We get asked this question all the time – so let me try and answer this in as objectively as I can. An investment banker is one who brings cross-functional expertise and experience of working with numerous companies on their problems & strategies to the entire process of fund-raising and M&A. He takes up the role of a project management office (PMO) ensuring the process is executed within a reasonable time frame. In case of startups, this is crucial given the pace at which they are expected to execute and the limited cash runway they have to deal with in parallel. A banker takes up two primary roles when he signs up with an entrepreneur/startup – as an Expert & as a Program Manager
We classify the process into three areas which highlights our core expertise
Launch <> Discovery <> Closure
Let’s cover them one by one:
1. Launch Stage – What the VCs look for
To make the fund raising a planned activity, all the analysis that is needed is done upfront prior to initiating connect with investors – funds have short attention spans and if you take too long to come back, they could lose interest. If the positioning is not in sync with investor expectations, it needs to be corrected asap. This extends beyond the qualitative pitch – if the qualitative pitch and the financial plans are not aligned – it would leave the investor unconvinced. The rigor behind the process is an important reason why a banker is needed. For example, it is common knowledge that market sizing is required; but a banker will bring the detailing that will make it fool proof. An experienced banker will ensure that this and other risks of being under prepared are eliminated.
2. Discovery Phase – Meeting funds ++
Beyond the usual suspects i.e. the well-known VCs that number approximately 25-30, there are many others who could invest and which the entrepreneur should reach out to. The banker will ensure that the entrepreneur is able to cover all; furthermore he will also identify domain specific well recognizable angels he can bring on and which add greater comfort to the funds, as well as look to bring on strategic investors who could also take a stake and add value. At times, he may also help create a consortium of investors to raise capital– in essence, he mitigates the risk of rejection by the known VC funds.
3. Closure phase – Getting the best deal
As an Expert, a banker is also the consigliere to the entrepreneur curating the funds, bringing the interested ones on board, negotiating the commercial terms that are fair for that deal, create sufficient interest to get competitive terms and do all else to make sure his client gets the best deal (and that may not necessarily mean the best valuation). For the first time entrepreneur, many of the terms will be new and intimidating, and the banker’s role gets more important. And finally, negotiations are best done with someone like a banker who takes the fall of being the bad guy, leaving the entrepreneur and the fund to schmooze each other.
The other role is that of a Program Manager where he takes the entire function of the fund raising and ensures that it is moved along with speed. He identifies up ahead potential speed breakers and addresses them well in time. He lets the entrepreneur manage his business and focus on achieving the numbers that he has committed in his plan. This is a very tricky period for the entrepreneur as he has put in the numbers assuming that he is executing with no distractions, not realizing that fund raising would take up half his time. This sometimes leads to a situation of the numbers being under achieved, convincing the funds that are sitting on the fence, that is a less attractive opportunity.
Co-Founder & Director, Merisis Advisors