*I’m finding that funding “matchmakers” can sometimes turn into troublemakers. I need advice for how to deal with a recurring problem with financing entanglements.*
My startup is in the process of raising our 2nd round of financing. During our seed funding round a situation occurred where someone we engaged to help us find angels was offered a fee for any funds raised through one of his connections. He in turn mentioned this fee to one of his contacts. His contact, in turn, contacted an angel who did contribute funds to our seed round. Following this, _both_ our original contact and his contact-who-knew-the-angel expected a full “success fee” for our round. We resolved it by paying our original matchmaker only, telling him that any success fee to his associate was between him and his associate.
Now we’re in our second financing round, seeking significantly more funds, and the situation is happening again. We have a mini-chain of people who think they are each entitled to a fee for locating a single funding source. We recently turned down a situation where *our original contact (matchmaker A), a contact of his (matchmaker B), yet another contact of his (matchmaker C), and an interested financier (D) were _each expecting a finder’s fee!_*
(Why a financier would expect a fee for “finding” their own investment opportunity is beyond me.)
*How are other founders seeking financing handling such troublesome situations?* This must be somewhat common for startups seeking financing.
4 thoughts on “How do you enlist financing help without succumbing to finder’s-fee-extortion?”
1) Are these guys all appropriately licensed for this sort of thing (i.e., are they broker-dealers)?
2) Do you have a contract with any of them?
1) Pay exactly those you have a contract with.
2) Sever your relationship with the problem individual.
3) Ensure that your non-disclosure agreements have teeth, and enforce them. It will help you to control who is allowed to shop your deal.}
I think it makes sense to just put a clause in your contract that if they do not directly refer an investor, they agree to split the fee evenly with all those in the “chain”. Obviously, find a lawyer and legal-ese this. The lawyer I use, Jim Burk of Burk & Reedy, would be an excellent resource to answer questions like these. He wrote a book called “Financing Your Small Business.” Here is his site: http://www.burkreedy.com/ You can contact him on the phone.}
We were bing informal, no agreements, at first. Essentially enlisting personal contacts. Now we have an agreement, that lists out a decending percentage for each party in a relationship chain.}
Matchmaker A shoud get the royalty, leaving him deal with his contact chain.}