Open To Consultation

The Price Of Advice

These services don't come cheaply because capital is vital. In the end, there isn't much difference between a great business idea without funding and a poor business idea without funding. Consultants often charge an upfront fee, a percentage of the amount raised and a percentage of the company going forward.

The consultant's cut of the money raised might range from 4 to 6 percent, according to Glazer. Typically, however, a consultant will talk not of percentages, but of success fees, because in deals that might involve initial public offerings, percentages of compensation going to others take away from compensation going to the investment bankers. If the bankers' fees get compromised, they might walk away altogether.

The upfront fees might come in the form of a $25,000 "due diligence" fee, a monthly retainer or both. Again, if you're seeking to do an IPO, there usually won't be any upfront fees (or they will be very well-camouflaged) but rather a one- or two-year retainer after the deal. The percentage of the company, either in options or in shares of stock outright, ranges from 2 to 10 percent.

Finally, most engagements are exclusive, meaning if you hire a consultant, you can't talk to anyone else about raising money. To protect yourself, you need to limit the engagement to six months, according Glazer. "We won't take a company on unless we're certain we can get it funded," he says. "In general, if you hire someone and you aren't close to being funded in six months, you need to look for help elsewhere."

Speed was a keen issue for Tuorto. "In six months, we were a whole different company than when we started," he says. "Six months from now, we'll be a whole different company again."

Contact Sources

Global Ecological Services Inc., 1230 Peachtree St., #2545, Atlanta, GA 30309, fax: (404) 888-9369

Source Capital Partners, (212) 258-2520, sglazer@equibridge.com

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This article was originally published in the October 1999 print edition of Entrepreneur with the headline: Open To Consultation.

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