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Last, but of major focus, our research implies that financial intermedi-
aries are a rich resource for locating private investors for the entrepreneur™s
venture. Within the alternative capital resource classification of financial in-
termediaries, we include finders, select access database firms, brokers, and
placement agents.

The great English Renaissance figure Francis Bacon bemoaned the truth
that “In all things no man can be exquisite.” We simply cannot do all things,
much less do them well. It is no weakness, then, to admit that you need help
in raising capital. Managing your business leaves little time to raise money.
When neglected, businesses suffer. Worse, the principal who ignores the com-
pany™s operating responsibilities while building capital will neglect the un-
welcome blips certain to appear on the company™s radar screen, problems
that can quickly mushroom into dire circumstances.
Financial intermediaries are professional service providers whose sole
function is to help the entrepreneur raise money. The competent intermedi-
ary becomes your marketing partner and increases your efficiency and effec-
tiveness in raising the capital being sought. Using an intermediary enables
you to spend more time on your venture, and less on raising money. In a
word, using an intermediary is simply more efficient.
Perhaps you believe you do not need help from an intermediary because
you have raised money in the past. But think about how much the market
has changed over the past five years: You are competing with tens of thou-
sands of money managers and perhaps hundreds of thousands of deals.
Many alternative asset classes besides venture capital and private equity are
competing for the same money. Six hundred fifty venture capital funds and
16,000 registered investment advisers are all after the same high-net-worth
investors. Moreover, many ventures are vying for the attention of private in-
vestors. Thus, while you have been immersed in growing your business, sev-
eral major changes have occurred: Start-ups need more money; external
capital and financing have diminished; and more competition exists for
start-up capital.
In some cases, entrepreneurs have only raised money from cofounders,
family, and friends. But success at raising cradle equity does not correlate
with success at raising capital from unrelated angels or venture capitalists
who will subject a proposal to extensive due diligence.
In some cases, entrepreneurs have been away from the fund-raising mar-
ket for three to five years. Since the dot-com fiasco, the investor roster has
changed, as have the amounts investors are willing to part with. It is easy to
lose touch with the dynamic angel and private equity market. It is not un-
common to meet an entrepreneur who raised millions in the early to mid
1990s, yet suddenly cannot seem to raise a penny beyond family and friends
today. He or she may no longer know today™s investors”and much depends
on knowing investors well. The competent financial intermediary knows in-
vestors well.
Financial intermediaries”whether finder, broker, database manager, or
placement agent”have one thing in common: the underlying financial skill
derived from investment banking. And the investment banking landscape
Alternative Funding Resources in Accessing Angel Capital

has changed dramatically during the past five years, when consolidation has
reigned. In San Francisco, Hambrecht and Quist, Robertson Stephens, Alex
Brown, and Montgomery Securities have closed, with some having merged
into larger financial institutions. The industry lost 6,000 jobs from January
to June of 2003 alone!
A shift to research has occurred, creating reliable research reports on pri-
vate equity, something lacking in the post“dot-com bust because the market
for investment banking services has contracted severely. The large firms, such
as Goldman Sachs, Morgan Stanley, CS First Boston, Merrill Lynch, and J.P.
Morgan Chase, issued 264 IPOs at a mean value of only $300 million per
deal. The competition among these investment banks is stiff.
While the top-tier firms like those mentioned above and second-tier
firms like SG Cowen, along with regional brokerages with large retail de-
partments (e.g., Piper Jaffay) will not be appropriate for early-stage compa-
nies seeking angel investors, their plight, and that of boutique investment
banks, will have an impact on the accessibility of financial intermediaries
who can help the entrepreneur.
The financial intermediary™s stock in trade is having a pool of investor
prospects with whom they have existing relationships, and knowing about
these investors and their preferences and criteria. They can identify who in
their database or region is actively investing and what they are looking for in
investments. In addition, they are aware of your competition, other deals out
there, and the valuation and deal structure terms and conditions being
agreed to in completed transactions. Furthermore, they understand what
channels of communication are most effective in reaching their contacts, and
what is necessary on the entrepreneur™s part to get the deal noticed. The
competent intermediary adds value by helping him or her determine if his or
her deal is even right for the private equity market in the first place. And en-
suring that the documentation and offering are compelling and consistent
with the investor™s expectations.
A financial intermediary helps you accomplish things quickly”a special
benefit for start-ups, development firms, or expansion ventures lacking stel-
lar performance records. In their up-to-date databases, intermediaries keep
detailed records of those private investors who have responded to introduc-
tions; they can link you to qualified investors, casting a wider net for
prospective investors, helping you win appointments. The role of the inter-
mediary is, after all, to match legitimate buyers (investors) to legitimate sell-
ers (entrepreneurs) and to introduce entrepreneurs only to investors who
have expressed a strong interest in their deal.
Investors and entrepreneurs alike see the competent intermediary as
value-added, as a marketing partner, not as a retail salesperson peddling
stocks and bonds. The competent intermediary retained at a reasonable price

