There is a growing cadre of people, who use a multiplicity of titles in multi-family offices, private banks, private investment offices, corporate finance advisory firms, HNW investment platforms that are nothing more than “business brokers”. Run!
To the uninitiated entrepreneur, they are fully regulated, credible and talk about the huge depth and breadth of their advisory network. Their opaque approach is to “rent out” their cookie-cutter services, prepare investor bait, and line up as many unsuspected bodies as possible, as potential buyers or investors in your business in the shortest time. In return, they may request a modest upfront fee alongside a 4-6% success fee (capital raise) or a 2.5 – 4% fee in a business/real asset sale for their services (preparing your investor marketing materials and running a “process”), or purely agree to work on a contingent fee basis.
Ask yourself, how could I build a professional, ethical and reputable advisory business on that basis? The answer is you need “high volume and high client churn”. Cutting bait, and commitment, if not contractually, with a client fast when there is no immediate and serious investor interest. Then, ask how is that in my (entrepreneur’s) best interest in a highly complex and ambiguous situation? If they fail, I am hurt financially but their only loss is time.
If you are still unsure, ask them to show you details of their contractual relationships (“skin in the game”) with other entrepreneurs as clients, investors and intermediaries (mandate, exclusivity periods, revenue sharing). A lot of these brokers are seeking to use you, to build their own investor network, irrespective of your success. They will hurt your brand, your investment credibility and waste extensive time. A lot of these people claim to know or have investor relationships they really don’t have. Ask to speak to not just to those entrepreneurs and investors they have had success with but crucially, those they haven’t.
Tags: advisers, business brokers, business sale, capital raising, expertise, investors