David Cummings on Startups

Seed Stage Entrepreneurs Hiring Consultants to Raise Money

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David Cummings

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Just this week I’ve encountered two separate consultants that help seed stage entrepreneurs raise money. Of course, I’m very suspect when someone tells me they help entrepreneurs with little-to-no revenue raise money from investors. In each case I asked if they were a broker-dealer that gets a placement fee and they said ‘no’, it’s an hourly rate or project fee to consult.

Preparing a longish pitchbook (e.g. a business plan) with comprehensive financial models requires a tremendous amount of imagination for a startup with a couple paying customers. Financial models can be built to paint any desired picture, especially when there’s almost no historical data to draw from. As an investor, I’d prefer to see the entrepreneurs spend the $25,000 validating the market or signing 10 more customers, instead of hiring a fundraising consultant. Intellectually, I understand that an entrepreneur who’s struggled raising money would resort to getting help from someone that promises them a successful outcome.

While a fundraising consultant isn’t a good use of money for a seed stage entrepreneur, here are a few things that are worth investing in:

  • Investor Deck – Find someone who’s great at storytelling, build a slidedeck, and then hire a graphic designer to make it professional looking (~$500)
  • Financial Model – Grab a free financial model online (e.g. here’s a great financial model for SaaS startups) and pay a CPA for two hours of their time to help understand it (~$300)
  • Executive Summary – Write a simple two-page executive summary with all the pertinent sections and have a friend proof-read it ($50 to buy them a nice meal in exchange for their help)

So, for under $1,000, an entrepreneur has all the tools necessary to pitch investors and speak intelligently about their startup’s potential. This doesn’t guarantee raising money but it does increase the chances of success.

What else? What are some other thoughts on fundraising consultants for seed stage startups?

Comments

5 responses to “Seed Stage Entrepreneurs Hiring Consultants to Raise Money”

  1. hamadzafar Avatar
    hamadzafar

    Tell me please. I’ve been waiting.

    Reply
  2. Dave Williams Avatar
    Dave Williams

    I don’t think it is a bad idea if their are an outsourced CFO and can help best capture the business and vision in an easy to digest format, and if they have a successful track record of doing so. We used TechCFO, outsourced CFO service, to help us in the early stages and it was very helpful in getting the process formalized and kick started. Ultimately their work helped secure investment from banks, credit lines, investors and ultimately was a great starting block to build an early stage relationship with a strong finance and business person that lead us through growth, funding, acquisition and integration work with the parent company. We used Rick Lynch from TechCFO and it was an impressive experience. We couldn’t have done it without his expertise in navigating a very fast moving industry and finances.

    Reply
  3. Rob Frohwein Avatar
    Rob Frohwein

    To me, the story and the pitch are vitally important. Too often there’s a forest/tree issue for founders or they’re just not talented in telling a compelling story (at least at the start). I would recommend not just someone to “polish” the deck and make it look professional, but someone who can help you clear up the details that you tend to focus on that are just not that important. This is a more expensive process (e.g ~$5,000) but one that pays incredible dividends down the road. We often credit Mary Frances Jones of TwoWay Dialogue with our early success in fundraising. And, this is not a paid endorsement. 🙂

    Reply
    1. Mary Frances Jones Avatar
      Mary Frances Jones

      Thanks, Rob, for the very generous shoutout! Great clients make it easy to do great work.

      MFJ

      Reply
  4. Charles Hwang (@_charleshwang) Avatar
    Charles Hwang (@_charleshwang)

    I’ve had some of my friends use consultants to raise money. It’s not because they don’t know how to put together a pitch deck or create a business mode; it’s because they don’t have the network to meet with accredited or angel investors. Rather than spend weeks or months trying to get an investor’s attention, they felt that it was easier and cheaper to pay someone. Most of these consultants are just getting a finder’s fee for making an introduction. While giving a consultant anywhere from 3-10% of the funds raised is a lot, the opinion is that it’s better than their company not getting to the next level because of a lack of funding.

    While many entrepreneurs blame investors for making things difficult, I recently became an investor and it’s difficult to accommodate every entrepreneur that wants to meet. Therefore, I only meet with referrals from my network since they act as a gatekeeper for me.

    My friends have had successful raises with their consultants but I’ve also heard horror stories. As with all things, should do your due diligence and work with people with a successful track record. Those that are successful know what their investors are looking for and are willing to work with on a success-basis only.

    Reply

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