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Capital Raise: chose the Investment Banker Wisely

When hiring an investment banker (IB), the key considerations are the following:

  1. The perceived expertise of the IB team should be clearly understood. It is less important how much specific experience (or deals completed) the bankers have in the prospect's industry. Most important is their familiarity with the process and basic understanding of the prospect's needs, including timing.
  1. The best IB wants an exclusive arrangement. If other firms want to participate, fees can be partially carved out to accommodate another party finding the source of funds. The specifics of these one-off deals must be clearly stated in any agreement with the prospect.

Usually, too many "cooks" can spoil the broth. One lead IB should organize and manage the process. Investors can easily be "spooked" by what they perceive as changing terms, ineffective decision-making, and/or other forms of apparent chaos. Also, the transaction involving different types/layers of capital requires close coordination among the participants.

  1. While prospects expect to pay success fees for completed deals, most prospects are reluctant to pay upfront advisory fees. The IB who works on a funding without some form of retainer must be certain he knows the right investor(s); or, he will probably not commit enough resources to close the deal. Mentor Securities commits the appropriate time and energy when retained, producing a thorough analysis of the prospect's business and requirements.

Without an advisory fee, we are unwilling to spend the many hours required to secure the best client deal. More importantly the prospect is not committed to us without a retainer.

  1. Ultimately, the prospect should determine how well he will work with the banker's team. The deal process should not take longer than 6 months, but the working relationship should be close and trusting.
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