≡ Menu

When to Use a Go-Between

Every startup and small business ends up meeting, at some point, a person who is a professional door opener.  In the past few weeks, my company, iotum, has met a number of people claiming to be able to use their professional networks to help us raise money, or close business.  I’m always wary of these guys.  They’re usually expensive, and want to be paid whether there is a successful result or not.  Usually they’re asking for a retainer of some kind, plus a commission on business. 

After the latest, I called around to some friends in the business, and asked for their reactions, which mostly confirmed my own.

A VC friend said that he didn’t see intermediaries adding value.  It was pretty black and white.  This jives with what I’ve heard from other VC’s as well.  If an investor is going to put money into a business, they’re not interested in seeing that money used to retire old debts.  They want to see it put to work building the business. 

As the entrepreneur, it’s actually not in your interest either to have someone else raising your money.  This early stage of the relationship between you and a potential investor is critical to building your relationship.  At some point, the investor is likely to be a board member.  You need to be building that relationship from the start, which you can’t do through an intermediary.

Some of the folks I called were more enthusiastic about using intermediaries for business development work.  Depending on the individual, this is effectively contracting out your sales function to someone with a strong rolodex, and sales ability.  The key to success is to define the engagement around the best prospects in that rolodex.  That’s a win-win for both parties.  The only cautionary note is to be aware before going into the relationship of your capacity to service the customer you’re courting.  Winning a really big deal can be a double edged sword if you can’t service that customer properly. 

How to handle the expensive fees?  Pay for results.  Increase the commission offered, and reduce or eliminate the retainer.  If the rolodex and relationships are as strong as they’re being represented to you, the aggressive individual will jump at the opportunity to earn more money.

{ 6 comments… add one }

  • Frank Miller December 3, 2005, 9:58 am

    I am absolutely loving your posts on investment issues you are obviously dealing with in your startup. They parallel my past life amazingly at times. What I'm really getting out of it believe it or not is therapy. So many of the things you have mentioned I have direct experience with. I can remember at the times they were happening wondering how I and the other people with which I was working were handling things. Hearing about your opinions reinforces my views and experiences. Please keep this kind of interesting material coming!

  • Alec December 3, 2005, 5:48 pm

    Will do. I think the whole space around raising money can be a minefield. Don't know that we're the smartest people at it, but Howard and I keep walking into situations which, with some reflection, we figure out what to do with.

    Thanks for the encouragement!

  • Brent December 4, 2005, 4:59 am

    We hired a guy once to do sales for us. Not raise money, mind you; sales only. Biggest mistake I ever made. The guy was an empty suit. Perhaps he had too sweet a deal, but it became difficult to discern between sales on which he had some (significant) influence, and sales on which he did not. For us, the problem was that he was not able to sell on his own – each sale required a lot of our (the owners') time and knowledge. We did most of the real work convicing customers to buy, and he made as much money as anyone off many of the sales he, supposedly, had made. Using your words, he was a "professional door opener"; nothing more. This guy ended up making as much money per developer-man-hour as the developers did themselves. More even.

    Empty suit. Biggest mistake. Ugh.

  • Greg December 4, 2005, 5:37 am

    Great post. I have never used a middle man for raising money, and I agree thats not a very wise thing to do. The personal relationship is key with your investors. As for sales and new business development, I am VERY careful about crafting these types of relationships – especially ones where the so called "go betweens" take on none of the risk. When they ask for payment or high fees before they even perform, I walk away. The ones who will take the risk are saying they are confident with who and what they know. Pay per performance is the way to go with these types of arrangements. Only once someone has a track record of bringing in business will I start to talk fees with them.

    Keep up the great writing!

  • Alec December 4, 2005, 8:15 am

    I understand the problem Brent, and it's very real. How do you prevent the scenario that an introduction is claimed as a commissionable sale? My opinion is that the answer is named accounts. If the person has a strong relationship with a specific account that you don't have already, and can bring a sales engagement to a successful close, then that's valuable. I'm not paying the $$ that these guys ask, though, for them to prospect. Prospecting can be done much more cheaply.

  • Alec December 4, 2005, 10:51 am

    I agree in spades, Greg. Seems like it's the only way to make sure it's a win.

Leave a Comment

Next post:

Previous post: