Question: Is there any such thing as a VC broker? Someone who would have the VC connections and industry knowledge needed to properly negotiate a good deal for a startup?
While company management has expertise at running a company, this is not the same skill as knowing the ins and outs of the various forms of funding and how to negotiate a good deal for a startup. It’s probably a better idea for the entrepreneur to spend their time managing instead of finding and negotiating with VCs. I’d be willing to take on a “consulting fee” on the condition that they help match me up with the right VCs who fit my needs best and help to negotiate a good deal.
Our Take: There are VC brokers called “finders” that help bridge the gap between startup company managers and VCs. That being said, we rarely see them in our practice. Most venture firms don’t like the idea of brokers being involved and most venture financing documents have a clause that the company warrants that there are no brokers involved. Remember, the company’s money that is paying the broker is, in fact, the VC’s money that they invest in you.
Good VCs have plenty of proprietary deal flow, so they aren’t relying on brokers to show them deals. Therefore, many brokers are only going to have access to funds that are deal flow deficient.
As for helping you negotiate a fair deal, you should rely on your lawyers, not your broker. Brokers only get paid if the deal closes, while your lawyers get paid regardless and will have no potential conflicts in protecting your interests. A high quality venture lawyer will know the ins and outs of a fair deal and advise you properly. If you want our take on what makes for a fair deal, check out our term sheet series.
One caveat to all of this: With a more mature start up, it’s not uncommon for a placement agent / investment bank to help round up capital for a larger sized round. These are usually expansion capital rounds that intend to get the company to a liquidity event.
