to Success
The best advisors have done deals before, ideally as brokers but often as entrepreneurs or investors too. Other startups have worked with them and would recommend them, as well as investors. In short, people like working with them and have good things to say. In our hyper-connected startup world, reputation is everything and this isn’t too hard to figure out.

It all boils down to this  -  is the broker someone who can really add ‘real value’? Do they only charge a success fee? Do they have a good reputation? If the answer is yes, a broker can be a great resource to work with on your fundraising and enable you to focus on what you want to do - build an amazing company and change the world. But what really defines a great broker? In the true sense of the word - Value.