Fazal Ahad Co-Founder & Director, Merisis Advisors
We get asked this question all the time – so let me try and answer this in as objectively as I can. In our experience, an investment banker is an Expert in his field which he brings across the entire process of fund raising. Furthermore, he takes up the PMO function of getting it done in time, which is crucial given that many of the companies would falter if the cash does not come in quickly.
Let me first cover the role as an Expert. In this role, he helps the entrepreneur go through the phases of a fund raise – which we internally break up into – Launch, Discovery and Closure phases, in a planned manner. In the Discovery Phase, he ensures that the client has met all the funds that are there. 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, to risk mitigate a situation that he is passed on by these VCs. 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 need to create a consortium of investors to raise capital– in essence, he mitigates the risk of rejection by the known VC funds.
Prior to the Discovery Phase comes the Launch Stage – knowing what the VCs look for is key. At times, it’s about the positioning which is not in sync with investor expectations and needs to be corrected. A common error is that that the qualitative pitch and the financial plans are not aligned – leaving the investor unconvinced. The rigor is also important, for example, it is common knowledge that market sizing needs is required; but a banker will bring the detailing that will make it fool proof. 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. An experienced banker will ensure that these risks of being under prepared are eliminated.
Finally in the Closure phase, as an Expert, he 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 competition 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.