Robb's opinion is biased, of course. He is just such an
advisor and therefore has a vested interest in the topic. Still, he
concedes that advisors are more necessary in some situations than
they are in others. While there are lots of exceptions to the
rules, Robb says if you fall into one or more of the following
categories, an outside consultant is the way to go.
1. You have few contacts. If
you don't know anyone who is in the business of investing in
emerging-growth companies or if you have never made anyone a pile
of money from investing in one of your companies, then you're
just the type of entrepreneur who will get the most out of having
an outside advisor in on the deal.
"To successfully raise capital, you must have a champion in
the community," Robb says, "someone who is willing to say
'You know me. Look at this-it's a damn good company, and I
am putting my reputation on the line.'" When you're
able to show them you have that kind of backing, top investors will
be willing to look at your deal. When you don't have that kind
of support, the chances of someone taking an active interest in
what you're doing are greatly diminished.
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2. You're in a time
crunch. If your business is busting out all over the
place, the fact is, you don't have the time it will take to
successfully raise money on your own. "You need the extra arms
and legs just to qualify leads," says Robb. Truthfully,
however, some early-stage businesses can sit on the shelf for a few
months without suffering many drawbacks whatsoever to their
competitive position because nobody is out there attempting to
offer the same products or services as they are. For companies in
that situation, time is not an issue they need to concern
themselves with. Likewise, a profitable business seeking expansion
funds may also qualify for the slower do-it-yourself approach.
In relation to the time aspect, you have to consider the speed
with which you need to get your hands on fresh capital. "If
you need money fast, within three to six months, get a
consultant," says Robb.
Macrae concurs. "It can take three to four months just to
get a memorandum together," he says. "And in today's
environment, a company can get itself into trouble much faster than
that. Speed matters more than ever."
3. You don't have
experience. Finally, there's the experience factor.
"If you have never raised capital before, get help," says
Robb, adding that you will likely get a much better deal with
someone who has been through the process than if you're getting
an education on your first deal.
"When I raised money for the first time," says Macrae,
"there were so many things we did not know: valuations, how to
put together a board, how to manage expectations. In particular, we
did not have a capital plan for how we would get more cash in when
we needed it and found ourselves unexpectedly in a crisis mode.
Having professional help could have saved us a lot of that
pain."
Originally published in the November 2001 issue of Entrepreneur Magazine
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