Believe it or not, there was a time when no one knew what a venture capitalist was. Today, if you're a venture capitalist, you know you've arrived because, not only do most people know what you do, but you also have your own cliché nickname: "vulture capitalist." Even the term "angel investor" has started to drift into mainstream vocabulary without being mistaken for some religious term.
However, when it comes to investment bankers, I find that many entrepreneurs don't have a clue as to who they are, what they do, and how they differ from a VC or an angel. This is a curious problem since the concept of an investment banker has existed far longer than either of the other two terms. So, why am I so hung up on the confusion surrounding this term? Because I'm an investment banker, and I believe that many entrepreneurs fail to consider what the people in my profession can do to help them raise money.
Let's start with the basics. What is an investment banker? The best overall definition I found was at Wikipedia.com: "Investment banks help companies and governments and their agencies to raise money by issuing and selling securities in the primary market. They assist public and private corporations in raising funds in the capital markets (both equity and debt), as well as in providing strategic advisory services for mergers, acquisitions and other types of financial transactions."
So, the simple answer is, investment banks help companies raise money by:
Investment bankers, unlike VCs, don't generally have funds they can tap into and immediately write a check. Instead, they have a network of investors (often both institutional and private, accredited angel investors) that trust the investment banker to bring them quality deals. Now, here's where a lot of confusion and, frankly, bad reputations are made. Generally, most investment bankers won't accept a client without a paid, up-front retainer. This tends to rub entrepreneurs the wrong way because they typically would prefer to "pay for performance" and not get stuck paying a retainer that produces nothing. So, how can entrepreneurs make sure they're getting someone who can truly help them?
Here are a couple of pointers for choosing an investment banker:
Hiring a good investment banker can be one of the smartest decisions an entrepreneur can make. The banker will teach them things they couldn't learn from anyone else and, most importantly, will help them reach their funding targets faster than most any other route (assuming, of course, their idea is fundable). Even if an idea isn't viable, an investment banker is probably the most cost-effective way to find out your concept lacks investor appeal than any other alternative.
Jim Casparie is the "Raising Money" coach at Entrepreneur.com and the founder and CEO ofThe Venture Alliance, a national firm based in Irvine, California, that's dedicated to getting companies funded.
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