Scam or Norm?

[chanachor]

I met a person who is an early stage investor, said he had a fund but has now changed the process to where he and his 'partner' consult startup companies and coach them to get in front of investors. They setup meetings with investors and be your 'backup' during the meeting. There is one other company that they recently 'consulted' through the process. After pushing them on what they expect, he said 2% equity for him and 2% for his partner as fees for their consulting. Felt like it's just being taken advantage of but, wanted to ask others. Thoughts?

[gregcohn]

Predatory behavior unless perhaps it's in addition to their own investment. See http://www.feld.com/archives/2011/06/warning-to-all-entrepre....

[chanachor]

Thanks gregcohn, I read this article last night and now am convinced that this isn't good practice. I was surprised that the company that went ahead with these guys actually did because they had been around for sometime.

[gregcohn]

Independently of being a bad idea from the entrepreneur's point of view, it is a very negative signal to a potential investor if you can raise your own early-stage round (per loumf's comment).

Fundraising is harder than it looks on techcrunch, though, and it's understandable that anxious and/or desperate founders would get to a point where they'd try anything that sounds good.

A better approach would be generating traction ;-).

[chanachor]

Yep, I decided to be customer-funded (traction) instead of vc funded. I had met this guy a while back and thought if I could get some funding in it could take me to the next level faster... but, re-focusing on the customer again seems to be the better alternative :)

[tptacek]

A scheme as old as the hills. Avoid.

[JSeymourATL]

There's loads of info on packaging and presenting your deal to investors-- spend some time on this project, you can totally hack this on your own.

Book recommendation, Oren Klaff's Pitch Anything! http://pitchanything.com/book/

[chanachor]

Good book, there are a few similar ones out there. His process seems very similar to the 'challenger sale' in either case, I think it is a good read! Thanks for the recommendation :)

[idlewords]

This is totally legit. Please remit my courtesy 2% advisory fee for this answer at your earliest convenience.

[chanachor]

LOL scammer :-p

[loumf]

I worked for a startup that engaged someone like this. Investors didn't like it. Luckily, the contract had an expiry date and an investor that liked us just waited.

They were basically useless in helping us get anywhere with funding. I don't know why the founders engaged them.

[chanachor]

I suppose they may have seen it as a viable option. It's tough to tell who is legit at times especially if they come recommended from someone you know (who also may not know the predatory behavior). Who knows? Some of these predator investors/consultants are just schmucks!

[joshdance]

Run.