If you need to raise a $15mm+ growth equity round, you may debate whether or not the banker is worth the cost. We did the math, and the short answer is the banker is well worth their fee.
The typical fee for a banker raising a growth round will likely be a $50k up front retainer and 4% to 6% of the raise. In a $15mm growth round, that means a fee of nearly $800,000 if you include incidental expenses, which they’ll ask you to cover. While that may give you sticker shock, consider the following:
1. The banker will reach out to far more firms than you ever could while running your business. A good banker should reach out to 50 to 80 firms, most of whom will have warm relationships with the banker.
2. The banker will shepherd interested parties to the finish line in a coordinated, organized manner, making sure everyone submits their term sheets at the same time, setting up management meetings in the same week, and keeping everyone on the same timeline. This ensures no firm gets an unfair advantage and you’re able to evaluate all offers at one time versus piecemeal. This is critical.
3. The banker will act as the “bad guy” while you look like the good guy. They’ll play term sheets off each other, pressure firms to increase their bid and improve their terms, and do the gutter work the CEO shouldn’t. He’ll negotiate on your behalf so you can run the business and maintain friendly relations with all the investors.
If the above isn’t enough to convince you, below is the math showing the value of the banker. Assuming a banker can get a 10% to 20% improvement in valuation versus what you could do yourself, if the company’s value increases by just 50% by the time you exit, that could be worth $8mm to $18m to the company. That’s well worth the banker fee, not to mention the fact they’ll optimize terms for you and allow you to focus on running the business while they do the dirty work.
Selecting a good banker is critical and hard, and the difference between a great banker and a good banker is dramatic. A bad banker failing to raise the capital you need could imperil your business. We know great bankers so reach out to me if you need a reference.
Visit us at blossomstreetventures.com or email Sammy directly at firstname.lastname@example.org especially if you have Series A/B opportunities.