My last post talked about how revenue gets investors excited. Since then, I have been to an early stage equity event and have begun to change my profile on various sites to reflect our sales. The phone has begun to ring with some new inquiries, but I also run into a challenge that many other entrepreneurs may be facing, and that is consultants impersonating investors.
First, a disclaimer. I have been a consultant throughout my life, and currently provide a little consulting from time to time. Most recently, I help entrepreneurs navigate their startup goals and package themselves for early stage investments. I do this mostly to practice, so I can eventually become an angel investor myself, while also spreading my wings like executives who become directors of other companies when they want to stay connected to synergistic businesses. So I am not against consultants and am always upfront in my financial objectives.
What bothers me is when consultants misrepresent themselves by not being upfront with their objectives when talking to an entrepreneur seeking funding. Hopefully this post will help fellow entrepreneurs see clearly into the process, and fellow consultants see another point of view on how they distract entrepreneurs from their normal capital raising challenges.
I realize that the word "impersonator" is harsh, but that is the way it feels if you are an entrepreneur looking for investors. Smart impersonator consultants know exactly how entrepreneurs feel so they take advantage. Of course, many consultants will not like this statement, but tough. It would be nice if consultants who do not invest themselves just say so. It would be nice for consultants who are looking for cash, stock, warrants, etc., to be upfront on the first inquiry with no ambiguity. There is no need to go through the lengthy process to distract entrepreneurial spirits.
Recognize that an entrepreneur contacted by a consultant impersonating an investor will begin with indicating they feel the venture is an exciting opportunity for them to consider. Then comes the traditional courtship with leading questions and follow-ups. Eventually the impersonator will weave their way into indicating that they are looking for money, equity, and warrants for you to be in a better position for raising money. No real pure angel or early stage investor wants money from you for anything. They want to invest in your venture to make a ton of money during an exit. The impersonator already has a canned answer telling you why your venture really isn't for them, and that comes after you say no to spending money with them.
I have had some really entertaining experiences in such a short time. None of them really bother me personally, but I can see how other entrepreneurs may be diverted with their time, or possibly become unmotivated when it happens to them. My suggestion is to simply acknowledge that you are in a vulnerable position because you are looking for money. You just need to recognize how to identify who is really a consultant and who is really a potential investor.
A favorite recent experience was someone who indicated they were an investor who had a nice LinkedIn profile with a whole bunch of catchy phrases about building companies and raising money. I requested a specific reference since I did not see one. The impersonator told me "they still haven't found the right opportunity to invest in but they knew hundreds of investors and felt I just needed to spruce up my presentation, and they were the ones who could help." Of course, I only had to provide just a little cash and warrants to get them to help me. I ended it quickly. I then received a rather condescending email, but I did find the humor in it since I cut to the chase rather quickly.
Another experience relates to a well-packaged group that is very classy in all their communications. They are so good that I let my guard down and took a little longer than normal for me to detect they really were looking to sell me something. It was my fault since they mentioned an "engagement agreement" in an early communication and I misread it. The amusing part is that in a very short time, it went from the angel investor seeing me as an exciting opportunity for them and a few people they invest with, to then seeing me as not very promising for an investor.
Another recent experience was even better packaged. The website is very inviting to an entrepreneur and nicely organized. The founder seems like a god’s gift success story. They are even in the process of establishing a seed fund. Wow! This sounds like a dream come true. But during the "process of establishing a seed fund" they provide complimentary consulting and fee-based consulting. It was my fault not to recognize that it shouldn't take a god’s gift success story longer than it takes to sign a check to set up a seed fund. Wouldn't this person have some money from all their successes? Why would someone so successful need pocket change from an entrepreneur? Anyway, as soon as I indicated I am not paying for fee-based consulting, I then received a variant of "In my opinion your company is not currently fundable, as you have not....blah blah blah."
For entrepreneurs looking to grow their company, with or without the pursuit of investors, it is all right to consider using consultants to supplement your weak spots. Just be focused on whether the conversation you are having is one where you believe you are raising money or spending money, because rarely is it both when it comes to seed and early stage investors. And be careful whether you are providing cash and equity since perhaps the consultant should not be a partner, especially since he didn't support you when you needed it most. It is OK to just pay for someone's time and be done with it. Bring this up to find out how much the consultant truly believes in you and the opportunity.
I am still in the thick of things with growing my early stage company and focused on raising additional capital. Feel free to reach out to me via my MyOnlineToolbox website and I will see if I can squeeze in a moment to help out a fellow entrepreneur. I make no promises on my availability or what I may be able to do to assist, but at least my first reply will be complimentary consulting.
Brian Javeline is the President and CEO of MyOnlineToolbox.com. Brian has 20 years software-related experience with a focus on management, business development, sales, and marketing. He recently was a cofounder of InvestmentCafe, a collaborative solution for the Private Equity industry. Previously, he was an original employee and partner at Accelerated Computer Technologies, Inc. targeting small businesses in apparel manufacturing. Brian is also a founding member of the MIT Enterprise Forum of South Florida. He holds a BS in Computer Science from the University of New York, SUNY, Stonybrook, NY.
[Image: Flickr user stevendepolo]