Who was your agent, I can be reached @v_picou@hotmail.com

First and foremost the process of speaking with investors is a tremendous learning experience. Consider this, you’re the founder of the latest and greatest web 2.0 company and a friend of yours was able to setup meeting to talk shop with someone who is currently on the board of LinkedIn and was formerly and SVP at Excite and a BCG consultant with an MBA from Stanford, you’d take meeting right? …And you’d carefully listen to everything he had to say sucking every last piece of advice out him that you could. So this guy’s name could be David Sze and just because you’re pitching your startup to him and Greylock ventures, not attempting to learn as much as you possibly can in the hour that you have would be ludicrous. If you’ve done your homework on the investor before presenting, you should only be pitching to VCs that invest in your sector and stage. Hence, any investor you pitch to should be knowledgeable about your market and therefore worth your time to listen to. If you don’t believe the VC can offer you any advice, don’t pitch to him, because success will translate into having a board member that you don’t respect. Furthermore, even when the VC asks skeptical questions and/or decides not to invest, they are providing valuable data points about how the business could be improved.

The second major drawback is that using an agent/consultant to write or deliver your pitch suggests that the founders do not know how to convey the value their product delivers. Let’s face it, the best two ways to get an investors attention are by demonstrating customer traction and building a great team. If you can’t convey the value of your product, how are you going to get customers or convince anyone to work with you?

The last major drawback is that agents/consultants are expensive. It’s common for these service providers to ask for a retainer, a success fee and warrants. In fact one consultant gave me a proposal seeking $10K per month retainer, 7% of the cash they raised and 10% of common stock warrants. In my opinion anyone of those forms of compensation was too much. Some entrepreneurs will accept these deals because they feel they have no other option. But consider what this type of compensation means. $10K per month and 10% of your common stock is not too far off the going rate for CEOs at early-stage startups. What entrepreneur would rather have a consultant than a full-time CEO? And 7% of the money you just raised walking out the door doesn’t sound very capital efficient either.

The bad news for CEOs that don’t want to raise money is that they probably aren’t qualified to be CEO. The good news is that there are resources out there for those willing to learn. Here is what I recommend:

Technology Venture Corporation is federally funded and provides coaching and introductions to investors at no charge to startups. (http://www.techventures.org/)

The Silicon Valley Association of Startup Entrepreneurs (http://www.svase.org/) and the Software Development Forum (http://www.sdforum.com/) both offer events that help entrepreneurs learn how to raise capital and facilitate interaction with VCs.

Go the route of building a board and attracting advisors who will give your business *credibility* – these people should believe in the business and take on risk and will open up networks of investors and VC’s. It takes longer to do it this way and doesn’t sound as promising as what an agent will tell you but it is the proper and much better way.

I am writting about the startup process on my own blog and the issue of investment agents has been an itch i have wanted to scratch for months.

Also, since they generally get paid based on the deal size, the better agents go “up market” (to larger companies with larger deal sized) leaving the less qualified agents at the early stage.

My company recently completed a fund raising round (B, after four years, so “middle to later stage”), and we engaged an investment agent to help. We found the statement “an agent will free up more of your time to focus on execution” to be absolutely true. The agent was wonderfully helpful in making contacts and working through the early part of each conversation to quality the potential investors. Of course we were still heavily involved in presenting the company and the final negotiations, but the agent definitely did save us time. I agree with your 100:1 ratio, finding a good agent is important. The three main characteristics we looked for were 1) integrity, 2) familiarity with our space, 3) contacts / track record. In our case one of our board members recommended the agent, so we knew (1), (2), and (3).