Things to Consider When Picking an Investment Bank to Raise Capital

As start-up companies are looking for investors, often times management teams seek to go the route of an investment banker to help with the expansion capital raise. At OpenView Venture Partners, I have interacted with many bankers (some who are outstanding at their job and some who have no business representing investment opportunities). Based on my experience being on the other side of the table, below are things to watch out for if you are an entrepreneur looking for venture funding:

• Stay away from investment banks that do not know your business or have not executed a transaction in your segment. Given that investors will be hearing the company story for the first time from the banker, they should be able to speak knowledgeably and intelligently about your business.

• The investment bank should have solid relationships with VCs that invest actively in your space (or at least know who the target suspects are). You will have trouble getting traction fund-raising if your banker is targeting investors that don’t know your sector and have no appetite there.

• Get clarity upfront in terms of the process that will be run. Have the banker communicate to you who they will be contacting at what venture funds, what the prior relationship is, and what the angle will be in terms of how they pitch your business. You should also expect clear communication in terms of the status with each fund and next steps on a routine basis.

• Make sure your banker is aligned with your motives for the raise. If you are looking for the highest valuation from any funding source, you want a banker that is aggressive at getting the opportunity priced up. If you are more concerned about finding the right partner with the right fit, be careful at picking a banker that is incentivized to only find who will come in at the highest price.

• Your banker is perceived by the outside world as your partner. With that, be careful who you pick and who is representing you. You want to pick a bank that is extremely professional and can best represent your company. I can’t tell you how many times I am turned off by an investment prospect because the banker does not have their act together or is sloppy and overaggressive.

These are just a few of the items entrepreneurs should think about as they are contemplating going the route of an investment bank. Raising capital is definitely a distracting process as you are running a business. An investment banker can often provide leverage as you are going through the process. Just be careful when choosing your partner (and ask yourself, do you really need an investment banker as they can complicate the process for no reason in some cases). The decision is bigger than you think.

 -KKF