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When it comes to startup fundraising, using intermediaries is looked disfavorably in many if not most ecosystems. Three key reasons for this trend — more investors around, technology has made coordination and communication increasingly easier, entrepreneurs have become savvier about fundraising. In fact, in Silicon Valley at least it is expected CEOs lead fundraising and typically a strong negative signal if they don’t. The further expectation is that you will work with existing investors to get intros to future investors. Indeed a banker-led process invariably leads to the question of why the entrepreneur wasn’t able to raise directly. All that said, there are definitely cases where intermediaries make sense, which is what this article will cover.

1) Differentiated Access — Call them brokers, bankers, placement agents, or middlemen, the point is they are selling you the promise of better access and ideally converting an investor. That is especially relevant if you are looking to raise from investors that don’t advertise themselves as much, such as family offices. But even for VCs it can make sense, for instance you are a startup in a different geography trying to break into a new market. Agents usually charge through a combination of three ways: one-time or monthly retainer, a portion typically between 1.5% and 2.5% of the funds they help raise, or a stake in the company. The latter two ways are obviously easier for startups that are early and / or cash-constrained.

2) Competitive Rounds — This is the exception to the rule, where a company is raising a round that is very large or being competed on ferociously. Such dynamics effectively turn the fundraising from a negotiation into an auction. Often times there are also strategics that are actively or opportunistically looking to acquire the startup i.e., it becomes a dual process. Brokers in this rare situation can be great for managing the many conversations, especially around sensitive company information and the identity of the “bidders.”

3) Need For Secrecy — Speaking of sensitive company information, the norm among VCs is to not sign NDAs. The thinking is they are exposed to much information as is, a NDA can cause unintentional conflicts and creates extra paperwork, and that it’s best to operate on trust. Of course not all entrepreneurs feel the same way at all times. And it becomes especially tricky when you are dealing with strategics rather than stand-alone institutional investors. So having a broker to manage the process can then make sense — there is a lower chance of a leak around the company’s fundraise and management only takes meetings when there is very serious interest.

4) Intentional Exposure — Most middlemen that work with companies one-on-one are focused on large rounds, making personalized intros. The more common form of intermediaries these days are online platforms that promise exposure. These two-sided networks will usually charge the startup a fee although in some cases the listing is free and it’s the investor who pays for access. Why put yourself in such platforms? It’s effectively a more targeted crowdfunding as these platforms are rich with angel syndicates and family offices. In fact a common strategy is to have the bulk of your investors already defined, or at least the lead investor who is setting the terms, and then use these platforms to fill up the round.


Originally published on “Data Driven Investor,” am happy to syndicate on other platforms. I am the Managing Partner and Cofounder of Tau Ventures with 20 years in Silicon Valley across corporates, own startup, and VC funds. These are purposely short articles focused on practical insights (I call it gl;dr — good length; did read). Many of my writings are at https://www.linkedin.com/in/amgarg/detail/recent-activity/posts and I would be stoked if they get people interested enough in a topic to explore in further depth. If this article had useful insights for you comment away and/or give a like on the article and on the Tau Ventures’ LinkedIn page, with due thanks for supporting our work. All opinions expressed here are my own.

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Amit Garg
I have been in Silicon Valley for 20 years -- at Samsung NEXT Ventures, running my own startup (as of May 2019 a series D that has raised $120M and valued at $450M), at Norwest Ventures, and doing product and analytics at Google. My academic training is BS in computer science and MS in biomedical informatics, both from Stanford, and MBA from Harvard. I speak natively 3 languages, live carbon-neutral, am a 70.3 Ironman finisher, and have built a hospital in rural India serving 100,000 people.

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