will save you time and improve your chances of success with information
and follow-ups of qualified leads. He or she can help you meet your
fund-raising goal, thus reducing your risk of falling short. Meanwhile, by
spending more time building your company, you can make money for your
other investors. Remember, your business is to make money, not raise it.
As competition for the investment dollar of the high-net-worth market
increases, how can the intermediary help the entrepreneur to create private
offerings that will attract wealthy investors?
What exactly do intermediaries do? During interviews the intermediary
assesses the chemistry among the partners. He or she becomes involved in
what normally turns into a full-time relationship. The intermediary will help
with the business plan and offering memoranda”all amounting to a financ-
ing proposal package. The good intermediary will also help prepare sales
material and put together a marketing road map. The professional interme-
diary is a competent, full-time person with whom you will share a positive
Depending on how much time intermediaries are retained to work the
entrepreneur™s campaign, they will prospect investors, using a number of
channels open to them. They mail, fax, or e-mail information and make tele-
phone calls to selected or interested investors whose criteria fit with the en-
trepreneur™s deal. They will introduce the deal without leading or selling
them unless they are a licensed broker-dealer.
While private investors are difficult to reach because of their schedules,
the good intermediary knows how and when to contact them. The able in-
termediary will get through to investors with greater efficiency, getting to
prospects the entrepreneur™s summary or “elevator pitch.” He or she will
earn consideration for the entrepreneur™s deal because investors appreciate
referrals from a respected intermediary.
One caveat, however, is in order to ensure that the entrepreneur holds
reasonable expectations: The task of an intermediary in a private placement
of an angel investor is to match the investor with the deal, not sell you or
your deal. Selling yourself and your deal is your responsibility, not that of the
intermediary. The intermediary also helps prepare financial proposals and
venture documents and provides feedback, sometimes delivering criticism
others would feel uncomfortable mentioning. They can change the way you
market yourself. Last, well-organized intermediaries document their activi-
ties, providing call reports of contacts, leads qualified, and schedules of pre-
sentations. Experienced intermediaries can also coach entrepreneurs in their
presentation skills and can alert them to what investors are looking for.
The following list details the services that a good financial intermediary
will and will not perform.
Alternative Funding Resources in Accessing Angel Capital

A good intermediary:

– Will not represent any deal.
– Will not place the burden of screening on the investor and will prescreen
deals to meet investor requirements.
– Will not make an introduction to an entrepreneur without knowing the
investor™s capability and criteria.
– Will understand a deal before introducing it to investors.
– Will not waste an investor™s time with inappropriate or poorly prepared
– Will assist entrepreneurs and investors with the increasing administra-
tive workload associated with introducing investors in private place-
– Will not “sell” a deal to investors, or undersell an introduction.
– Will create multiple opportunities for entrepreneurs to tell their story.
– Will follow up introductions, but only when there is reason for doing so.
– Will not use pressure in introductory activities.

