Should I hire a startup fundraising consultant?

by Adarsh Raj Bhatt in August 25th, 2021
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Key Takeaways

  • Fundraising consultants are professionals who help a variety of organizations, including non-profits, charities, startups, and small businesses, raise money. Startup fundraising consultants can either be individuals or a firm that has been involved in raising capital for years.
  • Various professionals could serve you in the capacity of a fundraising consultant. They could either be retired veterans who worked for venture capital firms and understand what makes them tick or they could be ex-founders who have had a successful run of raising capital for their startups.
  • Fundraising consultants could help you by validating your core idea, conducting market and competitive analysis, validating your business plan, and offering analytical insights on your pitch deck.
  • There are several advantages to hiring startup fundraising consultants. They have vast experience in fundraising (which comes in especially handy to first-time founders), can offer an impartial perspective on a variety of topics, can improve existing plans, and have access to a network of investors, academics, and top talent.
  • At the same time, there might be certain disadvantages to hiring a startup fundraising consultant. Investors might lose some of their respect and confidence in you, the strength -- and, subsequently, the utility -- of the consultant’s network and connections might have been exaggerated in the beginning, and they might not take your ideas and needs into (complete) consideration.
  • A startup fundraising consultant could very well be a godsend to your startup -- that is, if they’re hired at the right time. Hiring one in the early stages of establishing your startup (e.g., for the idea or pre-seed stages) could not only be expensive but may cause more problems than offer solutions. 
  • Once your startup has been running well for some time and you have a firm understanding of the industry, you can hire a consultant to help you with scaling.

Who are Startup Fundraising Consultants?

Fundraising is an important aspect of building and scaling a startup. It’s no secret that founders require the necessary amount of capital to lay down a strong foundation for their budding business to enable it to evolve into a larger and more established company. The capital gained from fundraising could go into a number of areas: hiring employees, renting office space, purchasing vendor services, product development, and customer acquisition. 

Though fundraising is an important factor, it is not as easy as it seems. That’s where fundraising consultants come in. Fundraising consultants are professionals who are known to help a variety of organizations, including non-profits, charities, startups, and small businesses, to raise money. 

Startup fundraising consultants can either be individuals or a firm that has been involved in raising capital for years. Various professionals could serve you in the capacity of a fundraising consultant. They could either be retired veterans who worked for venture capital firms and understand what makes them tick or they could be ex-founders who have had a successful run of raising capital for their startups.

Before hiring a fundraising consultant, you first need to assess whether you need a consultant or not. If this is your very first time raising capital for a startup or for the scaling of a venture, then you may need the assistance of a consultant. 

On the contrary, there are a few instances where you might not need any professional help in this area. These are as follows:

  • You have experience in raising capital
  • If you have a large enough team (with great leadership or co-founders at the top) then you can step away from your CEO duties to conduct meetings and focus full-time on fundraising. 
  • Some of your previous investors have agreed to help you by tapping into their network of investors and business people who might be willing to provide you with the required funds. 

How Can a Startup Fundraising Consultant Help?

Startup fundraising consultants are professionals who have the necessary skillsets and network of investors who can help you by providing the necessary capital to build your startup. 

The following are some of the areas where a fundraising consultant can provide their expertise in:

Idea Validation

Before you pitch to investors, you need to have an idea that could be considered profitable to them. Your idea must be evaluated from multiple perspectives to be considered a viable investment opportunity. As the founder of the startup, you are probably too close to the project and will instinctively defend its viability or otherwise miss out on insights that could be unearthed only by an outsider’s perspective. It helps to bear in mind that an investor may not relate to your passion and perhaps even find that your idea already exists in the marketplace or simply isn't feasible. A startup fundraising consultant can indicate these pitfalls upfront so you can rethink your strategy if you still wish to move forward by approaching potential investors.

There are many aspects of your startup that will require validation. Validating the solution that your product or service seeks to provide is one of the aspects that will be analyzed -- a lot -- to achieve validation. 

Other factors that could be analyzed include: 

  • Potential problems
  • Your plans for your startup 
  • Your management team

Fundraising consultants will prepare you to counter/address any scrutiny or argument that you may face while engaging with investors.  

Market Analysis and Competitive Analysis

No business battle can be won if you don’t have credible information beforehand regarding your competition. Fundraising consultants will help you by providing competitive analysis and market research to understand the current trends. This will help open your eyes to the products/services that are provided by your competition and the steps that you can take to create an individual identity in relation to the broader market. 

Fundraising consultants generally have access to a large network of founders currently on the ground running their own businesses as well as academics who are well-versed in conducting market research. The insight and data that such a network can provide will help you create a business model which will, in turn, help you stand out in the market and create a compelling presence. Generally, a Strength, Weaknesses, Opportunity, and Threat (SWOT) analysis is conducted which could help founders make a well-informed decision.  

Business Plan Validation

To instill confidence in investors and gain the target funding, you must have a viable business plan. A well-crafted business plan can provide clarity of the vision that you have for your startups and the steps you will take to reach pre-determined goals. A well-developed business plan will help your future investors verify the ideas and data you have and run their own analysis. This will provide quite a lot of credibility to your startup. 

