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Volume XI, Number 336

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Some Thoughts on Investment Banks

In my previous post, I suggested, in my customary direct manner, that when it comes to finders and their fees, most early stage high-impact entrepreneurs should say no.  I wanted to clarify that my comments in that post are directed towards individuals that are not licensed brokers and are not intended to apply for investment banks.  Specifically, there are situations where it is advisable for emerging companies to engage a professional investment bank to assist with financing.  

When might engaging an investment bank for an early stage risk capital financing make sense?  In my experience, an appropriately experienced investment bank can add the most value in situations with some of the following characteristics: 

  1. The CEO (or other senior-most executive) lacks experience and/or time for a significant role in raising funds. 
     
  2. The company has a particularly esoteric story, either in terms of technology, markets, business model, financial structure or other important factor.  Good investment bankers – and here “good” means, among other things, experienced in the particular parts of the early stage client’s story that are most unusual – can bring both unique expertise and targeted investor networks to the table.
     
  3. The company does not see traditional venture capital funds or more established/visible angel funds as likely or desirable investors.  In these situations, investment banks can be very valuable in developing relationships with a broader investor base
     
  4. And, finally, as an additional complicating factor, investment banks can be a good choice if the market is very soft for the kind of deal being offered, either generally, or in terms of geography. 

Again, I stand by my assertion that most early stage high impact entrepreneurs should say no to finders.  However, there are situations where engaging an experienced investment bank can be beneficial.

©2021 MICHAEL BEST & FRIEDRICH LLPNational Law Review, Volume I, Number 42
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About this Author

Paul Jones, Michael Best, technology lawyer, life sciences attorney,
Of Counsel

Paul draws on his extensive business experience as a successful serial venture capital-backed entrepreneur, investor, and angel investor to represent emerging technology and life sciences companies, and venture capital firms in financing and other strategic transactions and general corporate matters. His focus includes:

  • Venture capital financing

  • Startup business and financial planning

  • Strategic business development planning and execution

  • ...
608-283-0125
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