Builder | Co-founder & CPO @Presto | Transforming Oral Healthcare with AI-Powered Innovations | Raising SEIS/EIS.
Founders who have raised VC funding I need your advice on a potentially tricky situation with an investor. I was engaging with what I thought was a VC firm based in Berlin to learn more about their thesis and investment categories. When I asked if they had their own fund or were an intermediary, They responded: "No, we do not have our own fund but we know investors that invest and as a result for the investment round of £1M we will ask for 10% ownership." This response raised some red flags for me. I'd greatly appreciate your thoughts on: 1. Is it common for intermediaries to request equity in exchange for connecting founders to investors? 2. Does a 10% ownership stake for a £1M round seem reasonable or excessive? 3. What potential risks or pitfalls should I be aware of when dealing with intermediaries rather than direct VCs? Your insights and experiences would be incredibly helpful as I navigate this situation. Thank you in advance for your guidance! #startup #venturecapital #fundraising #founderadvice
Not a founder, but I work with GPs and LPs in the PE/VC space every day. Absolutely not. 10% in exchange for a few introductions is ludacris. Traditional cap intros, while still charging for their service, do so on a much more reasonable 1-5% basis of the total successfully secured capital. Think of it as a "success fee". At most, a firm may ask for a retainer fee of several thousand up front. TLDR; don't give up 10% equity for capital introductions. Absolutely not a standard fee practice in the space.
Jay Kumar
2w
Baf Kurtulaj, MBA Here are my opinions about the points. 1) It's quite common now a days intermediaries do request an equity in exchange for facilitating the complete fund raising journey but never for just connecting founders to investors. 2) Asking 10% equity is too too expensive irrespective of its valuation or capital raised. I often see intermediaries(some) promises that they help founder to increase the valuations but honestly no investors will take a decision based on what intermediaries say rather it's a founder who takes valuation up or down based on multiple things. 3) biggest and potential risk is "If they are asking to pay upfront or asking to execute an agreement with the terms to seek an equity irrespective of fund raise bcz they claim to have done their part. You could have an MOU or a mandate to execute but not a dilution just for connecting. Hope i was able to share small piece of knowledge, if it can be helpful in any possible way.
It’s an absolute and hard no, just do not deal with these people. Never give away equity for connections.
David Levine
2w
Run a mile. That's a £100k on a post-money valuation of £10m.
Baf Kurtulaj, MBA... the short answer to your questions... be very careful of such intermediaries. Atmost they should be asking for a % raised. Say 2-3%. If they are for equity, they could convert a portion of their fees into equity at the same valuation. Go deep into their background. If they are not open and transparent, something is wrong and you need to stay away till things are clear. 10% equity for any intermediary for any fund raise is bizarre to say the least. Please do not accept such terms.
Walk the other way and never look back
I would never, ever, at any circumstances give out 10% equity stake in my business to someone just to scure funding. There are mediators who make "warm" introductions for 2~3% of the total successful deal value, but I truly believe in building traction and demonstrating organic growth as the primary path to attracting VC interest.
CFO at Holo
2wRun a mile Baf Kurtulaj, MBA as many others as mentioned there are firms that will take a 2-3% fee on rounds but even with those I wouldn’t do it. Work on the pitch, financials, data room to ensure your company is presented in the best light. Warm intros to VCs are important but you are better served connecting with founders and others within your ecosystems for those. Most people in the space will be happy to make intros