What is a typical fee for an introduction to angel / seed funding?


6

Yesterday (at my first ever pitch!) I met someone who is an "Angel Investor / Consultant" ( yes I've not heard of that term either). Today I had another meeting with him and he's offered to help me find Angel / Seed funding for a notional 12% - stating that he knows exactly the people who would be interested in my venture...

12% sounds a bit high to me though ? Surely 5% would be more reasonable? I know everything is negotiable, but just wanted to get an idea of what others think is the norm.

Fees

asked Apr 8 '11 at 03:00
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User9258
31 points
  • That is not reasonable. No fee is reasonable. Walk or run away. – Tim J 8 years ago
  • Are you certain you can't get to meet other angels yourself yet? The time to think of this is after you've exhausted all avenues for such meetings yourselves... not right after your very first pitch. – Matt 8 years ago
  • VCs and experienced angel investors generally have a strong aversion to working with folks like that, and only make exceptions in rare circumstances. Unless you are in one of those rare exceptions, I have to agree with @Tim's statement. Walk away. – Jonschlinkert 8 years ago
  • FREE is the only game in town on this one. The angel will probably reject you anyway ;) – Genadinik 8 years ago
  • Thanks all for those comments. What I was thinking was that if I get offers of help just after my first (very informal) pitch, then there's a chance this thing has legs and just a few more and I should get someone interested... I hope ! – User9258 8 years ago
  • It's possible that this person recognised that it was your first pitch and thought you'd be an easy target for his "help"... But sure, he probably wouldn't have done that if he didn't think your idea was pretty good. – Giles Thomas 7 years ago

8 Answers


10

The analogy to these predators are the "Agents" or "talent" discovery people who tell parents of young kids that, "for a fee", they can get the kid into commercials or modeling or something similar.

Don't walk - run away.

Don't believe me? Ask the guy for names and contact information of happy investors and happy entrepreneurs. See what kind of excuses he has.

answered Apr 8 '11 at 23:28
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Tim J
8,346 points
  • +1 for "ask for references from entrepreneurs". – Jesper Mortensen 8 years ago

1

That is steep. Why not just get an advisory board of people who can make introductions?

Keep in mind that "finders" who are legitimate may need to be registered as finders if their compensation varies in some respects with the amounts they get for you.

answered Apr 8 '11 at 08:31
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User6492
1,747 points

1

Be careful. Knowing the right person is very valuable but these guys need to be qualified.

We had a guy helping us, he then suggested we needed to improve our business plan, but it was ok because he could get us a grant for that ... it went on and he found other ways to get Australian government money for helping us ... he then worked it into a position where the government pulled out of one of the schemes and he expected us to pay instead ... that didn't end so well.

A few questions I would start with:

  • If he knows the right people why hasn't he pitched to them himself?
  • If you are unsuccessful in the pitch then what is the downaide? will he put that in writing?
  • You will need to inflate your asking price in order ot pay him and pay for your original idea ... will the specific investor be open to that inflated figure?
  • What are they going to do for the 5%? Is is just an introduction? Is it coaching and preparation?

I think 12% is too high for pure introduction, maybe if they are helping coach on the pitch or refining the offer to match the investors expectation because they know them that well ... that is worth something ... but chances are they don't know them that well and have just grabbed their business card at an event.

Really I would try to get on This Week In Startups or attend some of those pitch events before bothering to get introductions.

answered Apr 8 '11 at 12:31
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Robin Vessey
8,394 points

1

As Tim has pointed out several times do not use this guy. There are many things to do as an entrepreneur and equally as many reason to do them, however there is NEVER a reason to pay someone for an intro. This guy is only looking at taking advantage of you and nothing else. If he for some odd reason could introduce you to a VC it would not be a VC you should work with in the first place.
This is similar to the scheme where recruiters want a fee to send your resume to potential companies. Pray on the weak is all this is.

answered May 11 '11 at 03:25
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Snow
61 points

0

Supply and Demand.

Can you find someone who can get you to an angel who'd give you the seed money you require and will only charge 5%? If yes- by all means.

If no, and this is your only chance to get funded, AND this notional "fee" of his is "paid" only AFTER you get your funding - why not give this guy a go at it?

Having said that, negotiating isn't wrong. If he gets offended by it, he's not who he claims to be. Don't be anxious about negotiating the fee down, but don't "walk out" if this is your only realistic chance of getting seed money.

answered Apr 8 '11 at 03:59
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Ron M.
4,224 points
  • I was defo going to negotiate down, and I'm not a walk-out kind of person - more of a "hmmmm let me think about that" – User9258 8 years ago
  • Not worth negotiating at all. This person can't help and has his own interest at heart - not the investor or entrepreneur. It is a waste of time and energy - go find investors on your own - you will learn a lot more in the process. – Tim J 8 years ago

0

12% of $50,000 USD is $6000 USD

I think that even @5% =>$2500, is too high.

Is a massive hit to your future business.

Before you have even ordered your first piece of material or paid your first wage, your new company only has $44,000 USD.

I'm working with a relatively low figure since I think if you were getting a million dollars in funding your ventures broker or adviser would have a few investors on the side.

Also Not directly related to the question, but have you considered approaching some of the VC guys on twitter? Relatively low barrier to entry and alot of them are quite approachable. If nothing else it will get you several days worth of pitches.

answered Apr 8 '11 at 13:44
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Anonymous Type
101 points
  • Well.... It was my first informal pitch so I was using it for experience, public speaking, audience engagement etc etc. It was very positive to get good feedback so quickly. My plan is to now adjust the exec summary, business plan etc etc and start formally approaching the Angels. – User9258 8 years ago
  • fair point. smart move. – Anonymous Type 8 years ago

0

As a counterpoint to the answers above, I want to add my experience.

I was having lunch with a friend of mine three days ago to ask his advice about raising capital as I am going through the process right now. He has started several companies, raised capital and sold them so has some experience under his belt.

His view was that if he had to raise capital again, he would go to someone with connections, who raises capital regularly and get them to do it for him. Then he could concentrate on building the business. Of course, he is talking about using someone who he knows is genuine, has a track record and has connections.

There are reputable people around who do this and take a fee for services (on securing the capital of course.)

So I think that the strategy is valid and can work well, however, I would be wary about someone I didn't know, and who I knew nothing about, offering to do it for me.

answered Apr 9 '11 at 19:50
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Susan Jones
4,128 points

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8-12% is typical for qualified intermediaries and broker-dealers. Early round funding from private, high net worth individuals is the hardest money to find because it represents the highest risk to investors. You can expect lower fees downt he road when there is EBITDA and a real business - because at this level there will be competition for your business and a lot of companies capable of getting it done. In short, ask for references, understand their distribution model (stay away from the "I got a guy" model), and engage a competent professional to help. Retainers are appropriate when reasonable. However, real up-side needs to be on the commission earned from finding the money.

answered Dec 5 '11 at 23:36
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Scott Levine
1 point

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