Financial intermediaries help entrepreneurs raise money and place
highly illiquid securities. The intermediary will provide prospects, and the in-
termediary will supply counsel on other programs to expand the investor
pool from beyond their contacts as well, for example, venture clubs, forums,
and so on. Intermediaries will work on smaller deals unattractive to larger
investment banks, retail brokers, and boutique investment groups. They
work exclusively on private placements and have a cultivated database of in-
vestors they can bring to the table to consider qualified deals. They are ex-
perienced in and knowledgeable about the private equity market and will be
the entrepreneur™s guide through the capital-raising minefield. Last, they pos-
sess an innate aptitude for fund-raising, a quality lacking in many more tech-
nical entrepreneurs.
The question remains: How do you find a competent, trustworthy inter-
mediary? Intermediaries abound. But the entrepreneur must select one who
can get the job done. Most seem charming, articulate, persuasive, and as-
sertive. But to find the best, look below the surface. Ask your attorney, your
accountant, and advisers whom they respect and why. But also gain firsthand
knowledge of those you consider: Read their books; attend their speeches;
visit their offices; speak to their partners and associates. Speak to them your-
self. Ask whom they represent, how they work with clients, what they
charge, and what results they have achieved.
Finally, ensure that your company fits the intermediary™s profile. Also
ensure that no conflict exists between your venture and any other of the in-

termediary™s current or prospective clients. Then talk with some of the inter-
mediary clients, both entrepreneurs and investors. Last, select the most qual-
ified intermediary based on price. A good intermediary will help you raise
money and finish the job quickly.
The time and the money saved by a skillful financial intermediary will
more than cover the cost of their fees.

Directory of Alternative
Funding Resources

n this chapter, we have compiled a comprehensive directory of alternative
Ifunding sources. Inventors, entrepreneurs, and small business owners look-
ing for early-stage or expansion capital can use resources listed below to
grow their pool of angel, venture capital, and corporate investor prospects.
The categories presented include the following:

– Directories, printed and software-based
– Incubators
– Entrepreneurial finance conferences
– Investor education meetings and conferences
– Venture forums
– Venture capital clubs
– Offline investor networks
– Online matching and search services
– Financial intermediaries


Galante™s Venture Capital and Private Equity Directory. Published by Asset
Alternatives, 170 Linden Street, Second Floor, Wellesley, MA 02482 (781)
304-1400. This directory contains almost 1,760 profiles of venture capital
and other private equity firms. The directory is also available on CD-ROM
in a searchable software database.
Corporate Finance Sourcebook. Published by National Register Publishers
at www.nationalregisterpub.com. This directory lists 1,600 investment
sources and 1,800 professional service firms. A handy resource for entrepre-
neurs seeking financial intermediaries to assist them in raising capital.


INFONVC. A searchable software database, accessible by purchasing a li-
cense. The software lists 1,700 venture capital firms and SBICs. Available at

National Business Incubation Association (NBIA). A complete list of incu-
bators in your region is available from NBIA. Contact: www.NBIA.org.

ICR™s Angel Financing Conference. The premier entrepreneurial finance ed-
ucational event in the United States. This is not a networking event or forum;
it is an intensive educational workshop on understanding what investors
want, how to present and structure your business plan and investor presen-
tation, how to target the angel market, and how to work with investors you
have been introduced to through alternative funding resources. More than
50,000 entrepreneurs have attended this event since 1989. The presenters
have been sponsored by more than 200 major entrepreneurial organizations.
Contact: International Capital Resources, 388 Market Street, Suite 500, San
Francisco, CA 94111. (415) 296-2519. www.icrnet.com.

International Business Forum (IBF). Produces a number of conferences, in-
cluding Venture Capital Investing, Corporate Venturing and Strategic
Investing, and Early-Stage Venture Investing. Contact: IBF, 575 Broadway,
Massapequa, Long Island, NY 11758. (516) 765-9005.
Institute for International Research (IIR). Produces such conferences as
Private Placements Industry Conference, Private Investment Strategies
Summit, and the Family Office Forum. Contact: IIR 708 Third Ave., Fourth


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