A fundraising consultant could help you not only validate your business plan but also work out some of its key features. These features vary for different startups but could include the following: 

  • Executive summary
  • Business objective 
  • Operational guide
  • Financial information (e.g., accounting statements)
  • How you plan to allocate the capital 
  • How much funding you plan to allocate to each area and why

Pitch Deck Analysis

The best way to pitch your startup to investors is to know the factors that they are looking for and then incorporate them into your pitch deck. Most investors are looking for a few key features to assess before they can consider the startup as a profitable investment opportunity. 

Fundraising consultants will help you create a strategically sound presentation. In other words, they will help you create a pitch deck that will cover all the necessary financial aspects of the funding and reflects plans for the projected growth of the investment. 

Pros of Hiring a Startup Fundraising Consultant

Their experience always comes in handy

Many fundraising consultants are individuals who themselves have experience working in the investment field as venture capitalists. As a result, they understand the internal workings of an investment firm and what factors of a pitch are generally scrutinized. 

On the other hand, these consultants could be businesspeople who have personally founded successful startups in the past and have experience in dealing with investors -- such as raising early-stage funding for their own startup. Such ex-founders tend to have a keen knowledge of the methods that can be used to run a successful fundraising campaign. 

Impartial perspective

Your startup represents an undertaking that is borne out of your time, sweat, and sheer conviction. It could be regarded as a baby that you will nourish with everything you have -- and then some more. While this is a commendable outlook, investors will be more interested in tearing apart every aspect of the business model and asking quite technical questions. After all, their prime focus is to assess if your company is a viable investment opportunity for them.

Fundraising consultants provide an impartial outside perspective. They will assess your business model just like an investor would and then help you prepare for the questions that may be asked of you. This third-party perspective will allow you to have a realistic outlook on your startup and help you stay grounded in the inevitable dynamics of business, market, and industry.  

Improve existing plans

A lot of time and effort goes into planning a business model for the startup - and with good reason. To create a solid business plan, founders must conduct extensive research regarding all aspects of running a business. If you are a seasoned businessperson who has been in the field for years then you might be in the clear. However, budding founders may require some assistance in developing a sufficiently robust business plan. 

Since fundraising consultants are generally ex-VCs or have a lot of experience with running a startup, they can provide you with mentorship based on the knowledge that they have accumulated over the years. 

Access to networks

As professionals who have helped founders with raising capital for a long time, fundraising consultants tend to occupy important positions within an intricate network of investors. Being able to tap into this pool of invaluable connections is sure to guide you many steps closer to someone who will be interested in investing in your business. 

This network also includes seasoned professionals and bona fide academics who will be able to provide you with the guidance and information that you need to optimize the business model, pitch deck, and overall story of your startup.   

Cons of Hiring a Startup Fundraising Consultant

Investors may lose confidence

There are many factors that investors look at while considering investing in a startup. While a well-thought-out business plan and a credible team are certainly among those factors, an equally -- if not more -- important factor that an investor wants to see is sound leadership. They want a strong captain manning the ship whose voyage they are going to fund. 

In other words, a CEO who spends time, thought, and effort in incessantly reaching out to potential investors and then standing in front of one investor after another to pitch the company without losing momentum, comes across as persevering, accountable, and confident. This is evidence of strong leadership which, as mentioned earlier, is an important factor that investors look at. 

On the other hand, if you let a consultant reach out to investors on your behalf, then you may lose the battle that you are trying to fight even before it starts. With that said, that perception is not held by all investors. Many of them are more understanding about the situation and don't have a negative outlook on startups that have consultants doing the heavy lifting when it comes to fundraising.

Network strength may be exaggerated

Founders must remember that fundraising consultants are, at the end of the day, like any other professional who is constantly looking for work opportunities. Therefore, they might exaggerate some of the aspects of their resume (especially their networking capabilities) to attract business from startups. 

To be sure, while the consultant may have a large network of investors that they have dealt with before, it might be the case that their relationship with them is not as close as you are led to believe. This may cause you to waste valuable time and money on a consultant who may not be as capable or well-connected enough to yield the results you were hoping for. 

With this in mind, the best way to move forward with a fundraising consultant is to ask them to provide contact information for startups that they have helped and contact the founders directly. This will give you a better idea of the work ethic, personality, and capabilities of the consultant. Basically, you are conducting a reference check, just like you would do when hiring members of your startup's team.

Might not take your ideas and needs into (complete) consideration

Since startup fundraising consultants are generally professionals who have been working in this field for many years, they have a wealth of expertise, insight, and knowledge that has been developed over years of trial and error. 

While this is a relief (even a kind of boon) to most founders, it may come with its own set of problems. One of these problems is that the consultant may instinctively stonewall most of the ideas that you may have -- which will eventually lead them to attract the wrong kind of investors to your business (i.e., investors not on the same page with your fundamental vision and values). Another problem is that the consultant may not be able to align themselves well with the core idea that underlies your startup, which could cause the business to arrive at an impasse. 

To avoid these problems, look at the consultant’s portfolio and assess whether they have worked with startups in the same or similar niche and industry.

Summary

A startup fundraising consultant could very well be a godsend to your startup -- that is, if they’re hired at the right time. Hiring one in the early stages of establishing your startup could not only be expensive but also cause more problems than offer solutions. 

It is suggested that you use other forms of funding like personal savings, crowdfunding, or a friends-and-family round to collect initial capital. Once the business has been running well for some time, you’ve made your initial few mistakes, the ARR looks poised to go up, and you have a firm understanding of the industry, you can hire a consultant to help you with scaling.

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